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  1. Interviews
May 2, 2014

FMCG in the Middle East: Interview: GULFOOD 2014: Nestle eyes tripling of Middle East sales

A young market which promises room to grow is a key attraction for multinationals in the Middle East, the head of Nestle's Middle East operations told just-food at the Gulfood trade expo in Dubai.

A young market which promises room to grow is a key attraction for multinationals in the Middle East, the head of Nestle’s Middle East operations told just-food at the Gulfood trade expo in Dubai.

Announcing its 2013 results last month, Nestle said its business in the Middle East had put in a “strong performance” last year.

Yves Manghardt, the CEO of Nestle’s Middle East division, said it had seen “double-digit organic growth” in sales in the region despite some local challenges.

Nestle suffered a “major blow”, Manghardt explains, after its Syrian factory was destroyed during the country’s civil war, which he says “definitely impacted on overall performance.” Away from Syria, the food giant’s Bahraini business also saw sales come under pressure.

However, Manghardt insists: “Nestle is experiencing very positive growth in many countries in the Middle East.”Saudi Arabia, he says, thanks to its bigger consumer base is “no doubt” the biggest part of the pie, contributing to around 35% of total sales for the region.

Manghardt indicates Nestle’s ambitions for the Middle East when he says it expects it will achieve revenues of US$6bn by 2020, around three times the current level.

Nestle’s products have been on sale in the region for 80 years. The biggest sellers in the region are global brands like Maggi and Kit Kat and Nestle Arabiana coffee, created specifically for the region.

In 2010, Nestle underlined its seriousness about the Middle East with the opening of a US$136m factory in Dubai, its third-largest Kit Kat plant.

The investment saw Dubai replace Lebanon as Nestle’s hub for the wider region. Working out of Dubai is much easier, Manghardt says. The Nestle executive has spent 30 years with the business and has worked in the UAE for four-and-a-half years.

“Dubai is a very good platform to serve the Middle East from in terms of shipments, infrastructure, communication. It offers easy access – from Dubai you can fly to many countries. It is also very international and is a positive environment to attract talent. It is safe, stable and has a stable government and policies – that’s something that is always important for foreign investors among other factors.”

However, like many markets, it does have its downsides. One of the biggest battles has been price control. While Nestle prefers to offer products at what it calls a “consumer preferred price” it can come up against challenges in places like the UAE whose government enforces a practice of “fixed prices” on some products.

“There is definitely a lack of harmonisation in terms of regulatory affairs. It is an element that is adding complexity in some countries like the UAE. It used to be an issue in Saudi, but they’ve now dismantled the pricing commission.”

And another issue in the wider Middle East are the political crises in Syria, Iraq and Yemen, which has led to security concerns.

However, Nestle has not been deterred from the region. “It’s a growing market and is a young market which gives us the benefit of having young and promising talent. The UAE in particular is a place which helps us to attract people from the region on a global international basis. Also, there are more and more consumers entering the middle class which represents more potential for us.”

The familiarity of the umbrella Nestle brand has made its expansion in the region, Manghardt explains.

“Generally speaking, consumers from the Middle East are brand loyal,” he says. “We work on this by always providing good quality and remaining relevant through innovation and renovation of our products. It’s not the same as it was 80 years ago. It’s important to remain relevant.

“Nestle has a very high scoring in terms of trust index – our brands are being trusted which is really the ultimate objective any manufacturer has – to establish trust of its customers through its brands.”

In 2020, after beating off competition from the likes of Brazil and Russia, Dubai will host the World Expo trade convention, the first Middle East city to hold the event. FMCG industry players are hoping the Expo – and the related investment on infrastructure to host the event – will further support consumer spending and drive consumption.

Manghardt believes the event will impact the foodservice sector more than Nestle’s retail brands and suggests it will be “a time-bound opportunity” for consumer goods companies while the Expo is held. However, he still sees opportunity for Nestle to “showcase some of its products” available in the region.

The portfolio of products available in the Middle East is something Nestle will continue to work on during 2014, as not all ofi ts brands and products are available in all countries, Manghardt says. Ensuring more visibility of Nestle’s products in more countries is important, he insists, particularly in the Middle East, which is a “part of the sustainable engine of growth for the group” as the world’s largest food manufacturer continues to grow organically “year-on-year in terms of top line and business growth”.

Nestle is in the process of building a second factory in Dubai, which it hopes will be completed next year. It also plans to expand its current factory. This combined with renovation and innovation and growing existing brands will help Nestle “triple our business” in the Middle East, Manghardt believes, and hit that $6bn target.

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