Nestlé S.A. (NESN) Earnings Call Transcript & Summary

Okay. I think we're going to kick it off. Hopefully, you've had your coffee well-caffeinated. So this is the Nestlé session. I'm delighted to welcome Anna Manz, Group CFO; and Steve Presley, President of Nestlé North America. So thank you for your time. Thank you for being in Boston and supporting our conference, a packed agenda.

So I want to kick off, Anna, because I think it's the first time you -- we've done one of these, and it's been the elephant in the room, change of CEO. Can you maybe just help us and maybe explain the reasons and the timing a little bit behind the change of CEO to market? It did seem, from our perspective, to be quite sudden, and why Laurent Freixe is the right choice? Maybe, Steve, if you want to jump in as well in terms of your perspective, that would be great to kick it off.

Super. So I think you heard some context from Paul on the call, but maybe to give you my version, Mark has done an excellent job over the last 8 years really reshaping our portfolio. And the portfolio that we have today is well positioned to deliver mid-single-digit growth. So I think what was in the Board's mind was more about the right leader for the right point in time for the company. And as we look forward, it's a slightly different phase of our development where, yes, we'll continue to tweak the portfolio, but we really need to deliver on the growth potential of the portfolio we have. And in that context, therefore, they were looking for somebody who has deep consumer marketing experience, and that's what Laurent has. And he also has the ability to bring the organization around that quickly. So I think that was the context. In terms of abruptness, Laurent has been in Nestlé 38 years. So he doesn't need a big induction period. He can hit the ground running. And so I think both from Laurent and Mark's, the Board's perspective, a short handover is really helpful because it gives the organization clarity. And certainly from where I sit, that clarity is really important because when you have 2 leaders in an organization, it creates a bit of a hiatus. Did I answer all 3?

And why -- obviously, Laurent is the right choice because he's been there 38 years. But I guess the question then is, what will his initial sort of priorities then be?

Yes. Do you want to comment on Laurent, and then I'll come back to his priorities?

Yes. I mean, for me, I think a little bit to Anna's earlier comment, when you look ahead in terms of how we're going to drive growth across the organization and what the focus, it really gets back to this consumer-centric generating demand where you have to win in the categories. And as leaders in the majority of the categories, we're 1 or 2 in almost every place we play. And it's this idea of you own the delivery of the category. You've got to drive the category through innovation. You've got to drive it through strong consumer insight. And that's really the strength that Laurent brings. I think Mark had many other strengths, but consumer was not his background. And so I think as we think about how we drive the Nestlé model going forward, this consumer centricity is key. And I think that's why Laurent actually fits really well at this moment in time for the organization to push it forward with that kind of consumer centricity.

Okay. And in terms of the priorities for Laurent, obviously he's going to hit the ground running, but is there a couple of things that he's going to hit on immediately?

Yes. So he's really called out 3 areas, and you would have heard this listening to the conference call. So just to rephrase that, and he'll build on it more in the coming weeks, organic growth is his big focus and delivering that through a focus on the consumer, which he articulates as driving categories and growing share. The other thing he talked about was putting the investment in the brands to drive that growth and, therefore, creating a virtuous circle that delivers the margin to invest further. And then the third thing he talked about was bringing organizational focus, so bringing the organization together around those 3 things.

Okay. And the other term I've heard a lot is forward to basics. Can you maybe explain what that actually means for Nestlé?

Sure. And I think what he's describing here is how you bring the precision back to delivering that organic growth. So the basics of delivering organic growth are fundamental consumer centricity and understanding the metrics that sit around that. So be it taste preference, do we have a weighted average distribution, have we got a share of shelf, is our pricing appropriate, do we have our share of voice, that's all quite traditional. But in the new world, digitizing the data, and we have the data, but digitizing it such that we are using those metrics in a really agile way realtime to drive consumer growth, that's what he has in mind when he uses that phrase.

