The appliance of science

By Bennett West and David Traylor

Can science help solve the world’s food crisis? Nestlé certainly thinks so. In an exclusive interview with BMEU the firm’s CTO Werner Bauer discusses why R&D is changing the face of food research, and how Nestlé is leading the way.

Werner Bauer is a happy man. The night before our interview, his beloved Germany beat Turkey in an epic semi-final at Basel’s St Jakob Park stadium, a game he attended, to reach the final of the Euro 2008 Football Championships in Vienna and send Germans everywhere into a state of rapture. When we meet the next morning, he is still very much high on that winning feeling. “It was a great game, a really fun game to watch,” he says, beaming. “Turkey played really well, but we scored some terrific goals and were probably a bit more clinical. We just know how to win.”

He could just as easily be talking about Nestlé itself. The company has a well-deserved reputation for operational excellence, and ever since Henri Nestlé developed the first milk food for infants in 1867 – saving the life of a neighbour’s child in the process – the company has steadily grown to become the world’s largest food firm, employing a business model based around delivering innovative solutions for human health and nutrition. With 2007 revenues of €57 billion, it is clear that Nestlé, too, knows how to get results.

Much of this success can be put down to the company’s decision a few years ago to refocus its activities on health and concentrate on the nutrition and wellness sector. It’s a transformation that has been heavily reliant on R&D, and as such Bauer has been a key figure in integrating a culture of innovation into the very fabric of Nestlé’s operations – a task made easier by the high-regard in which R&D has always been held at the food giant. “This company has always had a very good attitude towards R&D,” he explains. “I remember when I first joined the company 20 years ago, there was a tremendous sense of goodwill towards research and development, a belief that whatever the problem, R&D has the potential to fix it. That attitude has not changed.”

Nonetheless, there were still significant hurdles to be overcome for the company to realise its vision. “For me, the greatest challenge in moving from a classical agroconverter company into a nutrition and wellness company was realigning our competency areas,” continues Bauer. “We had to transform our organisation into one where we developed high added value products, which meant we had to build up our R&D capabilities, transforming even our most basic research facilities into nutrition and health research institutions.” Many of the areas in which the company had previously been strong – such as the processing of agricultural bulk work for the development of foodstuffs such as French fries and tomato sauces – were sold off, and investment switched to building out more added-value environments.

It was a major shift, involving knowledge acquisition around a whole host of cutting-edge areas, including new technology platforms and evolving research into areas such as enzymatic processes, metabolism and bioavailability. “We needed to find out all about how the body metabolises, and find out how those processes influence your health status,” says Bauer. “This was a new category for us, and it put quite a stress on the R&D organization. Expertise in all these new areas had to be established before we could drive forwards, so it was quite a heavy change over time.”

Better understanding

He is in no doubt, however, that the effort has been worth it, with an increased understanding of how nutrition and lifestyle choices impact upon body composition and metabolic health proving to be a valuable tool in new product development. “We have thousands of products, and this new focus has really enabled us to look at the nutritional value of each of those products, based on the latest scientific research,” he says.

It’s a key area for Nestlé, informing all of the company’s decisions around the launch of new products. Internally, the firm is guided by what Bauer refers to as “the 60/40 plus” formula, an internal process that requires all R&D, marketing and product development staff worldwide to judge products based on two criteria. “First, in a blind taste test between our product and the competition, our product has to have 60% superiority,” he explains. “Ideally, we want to be higher than that, but with a minimum 60% superiority we can launch that product. Secondly, we aim to achieve nutritional superiority.” This means that once all the basic criteria have been met (low salt content, sugar adequacy, low-to-nonexistent trans-fatty acids) then the product must be nutritionally superior to competing brands – the ‘plus’ element. “We have over 360 nutritionists in our various R&D centres looking at the continuous nutritional improvement of our products, and the 60/40 plus process provides an internal quality management tool for this.”

For Bauer, the key challenge is in translating scientific advances into defined consumer benefits. Take weight management, for instance. “When you understand the mechanisms around satiety, you can build it in to your products and deliver higher satiety with lower calorie intake,” he suggests. “Another area of research is based around the impact of calorie-burning foods. For example, capsicum (found in chilli peppers) has been shown to stimulate the body’s metabolic rate – helping to burn more calories – as well as clean fat out of the arteries. These are both advances that have a clear, defined consumer benefit – that of helping customers to better manage their weight.”

