Nestlé has a rich history in China. The group, which opened its first office in Shanghai in 1908, provided the blueprint for western companies looking to expand in the country.
AP Photo/Ng Han Guan
Chinese distributors are chasing the Swiss giant for refunds after it allegedly oversupplied the market as demand dropped.
In China’s Hebei province Feng Liqing has a 100 square metre warehouse full of boxes of Nestlé infant formula and milk powder. The problem is she can’t sell any of it.
Feng, a Nestlé distributor since 2018, says that the world’s biggest food company pressed her to buy more stock than the market could absorb. She said she felt that a failure to comply would result in Nestlé ditching her for another distributor.
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Her relationship with the Swiss company broke down in 2022, prompting Feng to travel to Nestlé’s office in Beijing to make her case that the KitKat maker had reneged on an agreement to refund her for the unsold goods. Feng says she is owed about Rmb1mn ($147,000).
“My expenses keep accumulating . . . my bank loans have to be repaid. So now I truly can’t sustain it anymore,” she said.
Feng is one of several Chinese distributors who claim the company behind Nespresso pods and Maggi noodles owes them hundreds of thousands of renminbi in reimbursements for unsold goods.
Former and current Nestlé executives say the distributors are the victims of “channel stuffing” — a questionable practice in which a company oversupplies the market with products, often to hit internal sales targets.
Nestlé has a rich history in China. The group, which opened its first office in Shanghai in 1908, provided the blueprint for western companies looking to expand in the country. It played an important role in establishing China’s modern dairy industry in the 1980s, even going so far as shipping cows from Australia to the country.
But the past decade in the country has been difficult for Nestlé. Greater China, which makes up 5 per cent of the group’s SFr89.5bn ($114.8bn) annual revenues, was its worst-performing major market last year, with sales declining by 10.2 per cent. Its sales in the region, where it has more than 30 factories and research facilities, have declined in six of the previous seven years.
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The embattled Swiss giant is one of several western companies to have struggled in China, where local competition has intensified and growth in consumer spending has slowed. Nestlé previously blamed the slowdown on a decline in China’s birth rate, which hit sales of infant formula.
The deterioration has come at a time when the conservative 159-year-old group has been engulfed by leadership crises and product safety scandals.
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In 2024 chief executive Mark Schneider was ousted by chair Paul Bulcke as the company battled weak consumer demand. His replacement, company veteran Laurent Freixe, was fired a year later for having an affair with a subordinate. Bulcke stepped down weeks later after shareholders criticised his handling of the scandal.
In Nestlé’s China business channel stuffing proliferated during a period of waning demand, the executives said. The practice usually leads to a short-term revenue boost that cannot be sustained and risks alienating distributors, who are forced to discount their goods, jeopardising the health of the brand itself.
The former Nestlé executive, who had direct knowledge of its China operations, described it as an “easy way to achieve your bonus and show numbers”. The person warned that “if you don’t build up ‘consumer pull’ at the same time as pushing the goods . . . you will run into trouble”.
Channel stuffing began during the latter part of the 2010s at Nestlé China, according to the current executive. During that time the company “pumped a lot of stock, particularly in infant nutrition”, the person recalled.
In 2021, with sales in China stuck in reverse, chief executive Schneider sought to improve performance by separating the country out from Nestlé’s Asia reporting structure so that it was a standalone sales region. He replaced then China CEO Rashid Qureshi with David Zhang, and had the new China chief report directly to him.
The channel stuffing intensified. The executives estimated that Nestlé went from working with hundreds of distributors to a few thousand. A person close to Nestlé disputed that, saying that the company typically works with around 1,500 distributors in China. Qureshi and Zhang did not respond to requests for comment.
Three distributors in mainland China told the FT that Nestlé historically reimbursed them for goods they had been unable to sell before their expiration date, provided they were returned within a certain timeframe. But in recent years they said the company delayed refunds or simply failed to issue them.
Mr Su, who began selling Nestlé coffee, milk powder and confectionery in Hebei province in 2019, is among those chasing the company for reimbursements.
Su has travelled to Nestlé’s office in Beijing multiple times to protest at his treatment, on one occasion calling the police after the employee he struck the agreements with refused to meet with him. The problem for Su, he said, was that he was operating on the basis of an oral agreement.
“[You should] always have your agreements in writing,” said one mainland lawyer.
The current Nestlé executive said that “when [distributors] don’t get their money back, there is not much legal recourse [for them],” adding that the complaints were more of a reputational issue than a financial one for Nestlé.
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Mr Fan, another distributor who began selling Nestlé goods in Jiangsu province in 2018, said the company’s management was “chaotic” in the tough years after the Covid-19 pandemic. Fan said that in some instances Nestlé tried to charge distributors prices that were above the prevailing retail price.
Milk powder, for example, was available for around Rmb60 online but Nestlé wanted to sell it to distributors at Rmb89.
“How can you sell that?” exclaimed Fan, who has travelled roughly 1,000km to Nestlé’s headquarters to try and recoup money he believes he is owed. A person close to the company said the majority of distributor claims have been resolved.
After noticing that the number of Chinese distributors was multiplying, executives in Nestlé’s lakeside offices in Vevey, Switzerland were spurred to act, according to people familiar with the situation.
In April last year Zhang was replaced by Kais Marzouki, a company veteran with 30 years of experience.
Zhang has been kept on by Nestlé as a paid adviser for 18 months after his departure, the current and former executives said. Nestlé feared that if he departed abruptly it would have been considered hostile by Chinese officials, they added.
Under a new chair, Pablo Isla, and new CEO, Philipp Navratil, Nestlé is embarking on a turnaround, which includes simplifying the group’s organisational structure and holding regional heads more accountable for performance.
Marzouki has scaled back the number of distributors that Nestlé works with in China, according to the people. “The lower the number, the better. It’s easier to manage . . . inventories, trade terms and pricing,” said the former executive.
Marzouki is also trying to overhaul Nestlé’s model so that it builds up consumer demand before selling goods to distributors, the people said.
Nestlé said in China it’s “focused on strengthening consumer demand, investing behind our strongest brands, and positioning the business for the long term with the right leadership in place”.
A person close to the company said it expects stock levels in the supply chain to return to normal levels by mid-2026 through regular sales, promotions and “other clearance actions”.
That is of little consolation to the distributors still chasing Nestlé for money. Feng said she is planning to travel again to the group’s headquarters in Beijing.
“I’m not afraid of anything. I just want to find Kais [Marzouki] and get an explanation,” she said. “My family can’t carry on anymore.”
Copyright The Financial Times Limited 2026