And from here, is it possible that things could get worse before they get better? I mean I'm just trying to understand how bumpy the second half could be. I mean, are you confident of the, say, 3% organic for '24? Does the plan require some sort of margin reset? Or can you step up savings to fund higher investments?

So there's lots of questions in there, and I may not hold on to all of them. So I'm going to have a go on the first couple, and then you might need to add a few more. So the first one, how do I feel about H2? So we've given guidance for the full year, which is more than 3%. And I won't comment beyond that, but I can give you some context. I mean we always said that this year was going to be a transition year. We've had a few years of enormous consumer change, a couple of years of huge price -- that category growth driven by value, price, and we're seeing some volume compression this year. So that's the context. What I said to you at H1 is the consumer environment is challenged, and it remains challenged. If anything, it's slightly tougher. So sort of 3 big areas there. You see the weakness here in the U.S. with the consumer. We see that more broadly across Europe, and that gives also a challenged retail environment as margins are challenged. Then across the emerging world, we've got the challenges of currency and the cost of capital. And that is showing up with the challenged consumer in some places, but also you've heard from others that, for example, in LatAm, distributors and retailers are also struggling with the cost of money. So that continues. And then, of course, there's a level of geopolitically driven consumer hesitancy in patches of Asia and the Middle East. So that's what we talked about at H1. That is still the environment, if anything, it's slightly tougher. What we said at H1 around our guidance was as we look to the second half, we needed to execute on all the things we're executing. That's going well, and we need the consumer to be there, and that we continue to monitor. Now margin, that was your next question. So guidance for 2024 is what it is. Margin, more generally, so how do we think about the statement of Laurent about we need to invest more in our brands, which I'm aligned to completely. He was really clear, and I'm completely confident that we can fund that through productivity, through efficiency savings. And we have a good track record of doing that. Now the exact phasing of that, don't know. Don't quite know whether we'll need to spend a little bit ahead of all of those savings coming through. So we'll need to think about that as we look forward to 2025. But I think things to take away, confident in the underlying margin structure of the business and the strength of the competitive we have -- advantage that we have. So not flagging any structural change here, but in need in the shorter term to up investment that we can fund through productivity and savings. Exact phasing, unclear. And of course, over the medium term, the fastest way to drive margin is to drive growth.

Sure. Obviously, it's not just about throwing more money at the issue. I mean your marketing spend has already gone up from 6.6% to 8.1%. My question is about where has that money gone? And what is your return on investment on it? Because it's also about putting it in the right places and figuring out how to allocate. So new to the business, when you think about ROI on investment, how do you want to sort of measure it? How does Nestlé going to allocate in the right places at the right time going forward?

So it's an area I'm very focused on. And maybe just as a bit of context, because what sits behind your question is why are we not seeing more growth come from that step-up investment? Two thoughts. Firstly, we started stepping up marketing investment about 12 months ago, but it takes time for that step-up to turn into a change in consumer behavior. I think the other thing we've been stepping up is innovation because, again, it slowed during COVID. And also, I think we've been quite focused on recipe-led innovation through the supply chain crisis and inflation, managing our input costs and managing our -- and that's not consumer-led innovation. So there is quite a lot of activity going back into the business, and it takes a while. I am absolutely passionate on returns. And so it's a bit -- anybody listening to this from inside Nestlé is now smiling because they've heard this speech. It's really important that we are spending wisely. And I really don't think the right focus is on a single line in the P&L. The way I talk about it internally and what I want to see is looking at each of those metrics and diagnosing which of those metrics is stopping the consumer buy. So is it that we've lost taste preference? In which case, we need to innovate taste preference because no amount of marketing is going to fix that. If we don't have our share of shelf, you're doing media to drive consumers to a shelf where you're not adequately present, so that metric-led diagnosis will much ensure that we're applying our investment more in a more surgical way to deliver the returns, and the returns need to be visible. And we've got some really good digital tools actually present in the business that give us that return in sight. I think there's the opportunity to move that across the Nestlé world faster. And you should ask Steve about some of those because he's been developing them.