A further area of interest is the company’s Healthy Recovery program, which helps patients undergoing treatment for various conditions to improve their diet as a means to combat the negative health effects of therapy. “Cancer treatment, for instance, has a huge impact on both your metabolic and physical status,” explains Bauer. “Part of our work is developing specific nutrition for people undergoing heavy treatment, because we’re seeing that nutrition can be a key factor in preparing the body for the successful application of these therapies. It’s a fascinating area, very much linked to understanding the body’s needs under specific conditions.”

A more scientific approach

In this respect, he sees the industry moving closer to the model used by the big pharmaceuticals companies in terms of the way it uses scientific research for product improvement. “We have certain responsibilities, and need to maintain strong principles around how we use science,” he says. “Clinical research has to have significant control mechanisms. For example, everything we do worldwide in clinical research goes through a committee that decides on the setup of the study, the outcome of the study, the statistical significance of the study, and so on. A company of our size and reputation could never afford to have a gimmick result used for a legitimate claim.”

But with a growing body of scientific research behind it that attests to the health benefits of nutritionally improved food products, Nestlé has no need for such gimmicks. Bauer cites probiotics as a development where the advantages of the product speak for themselves. “10 years ago when we launched the first probiotic products, it was unbelievably difficult to communicate the benefits,” he says. “Today, the understanding has progressed so far that the benefits are generally accepted because the scientific literature behind it has come such a long way.”

And although it took more than 10 years to move from basic science to consumer acceptance, Bauer sees this as a positive step. “I think it’s good that there is a reluctance just to jump on the next bandwagon, and instead a desire to understand what happens and why,” he says. “Today we understand the mechanisms behind probiotics, and that allows us to extend the concepts further. For example, once you understand the link between your intestinal constitution and how your skin reacts, then you can influence the status and health of your skin through the use of probiotics, which is something we never could have predicted 10 years ago. Today we have products on the market that help against sunburn that stem from a probiotic concept. So science has progressed dramatically.”

Indeed, Bauer believes the way that food has become an integral part of disease prevention – as opposed to just being thought of as sustenance – provides a huge area of opportunity for Nestlé. “The longer we live, the more influence food has on our future health,” he explains. “We now need to take a much more holistic approach to how food and science interrelate. I remember 20 years ago when we were first starting to talk about functional food, and people thought it sounded like moon-food, real sci-fi stuff. But now people are coming round to the idea that there are certain things that are really good for your long-term health. Actually, we are reverting back to some of the old beliefs our grandparents had about the effects of certain foodstuffs.”

Research in the pipeline

It’s yet another example of the way food industry R&D is moving down a similar path to that of the pharmaceuticals sector. Today, scientists understand much more about genomics and the reasons why some people are more predisposed to certain illnesses than others, and much of this research is being transposed across to the food industry. For Bauer, this means the dawning of a new age of personalized nutrition. “ The more we know about human genetics and nutrition, and how they interact, the more we are able to help people make decisions about what they should eat, how much they should eat, when they should eat, and so on. We are increasingly seeing that what works for one person will be different for another.”

And with the idea of personalised nutrition mirroring – conceptually, at least – pharma’s advances in personalised medicine and targeted treatments, Bauer is excited by the possibilities it offers. “This more customised approach to nutrition will be beneficial for future generations, for sure,” he enthuses, “and it’s something we’re really focusing on. We’ve actually been able to take a number of best practices from the pharma industry to help drive this. For instance, for many years now we have employed the pipeline approach to our R&D, which means we have a constant flow of innovation in specific categories – such as infant formula and clinical nutrition, for instance – and are able to look at that research in terms of what the project will be worth in future values.”

The other key area is diagnostics. “If you could measure whether you were salt-sensitive or not in a simple way, you could immediately adapt your nutritional intake to reflect this,” Bauer says. “In this regard, diagnostics will play a clear role in the future, especially non-invasive diagnostics – people who want to change their lifestyle and nutritional behaviour don’t necessarily want to undergo heavy invasive diagnostics. In fact, we are currently working on a partnership with General Electric to develop non-invasive diagnostic tools to help meet this demand.”

The value of partnerships

Further partnerships will certainly be key for the company going forward. And while the rapid developments in the application of science and technology are undoubtedly having a positive impact on the food industry, Bauer concedes that they do pose some organisational challenges. “ You cannot have all competencies and capabilities available, all the time, within the four walls of your organisation,” he says. “The speed of change is far higher than the speed at which you could adapt all your resources to keep up.”

As a result, Nestlé has developed a number of partnerships with universities in order to help get ahead of the game, with around 200 major contracts in place for basic research work into proteins and their value to the healthcare side of the business. The company has also created a venture capital fund to benefit from the brilliant ideas being formulated at the many start-up companies within the sector; since 2002, Nestlé has invested in 80 start-up companies investigating new ideas in areas such as immunity, triggering and allergy prevention.

