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Bernie Stephan Nestle
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Nestl in China Localization as a growth driver
24th October 2014
Nestl at a glance
CHF 92.2 billion in sales in 2013
339,000 employees in over 150 countries
468 factories in 86 countries
Over 2,000 brands
1 billion Nestl products sold every day
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010
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Fo
od
& B
eve
rag
e S
ale
s (i
n b
n U
SD
)
The USD > 10bn Food & Beverage Companies in 2013 A graphical sales comparison between Nestl and its main global competitors
Nestl is the worlds largest food and beverages company but is still only 1.7% of the market
The 20 largest food companies account for less than 9% of the world market 3
Nestl sales office
opened in Shanghai
1874
Started trading activities in HK. First trademark (Eagle
sweetened condensed milk)
1908 1990
1996
Shuangcheng factory
(Heilongjiang Province)
Establishment of Nestl China HQ in Beijing
1999
80% partnership with Totole (Shanghai)
80% partnership with
Haoji (Sichuan Province)
2002
2010
70% partnership with
Dashan (Water)
Nestl China history: a long presence but lacking scale & depending mainly on western products
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01
2
3
4
5
6
7
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WAHAHA (all beverages)
TINGYI (noodles, bever.)
MENGNIU (dairy, I-C)
COCA-COLA (CSD, juices, teas)
WANT WANT (snacks, bever.)
HAITIAN (soya sauces)
STRONG ( jellies, milk tea)
(CSD, juices, teas) UNI-PRESIDENT (noodles, bever.)
CHINA FOODS (oil, bever., wine)
HSU FU CHI (candies, cookies)
WANGLAOJI (herbal drinks)
YILI (dairy, I-C)
( peanut milk, congee)
(IMF, water)
BRIGHT (dairy)
CAGR 08-11
Note: Unilever F&B only (CHF1.4 billion with HPC). Coca Cola and Pepsi figures include bottlers. Nestl NNS for NiM Mainland China
Turnover (2011 Est, CHF bio)
10% 15% 20% 25%
The Chinese F&B market in 2011: highly fragmented & dominated by local players
Key F&B Players - Turnover & Growth 2008-2011
Source: Nestl GCR Analysis
5
Crossroads ahead
THE KNOWN
Focus on global brands in niche categories
THE UNKNOWN
Grow by entering local & large categories
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Understand the target/partner (background,
culture, objectives)
Establish trust on both sides by understanding the underlying aspiration
Understand that some things will take longer than in Western culture
Take time to build relationships No clean deal high risk
Large foreign buyouts likely to face increasing regulatory hurdles and delays
Central government approval if notion of national economy and security
Increasing regulation
Lack of transparent accounting processes and
reliable market data
Often some challenges on management and large # of employees
Key considerations for M&A in China
IPO plans delayed, currently low valuation (but still high valuation expectation)
Market getting tougher (lower growth, increasing competition)
Some cash flow issues
Good window of opportunity
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YINLU is an ideal platform to become a major player in healthy dairy-based beverages & nutritious congees
Chinese relevant products
Leader in ready-to-eat congee and ready-to-drink peanut milk
High operational efficiency & Aseptic experience
4 large-scale standardized factories
~4 mio tons of capacity 61 production lines with
expertise in aseptic PET
Traditional trade & Deep penetration
8000 sales people
1.1 mio outlets covered
April 2011: 60/40 partnership with founding families
Headquartered in Xiamen
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HSU FU CHI is the leader in sweet confectionery in China with a very unique sales model
Leading position with ~900 products
Candies, chocolates, cakes, wafers, jellies cookies, snacks, sachima
3 production bases in Guangdong (South), Henan (Center), Chengdu (West)
529 kt of capacity 55 workshops 165 production lines 120 high speed
packing lines 80% imported equipment
Invented and developed the Pick&Mix format in China
3500 displays in Hyper and Supermarkets
July 2011: 60/40 partnership with founding families
Headquartered in Dongguan
Hsu Fu Chi
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Without 3 JVs (YL, HFC, WN)
Note: Unilever F&B only (CHF1.4 billion with HPC). Coca Cola and Pepsi figures include bottlers. Nestl NNS for NiM Mainland China
Turnover (2012 CHF bio)
Nestl reaching the Top 5 largest F&B players
Key F&B Players - Turnover & Growth 2009-2012
Source: Nestl GCR Analysis
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9.36
8.57
5.31
3.63
3.12 2.94
3.15
2.03
1.47
0.93
6.18
2.909
1.268
0.848 0.868
5.064
2.691764706
0
1
2
3
4
5
6
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8
9
10
0% 5% 10% 15% 20% 25% 30% 35%
YILI (dairy, I-C)
HSU FU CHI (candies, cookies)
( peanut milk, congee)
WAHAHA (all beverages)
TINGYI (noodles, bever.)