Well, I do think on the advertising spend in terms of where you see it, when you look short term, as you really start to reinvest, you have to step back a little bit. In our major categories, we've been capacity constrained and still just coming out of that constraint, whether it's pet, creamers, even on coffee, we've opened a new facility in the world that helps us supply coffee as well. And as you start to look across that and you return to this increased investment, you end up in this mixed basket a little bit. You've got brand-driving activities that are long-term brand health spending around PFME to drive our marketing to drive relevance. But at the same time, you have some lower funnel that restimulates the demand in the category and drive that trial and the new innovation. So it's really separating a little bit and understanding the different return profiles across the different kind of spins that you're going to focus on. And the idea of building these capabilities across total demand-generating investment is what we focused on. So we really think we've built some best-in-class tools to really understand return and be quickly agile to move our investments to where we think the best returns are because the marketplace has evolved incredibly fast as everyone's returned to promotion, everyone's returned to spending actually coming back in terms of share of voice and then how do we make sure we make the best decisions, the right decisions and a balance between short term and long term for brand health.

And that's what gives us the competitive advantage.

I see. Maybe turning to market share because I get the category piece, but there's also a market share piece. How do you -- and there's a question for you as well, Steve, about market share in the U.S. Can you maybe talk about where the pressure points are in terms of share, what you're doing to try and arrest the decline, and it comes back to execution again, and how quickly do you think it will start to be visible?

So the global picture and then I'll pass it your way. So firstly, we are holding or gaining share in about half of our category country combinations. So we're in good shape, but it could be better. So that's the context. And the investments that we're making are already having an impact in that we've improved about 4 percentage points in the first half. So we've got momentum here and there is more to do. So that's the broader context. Sitting as CFO, there's 4 areas that are material where we're losing share that I am personally very focused on, and you know about all of them. So in VMS in Nestlé Health Science, we've had some supply issues that have impacted our ability to grow at the pace of what is a very fast-growing category. We're well on our way to fixing those and slightly ahead of track, but more to do. Waters, we've talked about it. We've got some supply constraints there that we're working our way through, but it's getting in the way of our growing at the pace of the category. And then the other 2, which I will cheerfully hand to Steve, are frozen food and specifically pizza. We've been in the period of share loss, which we're working to correct, and creamers in the U.S. So those are the 4 biggest as I look at it at a global level.

And I think if you look across the U.S. and you look at our total basket and where we sit, PetCare, we're actually winning share across the #1 leadership position. We have 4 of the top 6 PetCare brands in total across the portfolio, continue to win there. Coffee, actually, which is one of our largest pillars, continue to win share in coffee overall. And those challenged segments in creamers and frozen food, creamers is a capacity constraint. We actually had to build a new facility, which just opened last week actually. So congratulations to the Glendale, Arizona team, start up on time. And so we're excited about that. So that capacity is coming online, which will allow us to bring innovation back to creamers and really get back to driving our really strong category leadership. We have a very strong leadership position in that creamers business, which is an important business to us that we'll continue to drive. And then if you look at frozen, there's 2 issues in front. One, the category is depressed. I think that's a category that from an exposure standpoint to households in terms of where that category sits, it's more to middle-class and lower-income consumers that are most impacted by this inflationary curve. And so that's the category depression. And then second, in terms of, as we came through all of the inflationary price increases, we price to cover our cost, and many of our competitors didn't. And so our price gaps got too large in a lot of these categories. We've corrected that. We've actually come down to get to our price gaps to the point where we need to be on both frozen pizza and frozen meals. And what it allows us to do, now that you get the price gap back down, you can drive your marketing investment more effectively against the brands, and you can bring innovation back to those categories. We haven't been innovating in frozen for 3 years, frankly, because it's been about supply. You've been basically just trying to make sure you could supply the business. And when you look at those, just like any restaurant menu or anything else, you need some new items to kind of drive trial in that category. If you look across our frozen portfolio, we have significant innovation that's launching right now that are focused on air fryers, focused on single-serve meals, focused on consumer benefits around Vital Pursuit, which is a GLP-1 companion meal line that we're launching. And that innovation will start to bring back real health to the category and also help the share, and we'll continue to invest.

