Winning in the New Reality - Home | Nestlé Global · E- commerce 3,168 Drug store 101 127 181 Traditional channel Alternative channel ... Sales (2009 = 100) Market Share . Agenda

Nestlé in Japan:

Winning in the

New Reality

Kohzoh Takaoka President and CEO

Nestlé Japan

Nestlé Investor Seminar, Shanghai

September 25th, 2012

1

Disclaimer

September 25th, 2012 Nestlé Investor Seminar, Shanghai

This presentation contains forward looking statements

which reflect Management‟s current views and estimates.

The forward looking statements involve certain risks and

uncertainties that could cause actual results to differ

materially from those contained in the forward looking

statements. Potential risks and uncertainties include such

factors as general economic conditions, foreign exchange

fluctuations, competitive product and pricing pressures and

regulatory developments.

Agenda

1. Introducing Nestlé Japan

2. Winning in The New Reality

3. Performance

2 September 25th, 2012 Nestlé Investor Seminar, Shanghai

58%

11%

4%

1%

10%

14%

2% Powdered and Liquid Beverages

Confectionery

Milk Products

Prepared Dished & Cooking Aids

PetCare

Nestlé Professional / Nestlé Health Science / Nespresso

Nestlé Waters

2

Sales by category of Nestlé in Japan 2011


Japan 9%

2011

3

Sales contribution in total AOA


4

Japan overview


Population (2011) : 128 million 23% ≧65 yrs old

Population (2050 Proj.) : 97 million 39% ≧65 yrs old

No of Households (2011) : 52 million 32% “1 person”

GDP (2011) : 508 trillion yen

GDP / Capita (2011) : 4.0 million yen

Unemployment (2011) : 4.6%

Life Expectancy (2010) : 85.9 years (Female)

79.3 years (Male) Main Area Populations

Kanto 43.5 million

Kansai 20.9 million


GDP

508 Trillion yen

Living

Expenditure

58%

F&B 14%

Data: Real GDP (expenditure basis) in 2011

Out-of-home

32 Trillion yen

In-home

40 Trillion yen

Japan‟s Food and Beverage market

6

The New Reality – challenges No more overall growth / saturated market


-10%

-5%

0%

5%

10%

15%

100

105

110

115

120

125

130

1980 1990 2000 2010 Sources: National Institute of Population and Social Security Research; UN; IMF

Population (M) GDP Growth Today Population

GDP Growth

Declining population &

limited GDP growth

7

The New Reality – challenges & opportunities: Ageing population


0

5

10

15

20

25

30

1970 1980 1990 2000 2010 2020 2030 Sources: UN (Estimated with: Developing countries-high variant / Developed countries-low variant)

% of elderly (≥65y.o.)

The elderly trend in Japan

Japan

UK

US

China

India

Russia

Brazil

Germany

France

% of elderly by countries

in 2010

Italy

13

Developed

countries

Developing

countries

23%

17

20

23

8 7 5

29%

32%

3.22 2.99 2.67 2.46

7.1 9.4 12.9 15.9 6.0 8.4

11.7 13.8

6.5 7.4

8.8 9.4

9.1 8.8

7.9 7.6

7.2 6.8

5.4 4.2

35.8 40.7

46.8 50.9

1980 1990 2000 2010

September 25th, 2012 8 Nestlé Investor Seminar, Shanghai

The New Reality – Challenges & Opportunities: Changing household profiles

(No persons)

No Household (million)

Family Size (Av. No persons)

37％

58％

1

2

3

4

5+

(31%)

(27%)

(19%)

(15%)

(8%)

(28%)

(25%)

(17%)

(12%)

(23%)

(21%)

(18%)

(22%)

(17%)

(20%)

(17%)

(18%)

(25%)

(20%)

(19%)


The New Reality – Challenges & Opportunities: Consumers demand a lot of new products

Sources: 1) ASD 2) Intage SRI 1) 2011 for Canned Liquid Coffee 2) 2011 for Chocolate

Beverage1) Chocolate 2)

New

Existing

42% 39%

Total 3,430 273

Very large No of SKUs:

~40% of SKUs are replaced every year

116

157

1,348

2,082

98% of them are

gone

one year after the

launch


The New Reality – Challenges & Opportunities: Consumers shopping smarter & looking for lower prices