MENGNIU (dairy, I-C)
CHINA FOODS (oil, bever., wine)
WANT WANT (snacks, bever.)
UNI-PRESIDENT (noodles, bever.)
BRIGHT (dairy)
JIADUOBAO (herbal drinks)
CAGR 09-12
(IMF, water)
With 3 JVs (YL, HFC, WN1)
COCA-COLA (CSD, juices, teas)
Nestles drivers for JVs with Yinlu & HFC
Why did we enter the JVs with Yinlu & HFC? Transform Nestle in China - Achieve scale & relevance
New categories
Different business model
Chinese insights
Growth opportunities
What is their strength? Entrepreneurship
Speed & flexibility
Category knowledge
Proven success in China
Realization about the limits of their own model & succession
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Deciding factors for Yinlu & HFC to choose Nestle as a partner?
Why did THEY choose Nestle as a partner? Nestl's respectful approach
Non imperialistic way to manage separate markets & businesses
Totole JV track record
Nestl's promise to keep their identity
Ensure long term success for their brands
What does Nestle bring to them? Know How, R&D and Quality
People
Planning
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The JVs have transformed Nestl in China resulting in a unique business model
Portfolio diversity - Adapting to local preferences
JVs & Wyeth Nutrition account for >70% of NNS
Beijing Head office and 4 Head offices as well as Different business models
Seasonality & complexity driven by the Chinese calendar and events
RTM # of POS
Yinlu >1,400,000
Nestle F&B 314,000
TTL 200,000
HFC 120,000
Wyeth 31,000
Example: HFC
Small to mid-sized business in existing or adjacent categories
Strong synergies in terms of manufacturing and/or S&D
Full integration Standalone business
Current management continues to drive the business
Owner retaining equity to be incentivized to continue to create value
Nestle providing full support in terms of R&D, finance & marketing
When does it apply?
Mid to large-size businesses in new categories where there is limited/no synergies with our existing businesses
Mindful to maintain low-cost structure
Two post-acquisition models
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One Country two systems
Organization Alignment
Compliance
Governance
Build on the JV business models and respect differences
Define service provided by Corporate Functions to entire NIM
Identity Culture Values
Find the right balance
Defining a hybrid model for Nestle GCR
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Managing the JVs: its less about the WHAT, much more about the HOW to do
Western Professional Manager
Chinese Entrepreneurial Manager
Implications
Education University High-School / College Be modest & humble
Languages Multiple + some Chinese Chinese + local dialect Learn basic Chinese
Communication Emails / PPT 1-to-1 / Phone Get personal
Decision Collegial Top Down Give guidance
Risk Manager Taker Be pragmatic
MOR Monthly
Complete Review Irregular
Focus on key issues / actions Prioritize key issues & action
plans
Planning Must / Fixed Waste / Flexible Be flexible & adaptable
KPI OG / OP1 / WD Growth / MS / Cash-Flow / ND Grab Market Potential
Employee Management
Inclusive Professional distance
Hierarchical Blurry private/profess. line
Get personal
Role of Government Last priority Central Get political
Drinking Culture Whisky, Cognac & Cigar Repetitive shots Try if you can
Holidays 5 weeks 5 days Be productive on-duty
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Glocal A Glocal Company
Global Local
Global Best Practice Corporate Management Specialist
Local Insights Entrepreneurship Generalist
A hybrid business model enables us to get the best out of both global and local expertise
17
THANK YOU
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