Nestle plans to expand in region with four factories, one in Dubai

World's largest food company sees 10% growth in Middle East

Image Credit: Bloomberg
Packages of chicken bouillon undergo quality control checks at the Nestle Totole chicken bouillon factory in Shanghai. Nestle'sstrategy is to work with the Gulf Cooperation Council customs zone, which is why its new UAE factory is in the Techno Park.
Gulf News

Dubai:  Nestle is expecting over 10 per cent growth in 2010 in the Middle East, and is building four new factories in the region, one of which is in Dubai, said Yves Manghardt, Chairman and CEO of Nestle Middle East. His confident view of business prospects in the Middle East for this year was in contrast to what happened in 2009 which was "a tough year with low growth".

Over the past 10 years, Nestle has changed its business model in the region away from its earlier agent-based businesses into 10 joint ventures. This gave the company much greater control of what was going on, with the result that "we are now the leader in managing the businesses," said Manghardt.

The Middle East has about 1.4 per cent of Nestle's global turnover of $101.4 billion, and "the target for 2010 in the Middle East is to grow by over 10 per cent from the $1.4 billion (Dh372.452 billion) sales we did in 2009, of which $150 million was in the UAE", said Manghardt.

Nestle's strategy is to work with the Gulf Cooperation Council (GCC) customs zone, which is why its new UAE factory is in the Techno Park, deliberately chosen as an onshore site which is not in the Jebel Ali Free Zone. This is because Nestle want its products to be counted as GCC manufacture, so when they are taken from the UAE to other GCC states they will not be considered foreign, and therefore not subject to import duties.

The new factory will be 1.78 million square feet, and will employ about 400 people, with a capacity of 100,000 tonnes. It will produce Nido and Kit Kat, and will also take over the production of the existing water factory as well.

Nestle is the world's largest food company, with $101.4 billion in sales in 2009. It employs more than 280,000 employees, and has 499 factories in 83 countries. It has over 10,000 products, and sells over one billion products every day. All of this makes Nestle more than double the size of Pepsi, its nearest rival in the processed food sector.

But despite being the largest processed food company in the world, Nestle has an apparently small 1.7 per cent share of the world food market. But this figure covers all food in the world, which includes an estimate of all meat, fruit and vegetables sold in every supermarket and small stall in markets all over the world.

Nestle's sales are predominantly in the Americas (with 44 per cent) and Europe (with 36 per cent). That leaves a surprisingly small share of its sales in Asia, which includes the huge markets of China and India, as well as the Middle East.

Manghardt said that one reason for the low Asia sales is that many countries in Asia are only now beginning to see widespread prosperity, which is when the wider population starts to buy the processed food that Nestle manufactures.

But low sales also mean that there is room for growth, and Manghardt said that Nestle's global strategy looks forward to strong growth in Asia. He also pointed out that the company is not afraid of investing in new markets and has been a long-term investor in Asia.

He said that Nestle's first factory in China was opened in 1990, when China was still a very unusual market to invest in, long before China had became the popular destination for western multinationals that is it today.

Nestle has four major advantages in its business, said Manghardt, listing: very strong products and brands, substantial spend on R&D, wide geographic presence, and a strong internal culture based on people and values.

Responsibilities

The company is well aware of its responsibilities to the 3.4 million people who draw their livelihoods directly or indirectly from Nestle around the world. More than half of the company's factories are in the developing world, and Nestle consciously works to ensure that employment opportunities offer a better standard of living and self development.

It is confident enough of the strength of its brands to allow all sorts of local variations to global brands, unlike some companies which go to great lengths to ensure that their product is the same all over the world.

Nescafe is an obvious example, said Manghardt, who explained that drinking coffee always has very local heritage: Greek coffee is not the same as Spanish or Japanese. Therefore Nestle makes a different coffee mix for Nescafe in different countries.

The same happens with chocolate, which changes a lot from country to country, depending on taste and consumer habits and expectations.

The company is very aware of its environmental responsibilities, and Manghardt notes with pride that while productivity went up by 63 per cent, energy use was down by 7 per cent, greenhouse gas production down by 16 per cent and water withdrawal was down by 33 per cent, and water consumption was down 45 per cent since 2005.

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