And maybe just moving to pricing, it was quite low, 0.6% in Q2. What are your expectations from here? Could it go negative? I mean how much pricing do you need to take in things like chocolate and coffee? And do you think any incremental pricing can be landed without too much RIG elasticity?

Yes. So to unpack those pieces, we've said that pricing will be positive for the year, and it will. So just to reiterate that point. Maybe just to unpack Q2, I think maybe 3 big -- 3 areas impacting our pricing in that quarter. Firstly, we've seen in the U.S. a return to a much noisier promotional environment, which, as you've heard from Steve, we participate in, in order to make sure our price gaps remain correct. So that's probably #1. On top of that, you've just heard about the activity that we've undertaken around creamers and pizza specifically to fix incorrect price gaps, and you saw those come through in Q2. Now the promo environment isn't going to change. The work that we've done to fix price gaps won't change in the short term, but as we innovate into it, we reset our price ladder, which will help us. So those are the 2 big U.S. points to call out. The third one would be you see extra pricing going in around Nestlé Health Science. That's a good thing. That reflects us getting back to shelf and then starting to promote so that we bring consumers back into the franchise. So that just gives you a bit of sense of Q2 and how to read it forward. So for example, Nestlé Health Science depth of investment won't continue, it took a few quarters, kind of a couple of quarters thing. In terms of coffee and cocoa, yes, we do see more inflationary costs coming through there. We're already taking price on confectionery. You'll see us do the same on coffee. And just to be clear, it's predominantly Robusta where we're seeing the increases come through, which affects Nescafé and the Starbucks and Nespresso, a little bit more Arabica skewed. I feel differently about our ability to take price. Now we won't know until we do it. But the way we think about it is as the market moves, we reflect that price. You have to because that's your one opportunity to take it. You can then see how the consumer reacts to it. I think the difference this time is last year, the year before, the whole basket of goods was going up for the consumer, and everything was more expensive. Now the whole basket isn't going up and, in some cases, is going down. I think that's a helpful piece of context. I think also these 2 categories are 2 of the most resilient to price: confectionery, because it's an impulse brand, and if you're treating yourself, you're less worried about a little bit extra cost on that treat; and coffee because, and I speak personally here, it becomes a valued and treasured part of your daily routine, and it's not something you readily give up on. So I think we're in quite good shape going into this and well positioned. We'll have to see how the consumer reacts. But yes, we will be taking price.

And in terms of gross margin, one of the big things that's been talked about a lot at Nestlé is getting back to pre-COVID gross margins of 49% to 50%. They went down to 44% and then back at 47%. But you're now saying that the second half gross margins could be down. So how should I read that? Does that mean that the ambition to get back to 49% to 50% is pushed back? Or -- because it seems like most other companies are back to pre-COVID gross margins, you guys are not. Why is that?

I think it really depends on the categories you play. So if you play in personal care, it's much easier because you've seen a big input cost decrease. So you have to look at it category by category. I have no concerns over the medium term to get back to our gross margin, pre-COVID gross margin. And you see us consistently making progress towards it, and we've closed a good chunk of that gap. And you hear me describing us correcting price points and then innovating behind so we have the right margin structure. That's how we work. A few things around when we'll be back there, and I can't tell you when it will be, it will depend on, of course, our ability to take price, but how input costs evolve, our pace of innovation behind them to bring those consumer offerings at the right margin structure and then, of course, efficiencies that we're driving. And we're doing all of those things. The one thing I'd just say to you is gross margin evolution is lumpy in that pricing cycles, you can't just take price when you want to, as you know. In Europe, there are pricing cycles. So generally, we see the costs hit us a little bit before we're able to start to solve the pricing on it. And that's what you're seeing in the second half of this year. You're seeing some costs come through. And we're taking the pricing, but we won't be able to get it away as quickly.