Sources: METI; Fuji Keizai

68 74

% of Consumer who buy private brands

2008 2009 +9%

11

89 Multi-store shoppers

Single store shoppers

Consumer shopping style (% of shoppers)

100 Total (%)

2009


The New Reality – Challenges & Opportunities: From traditional to digital in consumer communication Traditional media

0

10

20

30

40

50

60

70

2006 2007 2008 2009 2010

Digital media

0

10

20

30

40

50

60

70

2006 2007 2008 2009 2010

Watch TVCM usually

Listen radio CM usually

Read newspaper ad usually

Read magazine ad usually

Collect necessary information

from Web usually

Ever clicked banner ad on Web

Watch Web ad usually

Read mail ad usually

Source : Hakuhodo HABIT2011

Declining access trend Growing access trend (%) (%)


The New Reality – Challenges & Opportunities: Channel structure change

0

50

100

150

200

1999 2005 2010

Index (1999 = 100)

Department store

Supermarket

Convenience store

E- commerce

3,168

Drug store

101

67

127

181

Traditional channel

Alternative channel

Source: METI / Fuji keizai


The New Reality – Challenges & Opportunities: Complex traditional trade still a reality

AEONTOP VALUE

AEON GLOBALMERCHANDING

AEON GLOBALSCM

MARUHISA DAIEI MARUETSU

TOBU STORE LAWSON

AEON

OK

FAMILY MART

UNY

SEICO MART

MAMMY MART

SUMMITSEVEN&I HOLDINGS

ITO-YOKADO

SEVEN ELEVEN JAPAN

LIFE CORP.

SUPERDAIEI

FINE LIFE

SAKE OROSHI

UNION<SOU>

JAPAN

INFOREX

ALLIANCE

NETWORK

ITOCHU FOODS

NIPPOON

ACCESS

KOKUBUMITSUBISHI

SHOKUHIN

ASAHI FOODS

KATO SANGYO

NIHONBASHI

KABO

YAMABOSHIYA

MARUICHI

SANSHO

NACS

NAKAMURA

ALBIS

MITSUI FOODS

TOHKANSANESU

SATOH

KANAKAN

MARUDAIHORIUCHI

KUZE

FOOD SERVICENETWORK

YAMAEHISANO

KAGOSHIMA

SEICOFRESH FOODS

SHOWA

UNIVERSALFOOD

DOLCE

KONFEX

NIHON SHURUIHANBAI

FUJITOKUBUSSAN

NAGANOKENSHURUIHANBAI

TAKEDAFOODS

3.61%1.56%

28.41%

15%

15%

30.01% 4.8%

20% 80%

2.3%

About 10billion Yen

32.4%

1.53%

15%

19.53%

3.2%

28.79

%

83.5%

85%

85%

85%

60.6%

0.2%

100%1.96%

6.66%

6.66%

5.05%

91.9%

6.66%

4.2

5%

2%

2.14%

2.22%

31.58%

51.7%

34%1.83%

8.26%

11.1%

8.57%

4.69%

2.3%

1.5%

5.0

7%

100%

98%

51%

SUMITOMO

ITOCHU

MITSUBISHI

MARUBENI

HASEGAWA

14.7%

TOHO

SHUREN

KOKUBU

KANSAI SUPER

5%

73.8%

0.39%

MAXVALUE

CHUBU

JOIS2.2%

1.82%

3%

26.3%

AEON

HOKKAIDO

2.08%

3.55%

IZUMIYA

3%

4.71%

YUASA

FUNASHOKU

2%

MITSUI

BUSSAN

Investment Rate

Shosha

Wholesaler

Retailer


Challenges & Opportunities in The New Reality Declining total population, increasing single households and

elderly population

Increasing polarisation of wealth and consumption

High demands for quality, innovation, freshness and customisation

High "nutrition awareness"

Highly developed alternative communication

Shifting from traditional channels to emerging new channels

Highly complex traditional trade still a reality

Agenda

1. Introducing Zone AOA


3. Performance


17

The Nestlé Strategic Roadmap to Win in The New Reality


17

Strategic enablers to achieve Nestlé-in-Japan Mission


Bigger

Bolder

Better

(B3)

I &R

Nestlé

Continuous

Excellence

B to C / Direct Model

From Mass Ad

to P2P

18

NESCAFÉ Barista enjoys great popularity


Now the best-selling coffee machine in Japan

Launched in March 2010

„Drink instant-coffee-machine style‟ is catching on

5 kinds of café

menu with one

button

Machine price

reasonable

Enjoy a cup of café

latte for 25 yen !

