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July 19, 2013

Comment: Nestle looks to leverage vast China potential

"You see it. This region is just starting," Nestle group CEO Paul Bulcke said as we hurtled towards Beijing at almost 300 kilometres an hour, travelling on an express train linking China's major cities. Indeed I did.

“You see it. This region is just starting,” Nestle group CEO Paul Bulcke said as we hurtled towards Beijing at almost 300 kilometres an hour, travelling on an express train linking China’s major cities.

Indeed I did.

From the moment I flew into Shanghai to attend a factory opening in the eastern city of Chuzhou with Nestle and local joint venture partner Yinlu, the vibrancy of China’s economy was palpable.

The landscape of Chinese cities is filled with construction as skyscrapers are erected, monuments to the money to be made in this still buoyant market. Private investment is underpinned by the public purse, and – as China’s modern and efficient rail network demonstrates – the government is putting money into the infrastructure necessary to support explosive growth.

“I am really impressed with the changes I see everywhere I go,” Bulcke had said at the opening ceremony held earlier that day. “Even in this turbulent economic climate… China has managed to stay on track. This is a sign of the dynamism of the Chinese people.”

This sense of opportunity, the feeling that there is still so much potential in what currently stands as the world’s second largest economy, overshadows any concerns raised by this week’s (15 July) figures from China’s statistics bureau revealing second-quarter GDP has slowed to 7.5%.

Perhaps last week’s news that June exports declined 3.1% could be seen as more cause for concern. But China’s slowdown is – at least in part – indicative of the immense strain the financial crisis continues to place on global economies. The decline in trade reflects the troubles faced by China’s largest trading partners – Europe and the US. Indeed, the drop in trade with the developed world was partially offset by an increase in trade with developing economies, such as South Africa and ASEAN countries.

To some, the weakening economy comes as evidence that a poor consumer environment in markets like China will dampen the growth prospects of international food giants, who are increasingly looking to the developing world to offset softness in developed countries. But, even given the economic slowdown, the potential of China remains tremendous. With 1.35bn stomachs to feed and comparatively low per capita consumption levels, it is fairly safe to assume that the market will continue to grow apace in the near-term.

This is not to suggest that operating in China will be a cake-walk for multinational food companies. One wild card in the equation is the regulatory environment, particularly surrounding questions of food safety. However, Nestle seems confident that it can thrive regardless.

The sheer size of the opportunity – and the fact that it seems only a matter of time before China eclipses the US as the world’s largest economy – supports the confidence that Nestle regional chief Roland Decorvet has in the market. Last week, Nestle revealed that the country now stands as its second largest market behind the US. But, as Decorvet told just-food, China could “potentially” one day overtake the US to become Nestle’s largest revenue engine.

Even as Nestle works to expand its presence in China, the group is not resting on its laurels in developed markets, such as the US and Europe. As Bulcke told just-food in our two-part interview, the group is targeting long-term, sustainable, “quality” growth across all of its markets. And, despite the deceleration in revenue growth that the company has witnessed in recent quarters, Bulcke is confident that the firm will deliver the “Nestle Model” of 5-6% organic revenue growth.

Click here to access our interview with Bulke, which looks at how Nestle is driving global sales growth, or click here to read last month’s just-food interview with Decorvet, which drills down on the company’s strategy in China.

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