And if you look globally, if you look across, it will come uneven if you look in North America specifically, but actually at pre-COVID or slightly higher than pre-COVID gross margins with increased investment behind the brands. And so I think as it was longer for the price curves to ramp up in other parts of the world, it will be longer a little bit from a margin standpoint. But the model is there. It's actually delivering quite well in terms of where we are in North America.

And Anna, you touched on operational efficiencies. I think the comment was you can fund it from operational efficiencies. I'm sure you're doing the deep-dive analysis on this. You alluded to that. Could you maybe give us an early idea of the biggest buckets of cost opportunity? How much can you do? I'm not asking specific numbers, but ballpark in terms of structural cost, how quickly can you unlock those savings? If you're able to frame it for us, any numbers would be great.

Yes. And maybe let me start with numbers. Well, I'm not going to give you everything you want. I'd just take you back to the slide that François showed in Barcelona, what, 18 months ago now, where he talks about this business delivering from 2016 to, I want to say, 2021, CHF 800 million of cost efficiencies each year, and that's going up to nearer CHF 1 billion more recently. That model is easily deliverable. There is absolutely scope in the cost base. And actually, one of the lovely things coming into Nestlé as CFO is this is genuinely a cost-conscious culture that is perpetually looking for savings. So I think that's a helpful place to start from. In terms of bucket, and I'll sort of call these out in order of ease and speed, and I can't help with the first one, I'm a CFO, I say this every time, we can spend what we're spending better. We can polarize our resource allocation more. We can be really clear on really making sure that those returns are transparent across the levers that we were talking about earlier. So job number one, spend better. All right, CFO moment over. In terms of buckets, the most -- the fastest bucket to get is really around digitizing marketing and sales. In the old world, we did focus groups. In the new world, we have an AI virtual consumer that we can test a lot more against much more quickly. There's significant efficiencies that we're already liberating using data and AI in a very different way. We'll continue to do that, and we can go faster. That's quite quick. Our manufacturing base, we've taken out 100 factories, as I look at it, over the last decade. So the muscle is there. But if you look at Nestlé's legacy or where we've come from, we've tended to have a sort of geographic model with factories in markets which doesn't optimize supply, and so there is more to do. As I look at line efficiency and the brackets, the numbers of lines that are in each of the efficiency ranges, there is absolutely more opportunity there, and that is one that we remain focused on. And then thirdly, and this is my take coming in, we've done a really good job of kind of optimizing the efficiency of each team. But actually, when you look at some of the end-to-end processes across the group, they are not yet efficient. So the feedback from my team when I arrived was, Anna, the processes are dreadful, and it's always the team next to me. And so that's really high-quality cost takeout because it's not just taking out cost, it's removing irritation and creating a much faster and more agile organization.

I'm going to pivot back to growth because I guess, do you still think Nestlé has a portfolio that can deliver mid-single-digit organic growth on a consistent basis beyond this year? Where do you see the biggest step-up in performance coming from?

