Brabeck-Letmathe, Peter 1944–

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Peter Brabeck-Letmathe
1944–

Chief executive officer and vice chairman of the board, Nestlé

Nationality: Austrian.

Born: November 13, 1944, in Villach, Austria.

Education: University of World Trade, degree in economics.

Family: Married; children: three.

Career: Findus, 1968–1970, ice-cream sales and delivery; Nestlé Chile, 1970–1980, sales manager and director of marketing; Nestlé Ecuador, 1981–1983, managing director; Nestlé Venezuela, 1983–1987, president and managing director; Nestlé S.A., 1987–1992, senior vice president of Culinary Products Division; 1992–1997, executive vice president of strategic business groups; 1997–, chief executive officer; 2001–, chief executive officer and vice chairman of the board of directors.

Address: Nestlé, 55 Avenue Nestlé, 1800 Vevey, Switzerland; http://www.nestle.com.

■ Peter Brabeck-Letmathe spent his entire career working for Nestlé, rising to the position of chief executive officer (CEO) in 1997 and also assuming duties as vice chairman of the board in 2001. During his tenure as CEO of the Switzerland-based company, he turned Nestlé into the fastest-growing foodcompany giant in an otherwise slow-growth sector. He achieved this primarily by focusing on buying up leading food brands, getting rid of under-performing brands, and slashing costs wherever possible. According to industry analysts and coworkers, Brabeck-Letmathe, who spoke five languages, was an articulate leader whose focus on substance over style included a strong dedication to discipline and a long-term approach to growing a business.

LEARNS EARLY LESSONS

Born in Austria six months before the end of World War II, Brabeck-Letmathe and his family faced hard economic trials

after the war. The surrounding Swiss Alps were his playground, and he began climbing with ropes by age 10. As a teenager his penchant for adventure grew as he took long overnight hikes in the Alps with his friend Hans Thomassen. After graduating from high school, Brabeck-Letmathe enrolled at the University of World Trade in Vienna, where he studied economics. During his summer vacation in 1967, he went on a climbing expedition to Tirich Mir, the highest peak in the Hindu Kush of Pakistan. Unfortunately, the trip ended in disaster when Thomassen and another friend were killed after falling off an ice wall during the climb. Brabeck-Letmathe was not there; he had lost a poker game to decide who would turn back, since there was only enough food for two. The event changed his life. He told Peter Gumbel for an article in Time, "When you lose your best friends in such an expedition it makes you more aware of the relativity of the risks but also of the relativity of the individual."

After graduating from college, Brabeck-Letmathe took a job in 1968 with a company named Findus. He sold and delivered ice cream in a freezer truck that he drove around the Swiss Alps to cafes and supermarkets. Initially, Brabeck-Letmathe did not know that the company was a Nestlé subsidiary. When he discovered who the parent company was, he realized he had an opportunity to broaden his career horizons beyond his native Austria. In an article in BusinessWeek he explained, "When I was growing up, career opportunities depended on your status in a political party, because 75 percent of the Austrian gross domestic product was state-owned."

In 1970 Brabeck-Letmathe was assigned to a post in Chile, where he became a sales manager and eventually director of marketing. He admitted that his initial joy at getting the assignment had more to do with the opportunity to explore some of Chile's wide-open spaces and mountains than with business. When Brabeck-Letmathe arrived in Chile he discovered that Nestlé's business concerns were facing a Socialist government under the presidency of Salvador Allende, who was threatening to nationalize the company. Nestlé Chile decided not to pull out in the face of crisis. Brabeck-Letmathe is credited with spending a good deal of his time dissuading government officials from nationalizing the production of milk. He also worked with militant labor officials to keep them from ordering workers to strike and bringing Nestlé's operations to a standstill. The Allende government was overthrown in a bloody coup in 1973.

Although he was posted back in Switzerland for a short while in 1975, Brabeck-Letmathe jumped at the chance to return to Chile within three months to take over as the marketing director, a post three other Nestlé executives had turned down because of the country's ongoing political instability. Brabeck-Letmathe continued to work in Latin America for Nestlé and was assigned to Nestlé Ecuador as managing director in 1981. He quickly turned around the ailing subsidiary by focusing on factory closures and laying off more than half of Nestlé's workers. In 1983 he became president and managing director of Nestlé Venezuela. Overall, the Latin American experience provided Brabeck-Letmathe with some solid training; he told Business Week, "I learned to manage through turmoil."

BECOMES VALUED EXECUTIVE AT HEAD OFFICE

By 1987 Brabeck-Letmathe was back in Switzerland, serving as senior vice president in charge of the Culinary Products Division. At about the same time, the company's CEO, Helmut Maucher, set out to redefine Nestlé's product and branding strategy, and he turned to Brabeck-Letmathe to lead the way. In 1992 Brabeck-Letmathe was appointed executive vice president of the company, with worldwide responsibility for marketing, communications, and public affairs for the strategic business groups Food, Buitoni, Chocolate and Confectionery, Ice Cream, Petcare, and Industrial Products.