B3 Innovation

10% of machine

purchasers are

R&G coffee

drinkers

19

NESCAFÉ Dolce Gusto Creating new segment in coffee machine market


Enjoy fresh taste & aroma and varieties anytime using capsule for

NESCAFÉ Dolce Gusto, completely new and different from traditional

electric coffee maker

B3 Innovation

20

Kit Kat "Sweetness for Adults" Reinforces Kit Kat brand


Differentiated brand image from original Kit Kat

Gained market share

⇒Real 2nd pillar to the brand!

Crushed dark biscuits mixed

into chocolate mass

Unique texture

Enhanced lightness

Less sweet

B3 Innovation

21

Move to digital accelerates owned/earned Media value


Mass Ad

to P2P

2001 2011 2011

22

KIT KAT strengthens brand value by PR exposure 5 times more PR exposure than TV every year


Campaign born from consumers‟ word-of-mouth

KIT KAT sounds like Kyushu‟s dialect "Kitto Kattoh" (Surely win!)‟ and has become a lucky charm for Juken among

students since around 2002

Sending message through „third party‟ makes the news more public and sympathetic

Students bring it to test room, or teachers, family, or friends send it to students to cheer them up

KIT KAT Juken Campaign

KIT KAT X Japan Post KIT KAT X Japan Railway

Mass Ad

to P2P

Investment Exposure

x 9.6

2011

23

Our PR activities are on the right track


Brand PR investment vs. exposure

Mass Ad

to P2P

24

Nestlé Consumer site contains E-commerce, brand communication,

membership programme, entertainment for wider access and CRM


Registered members： 2.5 million (as of the end of July, 2012)

The number of page views: 270 million （2011 in total）

Entertainment contents

Online shopping

Brand contents nestle.jp

25

Channel development

Established direct selling as growth driver


‟Nestlé on-line shopping‟

Direct Model

26

NESCAFÉ Barista Innovations beyond products


New Innovative business model exploration - NESCAFÉ BARISTA office

Unique opportunity : 5.3 m small offices

New business model idea:

– Installation of free NESCAFÉ BARISTA machine

– NESCAFÉ ambassadors engagement

– Direct sales of coffee

Test sales (Jun.-Jul. 2012) successfully done

in Hokkaido region

Exploring national roll out

TV infomercial

Direct Model

OfficeBarista60sec_eg.mov

Evolution of Nestlé Health Science in Japan

Current businesses

Ageing care

Critical care

Paediatric

Future opportunities

Metabolic health

Gastrointestinal

Brain health


100

111

120

2009 2010 2011

Sales (2009 = 100) Market Share

Agenda

1. Introducing Zone AOA


3. Performance



100

85 91

2003 2007 2011

Organic Sales Index (Year 2003 = 100)

Return to sales growth Nestlé in Japan


2007 2008 2009 2010 2011 2012 H1

TNWC as % of sales

Acceleration of working capital improvement Nestlé in Japan

Winning in the New Reality in Japan

Unfavorable demographic trends – shrinking and ageing population

Consumers becoming more demanding and value conscious

Traditional Media giving way to Digital Media

Sales channel structure evolving from “Traditional” to “Alternative”

Complex and expensive trade structure still remains relevant

Return to Sales Growth Accelerated Profit Margin improvement

Increased Capital Efficiency

With emphasis on:

B3 innovations

Direct business model

From Mass Ad to P2P communication

Nestle Continuous Excellence


The New Reality Nestlé Japan‟s Response


Thank you!


Q & A

Documents

Winning in the New Reality - Home | Nestlé Global · E- commerce 3,168 Drug store 101 127 181 Traditional channel Alternative channel ... Sales (2009 = 100) Market Share . Agenda