Yes, I absolutely do. And maybe just to give you a quick count through the categories and then you've got share growth on top, the fundamentals of pets are super. The number of pets in the world, pet adoption is increasing pretty much everywhere. I think the U.K. is the only one that's slightly down, so a slight exception and across the emerging world as well. The propensity to treat pets as members of the family is present and greater in the younger generation who also, by the way, also have greater propensity to adopt pets. So the demographics as they move through, we'll see both more pets, but also incremental premiumization. And then you've got this concept of calorific value. So the degree to which pets eat pet food as opposed to home-cooked food, which, if I'm honest, coming into Nestlé, it was a bit of a PowerPoint statement and I had to go and prove it to myself. So I went to Croatia, which was 70% through that journey, and sat with the team and went through what have you done to create the pet category. And actually, how has the pet aisle in retail looked a year ago, 2 years ago, 3 years ago, 4 years ago? It's absolutely fascinating because you can literally see the number of meters increase, really clear playbook. I went to look at Mexico and did the same thing. Same playbook working, absolutely seeing the same acceleration. And then it flattened, it stuttered as consumer wealth hasn't been there to continue. So that's a long way of saying, pet, it's all there. It's just about how fast you realize it. Done something similar around coffee and how coffee shop culture is driving the propensity to drink coffee. And again, it's really global. I mean I was looking at the aspiration of super-premium nature of coffee shops in Pakistan. So this is a global phenomenon that we are creating the at-home consumption for and can really sort of close some of those gaps between hot and cold coffee. So lots there. We've talked about Nestlé Health Science where -- great momentum. And then the other thing I would call out, sometimes investors look at food and say, oh, food is a bit disinteresting. But if you look at affordable food in AOA, it's growing 8%. It's not disinteresting at all, and Maggi is a phenomenal brand. So you have to look at some of our categories more at a category region level, and there's some massive pockets of growth. Confectionery in LatAm would be another; the emerging world more generally, India, e-commerce. So if you lay it all out, we need to unpack these building blocks for you at the Capital Markets Day, I'm confident.

Can I just maybe move? Again, switching gears to cash returns, your buyback is coming to an end. The balance sheet is less good than it was, I mean, it's more levered. It doesn't seem to me there's that much room to reload on a buyback. I mean do you agree with that assessment? And is there any other way that you could think about cash return? You've obviously got L'Oréal and other stuff going on. How do you -- I know it's a Board decision, but how do you frame that?

So I think 2 to 3x net debt to EBITDA is the right range. Mathematically, if you look at that at the end of this current buyback, given we're towards the top of the range, that does not mathematically leave space for further buyback, absent a disposal, which is why you asked the L'Oréal question. I can't comment on that. That's a Board decision. All I would say is we've always thought of that as a financial stake rather than a strategic stake, and we'll continue to.

Okay. I'm going to move to a couple of geographies. I'm going to start with China. I mean I was a bit shocked by pricing down 4.3% in Q2, especially given a big FX headwind. Normally, you'd expect that to be priced through, but you're seeing quite big deflation. Can you maybe touch on where have you taken pricing down? I assume it's infant nutrition, I don't know. Are there any glimmers of light for your business in China second half of the year? How do you see it? Obviously, the macro is weak.

Yes. So I mean going into Chinese New Year, cautious recovery was the term used by everybody. And then coming out of Chinese New Year, I think we've all seen that the consumer is pretty weak. What we're seeing is a lot of use of social platforms to really look for the best deal. The other thing that I'd really call out about China is just if you look at the comps, there was a very high comp for Wyeth in Q2 that falls away in the second half. So a chunk of this is also comps.

Okay. Okay. I'm going to move to you, Steve, for a couple of questions. Starting with the U.S. consumer, can you give us a kind of a high-level take on what you're seeing? Obviously, a lot of your peers talking about value-seeking behavior trading down. It's been going on longer than most people expected. I'd love to get your perspective about what got us into this funk and what needs to happen from a macro and a Nestlé perspective to try and change the narrative?

