To succeed in emerging markets, you have to think – and act – locally.
That was the central message from just-food’s interview with the boss of Nestle’s business in Greater China, Roland Decorvet.
“If you come as a western company with a western approach and selling your western products you are in for a short run,” Decorvet told us in our latest two-part just-food interview, published last week.
The world’s largest food manufacturer has, Decorvet claimed, put the importance of ‘local’ at the centre of its operations in China, from investment in the country’s agricultural sector to NPD. Nestle’s last two acquisitions in China have also been majority stakes in significant local businesses – Yinlu and Hsu Fu Chi – working with them, Decorvet says, as partners, rather than buying the operations outright.
One notable area in China where Nestle still relies on its international network is in importing milk for its infant formula sold in the country but, that, as is well known, is down to tapping into the local demand from Chinese consumers for foreign formula.
Decorvet’s is correct to highlight how important it is to put ‘local’ at the heart of your emerging markets strategy. Hershey, for so long a company criticised for not looking outside the US in any significant way, is trying to catch up with rivals in markets like China. Last month, it launched its first-ever overseas brand in China – a milk candy that, while set to face stiff competition, was tailored to local tastes.
The smaller companies among you may sniff that larger companies like Nestle and China have the resources to target R&D and NPD at local consumers but, sit in on any conference designed to highlight the opportunities in export markets, and speakers emphasise how important it is to research your market – and potential consumer – thoroughly.
Nestle started trading in Hong Kong in 1874 and opened its first sales office on the mainland in 1908. However, in recent years Nestle has stepped up the pace with the development of a distinctive model it believes will drive expansion.
There have been some concerns about Nestle’s recent performance in emerging markets. In April, when Nestle reported its first-quarter sales, Andrew Wood, an analyst at Sanford Bernstein described Nestle’s operations in Asia, Oceania and Africa a “big disappointment”. Jon Cox, an analyst at Kepler Cheuvreux, said Nestle had seen “no discernable benefit” from the “boom” in infant nutrition in China.
However, Nestle insisted its infant formula business had performed well in China and also pointed to notable performances from its local ambient dairy and confectionery operations.
In our two-part interview with Decorvet, he attributes much of this success to Nestle’s use of both local and global brands. You can read the interview – in which he outlines why he believes Nestle is best-placed of all the multinationals to succeed in China – here.
Elsewhere on just-food last week:
PepsiCo and Mondelez International were among the major food multinationals in the emerging markets spotlight last week. PepsiCo told us it could start distributing snacks in Myanmar by the end of the year. The Lay’s maker already sells drinks in the developing economy, which some FMCG companies are looking at closely after recent political reform.
Mondelez, meanwhile, announced changes to its manufacturing base in some emerging markets will involve closing some sites. Confectionery plants in Lebanon and Morocco will shut as Mondelez looks to increase efficiency with larger sites. In China, the Oreo owner also said last week it is doubling capacity at a biscuit plant in the east of the country, a tangible sign of recent comments from CEO Irene Rosenfeld on the importance the company is placing on that market.
Our emerging markets coverage last week also featured an analysis of Carrefour‘s recent move to set up a venture to open stores in eight markets in central and west Africa.
The French retail giant has been scaling back its international business in recent months but appears to want to tap into the growth seen in parts of Africa, with markets like Nigeria seeing a middle class – and a modern retail sector – develop.
Outside South Africa, it is very early days on the continent but Carrefour, with its partnership with local distributor CFAO, is hoping to tap into growing demand for western goods and western stores. By teaming up with CFAO, which has a presence in distribution across Africa, Carrefour is looking to benefit from its partner’s local knowledge – something Decorvet at Nestle would no doubt applaud.