Over the next few years Brabeck-Letmathe put into place Nestlé's unique branding policy, characterized by a strict hierarchy of strategic brands on the global, regional, and local levels. The six global strategic brands included Nescafe, Nestea, and Nestlé itself. For brands that did not carry the name of Nestlé, Brabeck-Letmathe oversaw the creation of a "Nestlé Seal of Guarantee" that was put on the back of products to ensure consumers of the product's quality and relationship with Nestlé. In an interview with Andrew J. Parsons for McKinsey Quarterly, Brabeck-Letmathe noted, "For consumers, relevance of Nestlé as a company comes first of all through contact with products that are branded Nestlé. If we want to be perceived as the world's leading food company, we have to offer consumers an increasing amount of products that they can identify as Nestlé's."

BECOMES CEO

After helping to launch the product and branding strategy, Brabeck-Letmathe decided he was ready for another adventure and asked to be reassigned away from the home office in Vevey, Switzerland. Maucher, who was nearing retirement, valued Brabeck-Letmathe and wanted to keep him in Switzerland. Reportedly, Maucher asked Brabeck-Letmathe what he needed to do to keep him at the head office in Vevey, and Brabeck-Letmathe replied that he wanted to be Maucher's successor. Several months later it was announced that Brabeck-Letmathe would become Nestlé's next CEO.

After becoming CEO in 1997, Brabeck-Letmathe began stressing internal growth. He took a more conservative approach than his predecessor to improving business. Over the next couple of years he slashed costs by increasing the efficiency of manufacturing operations, got rid of mature businesses with little potential for profit growth, and focused investment on fast-growing fields. Brabeck-Letmathe ensured higher efficiency in all of the company's manufacturing facilities worldwide. By the end of 2000 Nestlé accrued $3.2 billion in net profits and also had cash reserves of $3.8 billion. In addition, the company's market capitalization tripled by 2001 to close to $100 billion. Market analysts recognized this growth as a significant achievement because food prices had been flat or falling worldwide, causing major brands such as Coca-Cola and Kellogg to struggle.

With a significant increase in market capitalization providing a financial safety cushion, Brabeck-Letmathe purchased the Ralston Purina pet-food company in January 2001 for $10.3 billion. Six months later he guided the company into purchasing Chef America for $2.6 billion. Chef America was the leading maker of frozen snacks in the United States, and Brabeck-Letmathe saw the purchase as a way to further enhance Nestlé's sales and earnings growth. Nestlé also purchased Dreyer's Grand Ice Cream in a complex deal for approximately $2.6 billion in stock. At the same time, he continued to streamline the company by selling or spinning off less-profitable commodity businesses, such as Nestlé's European frozen-food, tomato-processing, and Italian-meats businesses. Brabeck-Letmathe managed to consistently meet Nestlé's publicly stated internal growth target of 4 percent a year.

PICTURE NOT ENTIRELY ROSY

Despite establishing Nestlé as the world leader in the food and beverage industry, some industry analysts expressed concerns over Brabeck-Letmathe's leadership and the future of the company. The overall $15.5 billion purchases of Ralston Purina, Chef America, and Dreyer's, for example, were criticized by some as an unwelcome shift in strategy on Brabeck-Letmathe's part. Some analysts saw the acquisitions as forsaking the successful focus on sales and earnings of the existing company products and as a potentially disastrous grab for higher market share. The Dreyer's deal in particular came under criticism because even though Nestlé became the leader in premium ice-cream sales in the United States, the demand for ice cream in this market had been increasing only 2 percent a year since 1966. Many market analysts saw the purchase as primarily benefiting the minority shareholders of Dreyer's while offering little benefit for Nestlé. In a 2002 article in Institutional Investor, a London-based analyst noted, "Before Brabeck-Letmathe came in, this was a company that had a habit of paying [too much] for acquisitions, and people are clearly worried that could happen again."

Further troubling analysts was the fact that, under Brabeck-Letmathe's leadership, Nestlé's debt had quadrupled to $13.8 billion in 2001, and the company's stock was typically trading at a discount compared with other companies in the food sector. Many believed that this lower value was due in part to the fact that the company reported profits only twice a year as opposed to four times a year like most other companies. In addition, Nestlé had a lower operating margin than many other European food companies. For example, even though the company's shares rose 77 1/2 percent under Brabeck-Letmathe by the end of 2002, a contributor to Institutional Investor noted that "the company's enterprise value as a multiple of earnings before interest, taxation, depreciation and amortization" was only 8.4, which lagged behind competitors such as Unilever at 9.1 and Kraft Foods at 10.9. As a result, the company's stocks traded at about 15 times estimated 2002 earnings, less than many of its major rivals, including Kraft, Kellogg, and Hershey Foods, all of which traded at price-earnings multiples of about 20.