The final element of the strategy involves improving collaboration with the company’s various purchase partners in order to take advantage of those firms’ own substantial R&D capabilities. “We decided to create an innovation partnership model with those companies, and it is one of the most efficient tools we have put in place over the past few years – highly efficient, highly focused and with a high level of trust established,” explains Bauer. “We now have 15 such R&D partnerships in place.”

It’s clearly an approach that works well, and Nestlé was recently cited in a Datamonitor study as having one of the most holistic approaches to open innovation systems in the industry. For Bauer, this success is all about setting the rules of engagement at an early stage of the game. “To build the right level of trust, you need to have clear contracts. For each of these partnerships, we have the same frame contract, which makes clear who owns which patents and the IP behind them. We set these guidelines before we even start working together, which is a very efficient way of working.”

Challenging times

And it needs to be. The food industry is entering a period of sustained pressure, with more demand, less supply, ill-judged agricultural policies and the rise of biofuels all contributing to rising prices in what Nestlé CEO Paul Bulcke has referred to as “a perfect storm”. Add to this the fact that much of the developing world is still suffering from food shortages and malnutrition and it is clear that these are challenging times for food industry executives. So what does Bauer see as the key trends over the coming years? “For me, the biggest driver of change is the demographic changes currently taking place,” he says. “What are the specific nutritional needs of a population in which a major proportion is aged 65 or over? That’s a much bigger focus for us now than it was 20 years ago. We also clearly need to invest in more R&D behind obesity issues.”

Lifestyle change is the next big driver of change in the food industry, something Bauer believes is very much triggered by urbanisation. “Around 80% of the population today already live in urban environments, so this has led to totally different feeding behaviours,” he explains. “For instance, fewer people take their breakfast at home anymore, but rather in the office environment or on their way to the office. These kinds of things clearly have an impact on what you deliver to the consumer in terms of products.” Management of key resources will also be critical. “Scarcity of good water. Scarcity of good agricultural land. Scarcity of certain raw materials. Scarcity of oil. All these factors will lead to the necessity to rethink food production and distribution, how it’s transported and over what distances. We could see a return to the values of local production and consumption.”

The good news is that the final driver for change cited by Bauer is the pace of technological development. “Science and technology is progressing ever faster, so hopefully we will have even better solutions to some of the three first challenges,” he says. “As a company very heavily involved in R&D, Nestlé will be at the forefront of these rethinks in terms of how we currently do things. It’s an exciting time.”

Key dates

1866-1905
In 1867, Henri Nestlé developed a food for babies who were unable to breastfeed. His first success was an infant who could not tolerate his mother’s milk or any of the usual substitutes. Soon, Farine Lactée Henri Nestlé was being sold across Europe.

1905-1918
In 1905, Nestlé merged with the Anglo-Swiss Condensed Milk Company. By the early 1900s, the company was operating factories in the US, Britain, Germany and Spain. By the end of World War I, Nestlé’s production had more than doubled.

1918-1938
After the war, government contracts dried up and consumers switched back to fresh milk. However, Nestlé’s management responded quickly: the 1920s saw Nestlé’s first expansion into new products, with chocolate Nestlé’s second most important activity.

1938-1944
Profits dropped from $20 million in 1938 to $6 million in 1939. Ironically, the war helped with the introduction of the company’s newest product, Nescafé, a staple drink of the US military. Nestlé’s production and sales rose in the wartime economy.

1944-1975
Growth accelerated. In 1947 came the merger with Maggi seasonings and soups. Crosse & Blackwell followed in 1960, as did Findus (1963), Libby’s (1971) and Stouffer’s (1973). Diversification came with a shareholding in L’Oréal in 1974.

1975-1981
Nestlé’s growth in the developing world partially offset a slowdown in the company’s traditional markets. Nestlé made its second venture outside the food industry by acquiring Alcon Laboratories Inc.

1981-1995
Nestlé divested a number of businesses1980/1984. In 1984, Nestlé’s improved bottom line allowed the company to launch a new round of acquisitions, the most important being American food giant Carnation.

1996-2002
Since 1996 acquisitions have included San Pellegrino (1997), Spillers Petfoods (1998) and Ralston Purina (2002). In 2002, Nestlé merged its US ice cream business into Dreyer’s, followed by a US$2.6 billion acquisition of Chef America, Inc.

2003+
2003 started with the acquisition of Mövenpick Ice Cream. In 2006, Jenny Craig and Uncle Toby’s were added to the portfolio and 2007 saw Novartis Medical Nutrition, Gerber and Henniez join the company.