Asia has come of age and is set to witness the next wave of growth. It has six of the 10 most populous countries in the world, with China and India boasting of the highest GDP growth in the decade.
Asia’s needs are just beginning to grow and multi-national companies are starting to understand it could mean big business. Committed players are favoured.
“There is no other way out for the food giants,” says Rajesh Srivastava Regional Head, Asia Food and Agribusiness Rabobank International .
“The home base is either stagnating or diminishing for the European companies. For the American companies, it is the case of cost-competitiveness and the market-size which is compelling them to enter Asia.
“The production base and the sourcing (raw materials, pricing, labor) are cheaper. That’s why it makes all the sense to be in Asia. It is an ever-expanding market!”
With a two and a half billion people in China and India having an impressive population growth, Srivastava says, the target is just right for big food companies.
He believes that the company will continue to do well through a combination of consolidation and local operational experience.
Not ruling out inorganic growth, he says, “I think there will be much Mergers & Acquisitions (M&A) activity in the F&B space in Asia than we have seen ever before and that for good reasons!”
Nestlé talks to FOOD
“Asia is the top priority for Nestlé ,” François-Xavier Perroud, Nestlé’s corporate spokesman based at the company’s Vevey, Switzerland headquarters, told FOOD.
Since its inception in 1867, until present, Nestlé has expanded with 500 factories across 83 countries.
The world’s biggest food and beverage company is the undisputed leader in the F&B sector and boasts of sales of CHF 43.47 bn (US$ 33.83 bn) with a net profit of CHF 3.68 bn (US$ 2.86 bn) for the first half of 2005.
It is not easy being at the top, that too for nearly a century.
From a humble beginning making baby milk products, the Nestlé empire today covers different product segments - baby foods, breakfast cereals, chocolate and confectionery, beverages, prepared foods, bottled water, dairy products, ice cream, etc.
FOOD: When did Nestlé enter Asia?
Nestlé (Perroud): Nestlé has been in Asia for a very long time. We have found advertisements referring to Bear Brand a Nestlé dairy brand in Thailand as early as 1890, in what then used to be Siam newspapers. We opened our first export sales office in Shanghai in 1904. The first legal trademark to be registered in Asia was the Nestlé trademark.
FOOD: Describe the opportunities / challenges the company faces in Asia?
Nestlé: The opportunities in Asia are quite clear and obvious.
Asia is that part of the world which is witnessing the most rapid economic growth in history.
There is no other country in the world which has grown as much as China has in the past few years.
For us, this is an extremely saleable and positive situation. And it explains that our decision to start actively investing in Asia in the early 60s has paid off. We made a bet on the continent, and the bet has proved very rewarding.
Biggest Challenge in Asia is to keep our feet on the ground and understand the demands of the consumers. We need to be committed and keep the same interest and respect for the Asian consumer that we have always had. That will bring forth a solid long-term relationship with the company.
FOOD: How big is the Asian market for Nestlé compared to the rest of the world?
Nestlé: The phrase ‘Asian market’ is a misnomer.
We are talking of entirely different markets like Japan and Bhutan, where there are no common standards. The fact is that Nestlé is present in all major Asian countries and keeps on expanding its brand franchise all over Asia.
Nestlé operations encompass three geographic areas: Zone Europe, Zone Americas and Zone Asia, Oceania and Africa (AOA).
AOA achieved organic growth of 6.0% in the first half of 2005. However, the EBITA margin for the AOA Zone fell from 17.8% to 15.9%, reflecting the costs of the product exchange in China, a tough competitive environment for soluble coffee in Japan and higher raw material costs, especially milk.
In Asia, Nestlé Waters is strengthening Nestlé PURE LIFE’s base of operations.
The brand was launched in Pakistan in 1998 and entered new markets in China, Thailand, and the Philippines.
Nestlé Waters is number one in Vietnam with its La Vie brand.
Annual bottled water consumption per person varies widely throughout Asia, from 2 L in Pakistan to 43 L in Thailand, giving Asia strong growth potential for the years to come.
FOOD: What in your view are the important reasons for Nestlé’s success in Asia?
Nestlé: The reason for success is two-fold: long term view and the willingness to patiently build a presence, for clearly, ‘we want to win the war, not the battle’.
We first built a commercial presence and then set up a factory or two. We did not go for a short-term approach for Asia. The fact is, to a large extent it has paid off.
For instance, even in a difficult market like South Korea, we have successful operation now. We had a time when it was hard to make profits, finding partners etc, but we could sort it out since we had a long-term view.
FOOD: What is Nestlé’s strategy for Asia?
Nestlé: Nestlé strategy has been defined a long time ago. It is clearly, to broaden our presence, become even more of an ‘insider’ and build our presence to become the key food company.
We also realize that in many countries, it is not going to happen in the shorter horizon. Look at Japan, for instance, penetration for a foreign food company is very difficult. But we are extremely successful in confectionary presence, coffee and other pet care product.
Quite frankly, the penetration in the food sector, per say, in Japan is quite modest. However, in the beverage sector with coffee, we are clearly No.1. So, it clearly varies from one country to another. There is no one universal standard one can apply because our strengths vary from country to country.
FOOD: Roughly what proportion of its revenues does Nestlé spend on food technology and research. Is R&D a centralised or decentralised function?
Nestlé: Roughly, 1.3% of our sales is spent on R&D. It is the highest R&D spent in the food business and stays unrivaled so far.