What happened to Africa’s middle class? It’s not growing, food giant Nestle says...

Nestle employs about 11,000 workers on the continent, but will reduce product line by 50% and may close some of its 15 warehouses before September.

NESTLE SA, the world’s biggest food company, cut 15% of its workforce in sub-Saharan Africa amid slower growth of the continent’s middle class.

About 60 back-office jobs have been eliminated in six countries across the 21-nation region, spokesman Robin Tickle said. Nestle employs about 11,000 workers on the continent.

The KitKat maker, grappling with a crisis in India amid a nationwide recall of its Maggi instant noodles, is paring costs after four years of slowing sales growth in its Asia, Oceania and Africa unit. The Vevey, Switzerland-based company appointed Wan Ling Martello, former chief financial officer, to head its Asia-Oceania-Africa (AOA) business in April, replacing Nandu Nandkishore.

“We thought this would be the next Asia, but we have realised the middle class here in the region is extremely small and it is not really growing,” Cornel Krummenacher, chief executive officer of Nestle’s equatorial Africa (as sub-Saharan Africa is sometimes called) unit, was cited as saying by the Financial Times late Tuesday.

Krummenacher also told the newspaper that Nestle would be lucky to reach yearly 10% sales growth in the region in coming years.

“On a group level, the cuts don’t make a difference—and Africa is huge—but the comments on middle class will have people talking,” Michael Romer, head of equity research at J. Safra Sarasin in Zurich, said by phone. “It comes at a time where it seems that Nestle is fighting at several fronts, so investors will take note of it. It’s not the straw that will break the camel’s back—but it’s a straw.”

Slowing growth

Nestle’s organic sales growth in the Asia, Oceania and Africa region started slowing in 2012, slipping from 12 percent in 2011 to 2.6% last year. Revenue there declined 0.2 percent in the first quarter.

Danone, the world’s biggest yogurt maker, expects Africa to be “an incredible part” of growth in the next three decades, CEO Emmanuel Faber said in March.

Equatorial Africa is the smallest of Nestle’s African markets, accounting for 10% to 15% of sales there, Tickle said. The biggest, central and west Africa, has shown good growth, while the southern part of the continent was the top performer in the first quarter, he said.

Africa accounts for about 5% of the Swiss company’s total sales, Bank Vontobel AG estimates.

The maker of Milo chocolate malt has no plans to close its four factories in the equatorial Africa region, Tickle said. Nestle will reduce its product line by 50% and may close some of its 15 warehouses before September.

Credit: Bloomberg