The Kremlin’s takeover of Nestlé and Auchan assets signals a comprehensive escalation of foreign investment risks in Russia.

A new question must now be added: Can the money earned and assets held be safely withdrawn? IV. Why is Russia increasingly losing the trust of foreign investors? Focusing solely on Nestlé and Auchan may make it easy to view this as an isolated action targeting Western companies. But zooming out over time reveals that this is no longer an isolated incident. Since the outbreak of the Russia-Ukraine conflict in 2022, Russia has continuously tightened regulatory oversight and control over assets belonging to companies from "unfriendly countries." In 2023, Russia established a temporary management mechanism for assets of "unfriendly countries." Since then, multinational corporations including Danone and Carlsberg have faced similar situations. According to research by Russian law firm NSP, as of 2025, the value of private assets transferred into state control—through nationalization, judicial proceedings, and other means—in Russia has reached several trillion rubles, including substantial foreign corporate assets. This reflects a critical shift: foreign investment risk in Russia is transitioning from commercial risk to sovereign risk. What is commercial risk? Declining consumer demand, intensifying market competition, exchange rate volatility, and falling industry profitability—all of which companies can mitigate through operational strategies. Sovereign risk, however, is fundamentally different. A policy shift may strip companies of operating rights; escalating sanctions may freeze capital flows; and decisions to exit may force asset sales at steep discounts. Such risks cannot be hedged effectively using conventional market tools. Thus, Russia faces a growing concern—not that its market lacks potential, but that foreign investors are recalculating the true cost of entering it. V. Even investments by "friendly countries" carry incalculable "sovereign risk." Nestlé’s sales in Russia now account for only a tiny fraction of the group’s global revenue. Therefore, even if asset impairments ultimately occur, their impact on Nestlé’s overall financial health may be limited. The same applies to Auchan. From a corporate perspective, both companies can readily treat their Russian operations as one component of a global portfolio—subject to strategic reallocation. Yet for Russia, the situation is far more complex. Because what foreign investors value most has never been market size alone—but rather three foundational elements: rules, property rights, and exit mechanisms. A market may offer high profits, a massive consumer base, abundant resources, or low production costs. But if businesses cannot reliably anticipate whether they will retain control over their assets, repatriate profits, or withdraw freely according to market rules, investors will inevitably demand a significantly higher risk premium. That is Russia’s core challenge today. In the past, companies entering Russia assessed: How large is the market? How low are the costs? How high are the profits? Now, they must also ask: If I decide to leave one day—can I take my assets with me? This single question may outweigh all others in importance. Therefore, what truly matters about the Nestlé and Auchan cases is not how much asset value they lost in Russia—but that these incidents serve as yet another stark reminder to multinational corporations worldwide: Russia’s investment logic has fundamentally changed. Previously, Russia was an investment destination where market risk needed assessment.

The underlying China-market dilemma behind Nestlé’s 16,000-job layoff: a long-overdue transformation.

On October 16, 2025—just six weeks after assuming office—Nestlé’s new CEO Philipp Navratil announced a major restructuring plan: the company intends to eliminate approximately 16,000 positions globally, representing 5.8% of its total workforce of roughly 277,000 employees. Of these, 12,000 roles are white-collar positions—including administrative, sales, and managerial functions—while the remaining 4,000 are in manufacturing and supply chain operations. This initiative aims to generate savings of CHF 3 billion by the end of 2027, primarily through automation, shared services, and improved operational efficiency. Such a large-scale layoff is rare in the fast-moving consumer goods (FMCG) sector. As the world’s largest food company—with iconic brands such as KitKat and Nespresso—Nestlé has already been grappling with multiple pressures, including the prior CEO’s dismissal due to a misconduct scandal, rising commodity costs, and U.S. tariff impacts. Notably, implementation has already begun: for example, the closure of Nestlé’s Jurupa Valley factory in California has left 88 workers unemployed. Photo source: Agence France-Presse 01 Cost-cutting and downsizing Nestlé’s “slimming down” is imminent Nestlé’s layoffs are not an isolated event but rather an amplified reflection of industry-wide challenges. First, the wave of automation is a key driver. The company explicitly stated it will deploy AI and automation to replace certain white-collar roles to enhance “operational efficiency.” This underscores the urgency felt by FMCG giants amid digital transformation—from optimizing supply chains to automating administrative tasks—all aimed at reducing labor costs. Second, weakening global demand serves as the trigger. Although Nestlé’s Q3 sales growth exceeded expectations, its business in Greater China remained persistently sluggish, dragging down overall organic growth by 80 basis points. CFO Anna Manz noted that the company had previously overemphasized expanding its distribution network in China while neglecting deeper consumer engagement—resulting in inventory overhang and operational inefficiency. Moreover, inflation, tariffs, and shifting consumer spending patterns (e.g., from goods to services) have further intensified pressure. At a broader level, the FMCG industry is undergoing a widespread “slimming down” trend. Nestlé’s move mirrors those of competitors such as Unilever and Procter & Gamble, all pursuing layoffs and reorganizations to counter slowing growth. The International Union of Foodworkers (IUF) criticized the decision for prioritizing shareholder returns over employee welfare, calling instead for a “people-first” approach. Under global inflationary conditions, Nestlé’s recent growth has relied heavily on price hikes rather than volume expansion. In 2022, Nestlé’s internal growth rate (i.e., actual sales volume) was nearly zero, while pricing growth reached 8.2%; in 2023, organic growth stood at 7.2%, yet internal growth was merely 0.3%. In the first nine months of 2025, Nestlé’s total sales amounted to CHF 65.9 billion, with organic growth of 3.3%—but internal growth was only 0.6%, with pricing contributing 2.8 percentage points. This pricing-driven, volume-weak growth model is unsustainable. Navratil explained the layoff decision by stating: “The world is changing, and Nestlé must accelerate its transformation—including making difficult but necessary decisions.” The 49-year-old CEO is Nestlé’s youngest leader in nearly 60 years and has served within the group for over two decades.

Nestle Third Quarter Organic Sales Beat Forecast, Deconsolidates Russian Business

13 hours ago

Nestle reported better-than-expected 4% organic sales growth for the third quarter while deconsolidating its Russian business following asset seizures. The company maintained its full-year 2026 organic sales outlook between 3% and 4%.

reuters

2026-04-22

Nestle Beats First-Quarter Sales Estimates on Stronger Coffee, Food Demand

2026-04-28

Sherwin-Williams (NYSE:SHW) Posts Better-Than-Expected Sales In Q1 CY2026

2026-07-22

Nestle beats Q2 organic sales expectations, forms waters joint venture

2026-10-21

Nestle Third Quarter Organic Sales Beat Forecast, Deconsolidates Russian Business

Nestle Third Quarter Organic Sales Beat Forecast, Deconsolidates Russian Business

FAQ