Brabeck-Letmathe remained unfazed by the naysayers. He maintained that the company's first priority was to achieve real internal growth and that acquisitions were only an additional tool to accelerate this growth while maintaining a long-term outlook. A Nation's Restaurant News contributor quoted Brabeck-Letmathe as saying, "Our long-term investment in Dreyer's speaks to the tremendous upside we see in the icecream business in North America and our confidence that Dreyer's has the right team in place to lead the industry."

Brabeck-Letmathe also pointed out that the acquisition of Ralston Purina put Nestlé on par with the global leader in pet food (Mars). He added that future acquisitions would be small. As for the company being undervalued, Brabeck-Letmathe stressed that this was not because of Nestlé's margins but because it is a complex company with a wide range of activities and business efforts. He noted that potentially the best growth markets for the company, including China and Russia, required a decade of investment before they were significantly profitable. He told Time magazine, "If I had run the company based on the opinion of financial analysts, it would already have been bankrupt."

INSTITUTING GLOBE

Part of Brabeck-Letmathe's plan to streamline Nestlé and make the company more efficient was to invest in new technology. The company's most important technology project was a complex and costly data project called GLOBE (for "global business excellence"). Brabeck-Letmathe directed the company to spend over $1 billion to automate and integrate all of its operations, from procurement through production to distribution. The revamping also included Nestlé's research and development unit to facilitate better coordination among the group's different businesses.

As a part of this strategy, Brabeck-Letmathe had the company buy and install $200 million worth of software from SAP to centralize Nestlé's sourcing of supplies. The software linked the company's five major e-mail systems, which enabled it to keep a tighter rein on raw material purchases around the world. Brabeck-Letmathe felt that the centralized control created by GLOBE would allow him to unify the company's wide-ranging negotiations and contracts with suppliers and, as a result, better centralize production. The effort led Brabeck-Letmathe to close 38 factories and cut $1.6 billion in costs while improving the company's ability to obtain volume discounts.

The GLOBE project involved up to two thousand people worldwide in defining and standardizing every aspect of the company onto a common information-technology platform. The result was that the company was able to eliminate mass duplications and redundancies in its systems, such as eliminating thousands of customers listed in several databases along with vendors who were no longer in business. Brabeck-Letmathe put a strong emphasis on GLOBE, making it the foundation for his promise to cut an additional $4 billion in costs.

MANAGEMENT STYLE

Nestlé's success under Brabeck-Letmathe stemmed largely from his unique ability to guide a global company while emphasizing that there was no such thing as a global consumer in the food and beverage industry. For example, while he streamlined the company and instituted more centralized control of raw materials, he continued to emphasize the regional aspects of Nestlé's market. In an interview with Tom Mudd for Industry Week, he noted, "This is fundamental to our thinking…. That means that our products, our brands, and our communications will always stay local in order to stay relevant to the local consumer."

Brabeck-Letmathe recognized the importance of short-term performance, but stressed that it must be balanced against the long-term development of the company. He pointed to the company's experience in Chile as an example. Instead of quitting because of a change in the political situation that could potentially be harmful in the short term, the company stayed and its Chile operations eventually prospered. Brabeck-Letmathe told the McKinsey Quarterly, "When you are forever looking out for your short-term interests, you are not a reliable partner."

Brabeck-Letmathe stressed communication as an integral part of his leadership style. He traveled constantly, meeting with an estimated two to three thousand Nestlé employees every year. He was especially interested in young managers and made an effort to get to know them and their families. This interest was driven in part by his plan to get managers throughout the world to buy into his idea that fundamental changes in the company were necessary. He set up a working group of national managers to help figure out how to make proposed changes work. He told Time that this approach stemmed from his mountain-climbing experience: "You learn very early on that you're better off working in a team."

Industry analysts and coworkers noted that although Brabeck-Letmathe had an adventurous spirit, when it came to business he was circumspect. Vreni Spoerry, a Nestlé director for more than a decade, told Time, "He's good at anticipating what might happen and seeing where the risks lurk." Perhaps Brabeck-Letmathe summed up his management style best when he told a BusinessWeek correspondent, "My job is to take an athlete who can run the 100 meters in 10 seconds and improve it to 9.8 seconds."

MOVING FORWARD

Brabeck-Letmathe sought to have Nestlé's management structure pay less attention to national boundaries in its operations. For example, he centralized management of the company's water business as a global operation based in Paris. He pursued a joint venture with L'Oreal to develop nutritional supplements that enhance beauty. He remained committed to Nestlé's individual national organizations manufacturing much of what they sell locally. In addition to his duties at Nestlé, Brabeck-Letmathe served as president of the Swiss component of Nestlé's beverage, chocolate, dairy, and other foodmanufacturing businesses. He served as vice chairman of the boards of directors of Credit Suisse Group, Credit Suisse, and Credit Suisse First Boston, he was a member of the boards of directors of L'Oreal and Roche Holding, and he was a member of the International Association for the Promotion and Protection of Private Foreign Investments, the European Round Table of Industrialists, and the Council of the Prince of Wales Business Leaders Forum.

See also entry on Nestlé S.A. in International Directory of Company Histories.