And I think -- I mean you definitely see a challenged consumer environment, right? I'm sure you heard it all week from everybody. And you don't really see it when you look at it today, the consumer has -- the inflation against wages has been a pretty large gap. And if you look across the entire wallet spend, so if you look in major cities, rent is up almost 4x what the wage growth has been in that. And so in terms of where they can compress their spending, so they can't really do it in house, they can't really do it in other necessities. And so what's been contracted a little bit has been in the food and beverage space in terms of the choices. And so it's been one of the most impacted across that. And I think as you look across with the removal of all the subsidies as you come through and people -- you don't really understand the macro impact unless you step back a bit, it was $7 trillion of extra stimulus into the economy overall related to that that's come out that stimulates some false demand. And as the consumer starts to settle and understand, okay, where are they from a wallet standpoint in terms of wage growth and where are they in terms of the inflationary curve, I think what you see is, especially in core food and beverage, you're getting to a flat pricing basically overall, but not really a deflationary environment at all. And it's going to take time, I think, for the consumer to actually settle in and accept these new price points. I think you've seen the term a little bit inflation over -- a hangover, however you want to describe it. But it's just resettling of these new price points, I think, it's going to take consumers' time. I do think you've got a bit of a disconnect right now in terms of consumer sentiment and consumer fundamentals, right? And I know sentiment is not in the bank, but it does drive purchase behavior. And when you look at it, the consumers in the U.S. are very negative on the outlook of the overall U.S. economy. And regardless of how the election goes or whatever, we're in a pretty important period of time, it doesn't really matter, but let's get through it. It provides a bit of certainty of what the next 4 years looks like. And I think then it starts to slowly build back some consumer confidence. And then we need jobs to stay stable. We need to continue to see a growth. But there's undeniably -- this is a very challenged consumer right now and especially for the bulk of the households from middle class down. And you see in the upper-income households, they continue to do well and continue to not really be affected by the cycle. But that sentiment is even driving behavior changes amongst those households that you're starting to see, which is unique in this environment.

But it's interesting because your U.S. roll mix or your RIG went from minus 5.8% to 2.8% in Q2, so it's an 800 basis point positive swing. Given what you just said about the U.S. consumer, that's a pretty -- well, very good result, I would say. Can you maybe explain the reasons behind that dramatic improvement? How much of that was sell-in of new products? How confident that's going to translate into sellout into the back half? And how do you guard against too much SKU proliferation and creating a new sale?

Sure. When you look at it, I'll start with SKU because that one is an easy one, we've actually reduced 20% of our overall portfolio across North America. So when we look at reintroducing innovation in terms of the total breadth, it's actually not very large. And we're very disciplined only from our own in terms of driving efficiency, but also driving shelf efficiency for our retail partners, right? Everything that comes to shelf has to earn its place. And so we're very focused on making sure every new SKU plays a very specific role with the consumer, the retailer and the category. And so I'm not so worried about SKU proliferation. If I look at the swing in terms of RIG and overall, we have a lot of innovation across every single category and depending on when the resets happen. Q2 was a big launch of all of our water innovation. A lot of innovations came in that. And I think as Anna and Mark talked at the half results, there was around 100 basis points of that 2.8% that was really a shift between Q3 and Q2 that was a sell-in. The rest was good, strong return to investment behind our brands, actually return of capacity in pets and some of the other big categories where we start to have these new facilities come online. When you look at pet where we've been so constrained, our new Eden -- our new facility in North Carolina started up. Our investments in wet cat in several of the different facilities started to bring that capacity online. And so you start to drive investment behind those and start to drive RIG. And so -- and across every single categories, we really start to close -- okay, where we may be priced too aggressively versus competitors or whatever, we closed those price gaps. We brought those down into Q2 and then that started to drive positive RIG. I do think we're going to be in an uneven environment. I'd say the health of the consumer has been less than expected, and we thought H2 might be a little better from an overall consumer standpoint. I think we got to accept a bit of a bumpiness as we move through H2. But overall, I think we continue to feel confident about our ability to drive occasions with consumers, which drives our volume. Ultimately, we want to get back to winning occasions with consumers. And if you look at some of our most challenged businesses like pizza, for instance, we're actually back to positive volume share in pizza, which means we're back to winning occasions through those changes. So that's what we're really focused on today, it's driving the volume across...

