Nestle Has Sweet Tooth For Indonesia, Emerging Markets

By webadmin on 10:00 pm Mar 27, 2012
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Shoeb K. Zainuddin

Costing just Rp 1,000 (11 cents), a small sachet of powdered chocolate Milo offers affordable nutrition to millions of low-income Indonesians struggling to afford healthy food.

Meanwhile, wealthier Indonesians can choose Dancow Nutrigold, an infant milk powder priced at Rp 40,000 a can. Both are produced by Swiss global food giant Nestle, and form part of the company’s plans to expand its presence in one of the fastest growing consumer markets in the world.

To expand its market share in Indonesia, the company recently invested $200 million for a factory in Karawang, West Java, to be completed in 2013. This is on top of a $100 million expansion of its factory in East Java.

Nestle’s strategy, chief executive Paul Bulcke said, is to cater to customers with a wide range of incomes.

“We are an end-to-end company, because we want to grow in both emerging markets as well as developed markets,” he said during a recent visit to Jakarta. “You’d better have a portfolio that caters to the whole spectrum of society. As a global company, we want to be part of society and Indonesia is important to us.”

Although declining to disclose financial results, Bulcke said Nestle’s sales in Indonesia had reached $1 billion a year and were growing annually by a double-digit percentage.

“The potential here is huge because Indonesia is a country that is growing and has a large population,” Bulcke said.

Emerging markets, he noted, account for about 80 percent of the world’s population and are home to a fast-growing middle class. In contrast, growth in developed markets is slowing.

Currently, developing markets contribute 40 percent of Nestle’s global turnover of about $100 billion, but Bulcke expects this to rise to 50 percent in the next few years. This is because developing markets are growing by an average of 13 percent to 14 percent a year while developed markets are only growing at 4 percent to 5 percent.

One of the features of the way Nestle does business across the world is to combine local tastes and nutritional needs with its research and development.

Dancow, for example, is a brand specific to Indonesia, noted Arshad Chaudhry, chief executive of Nestle Indonesia. It was developed to meet the nutritional needs of Indonesian children, 50 percent of whom are deficient in iron.

“Our products are therefore specifically formulated to fill this deficiency,” he added. “We highlighted these benefits and consumers have responded.”

Responding to questions about an impending increase in fuel prices and subsequent inflationary pressures, Bulcke said he is not overly concerned, since commodity prices have been falling for the last 50 years.

“Higher prices move more resources and [research and development] into this activity,” he said.

“At the moment, only 1.5 percent of R&D is going into agriculture but so many of us are involved in it.”

He noted that food prices are rising because growth in emerging markets means more people are eating more and better food.

Nestle is not the only consumer-goods company investing heavily in Indonesia. Unilever, for example, has announced that it will make investments worth $600 million through 2013.

Revenues at local companies Indofood and Mayora are growing by double-digit percentages annually, though recent spikes in food prices may threaten profits.

“These type of investments are great for the economy,” said Harry Su, a researcher at Bahana Securities. “These are value-added investments and are great for job creation.”

With Indonesia’s per capita annual income expected to reach $4,000 soon, the country’s consumption boom is just starting, Su added.