And can you drill a bit deeper into U.S. pet? Obviously, it's the biggest part of your U.S. business. There's a lot of topics, capacity coming on stream, getting the price points right, down trading, market share. Can you just -- how do you feel about pets in the U.S. from here? Do you have a lot of innovation coming in?

Yes. Pet continues to be an incredibly strong category from just an overall fundamental standpoint, consumer sentiment in terms of how they treat their pets and beloved. And in terms of where they're going to cut spending or trade down, that's one of the last places they're going to do. And so -- and adoptions continue to be strong. When you look in the overall pet at a macro level, tonnage continues to be strong, right? So it's not a volume issue. You're not losing volume like in some of the other categories. I do think you see some trade down in the category as challenged consumers maybe move down. But at the top end of the category in the super premium and the premium space where we lead, you continue to see growth with those households. You continue to see a premiumization in pet. And so as we bring new capacity online, it allows you to bring innovation back. And I think the concern always is, okay, are we going to come into some kind of pricing challenge in that category? But for us, you're actually coming off price increases. So you're finally lapping the price increases in pets, which comes a little slower than it did in food. But when you look at it, we actually don't expect deflationary pricing at all. We see promotional levels returning to basically pre-COVID levels, really no higher, and just normal healthy demand generation promotion. And actually, the return on promotional spending is good for the category. It will help stimulate the category back to those accelerated growth rates. And so I think we'll see a far greater normalization of the overall kind of just core generating demand behavior that has driven pet for years.

And maybe other big categories, U.S. frozen, obviously, we've touched on it. You had a very weak Q1, a better Q2. Can you explain a bit more detail what you're doing? You called out pizza. Obviously, it's a wider portfolio, Stouffer's, Hot Pockets, Lean Cuisine. What's your outlook from here? I mean if this business cannot deliver positive RIG on a sustainable basis, is it time to think about it more fundamentally in terms of other options? How much time do you kind of give it to actually start winning sustainably?

Yes. And look, frozen is a great business from a financial standpoint for us. We talk about that a lot. But when you step back and say, why are we in frozen? And what is it about? It fundamentally, from a consumer standpoint, has a really unique role that not many categories do. Consumers are interactive with the category 4 times per week, which is incredible. Unless it's coffee or some of the daily categories, you just don't have that kind of consumption. And so for us, I do think it's a category that's much higher exposed to volatility of economic performance, which gives it a bit more of this volatility index where it's up and down, not perfect for the Nestlé model. But what we are confident in the long term is if you focus on this core idea of how do you win with consumers, how do you generate demand and win share, it is a long-term category that we can drive healthy sustainable RIG growth. Will it be at the mid-single-digit range for Nestlé in terms of 4 to 6? No, it's probably a lower single-digit space for us, but it can play a significant role in our category -- in our portfolio.

And final question for you, Anna, is a bit more of a bigger-picture question. And one of the big themes has been around health in this conference, and we're seeing the healthiness of -- it's been a big topic. You've got a target to increase your healthier food sales by CHF 20 billion to CHF 25 billion, big number, by 2030. So I just want to get your perspective on that in terms of the healthiness of the Nestlé portfolio and how you can actually sort of hit that kind of number.

Yes. So yes, happy that we're going -- we're on track to hit that number. Three big levers, really. Firstly, we are growing faster in healthier categories naturally. So that full range of nutrition, specialized nutrition categories, water, coffee, they're all naturally growing faster. I think the second area that we've touched on, as we've talked, there's a lot of acceleration possible in that specialized nutrition space, be it medical nutrition, be it VMS, be it how we bring that into the food portfolio. So we'll be driving that. And then thirdly, there's a chunk of our portfolio in the 2.5 to 3.5 Star range. And there, we're systematically going through and looking at the recipes to make them healthier, which is exactly what we should be doing.

Sorry, I'm just going to...

We're good. We're done.

Yes. So I think we're on the buzzer. We're going to do a breakout in breakout Room 2. So if anybody has questions, please come and join us. Thank you.