China Consumer

Instant success

Nestlé to boost China growth via acquisition

Instant success

China hunger: Bulcke

Could US-style diet coach Jenny Craig offer a solution to the rising tide of obesity in China?

Nestlé, the Swiss food goliath, hopes so. After bringing Jenny Craig, a company that it acquired in 2006, to France and the UK last year, Nestlé says it is preparing to introduce quintessentially American weight loss programmes to China (although the Swiss company does not provide a timeframe).

Whether the Jenny Craig concept – which combines weight counselling with dietary programmes – will win a loyal following in China remains to be seen. For the moment, however, Nestlé executives seem more focused on filling out Chinese waistlines, rather than slimming them down.

In April, the company spent an undisclosed amount for a 60% stake in family-owned Yinlu Foods Group, becoming the latest multinational to target the country’s fast-growing food and beverage sector.

Yinlu, which has had a long association with Nestlé as co-manufacturer of ready-to-drink Nescafe instant coffee, also makes ready-to-drink peanut milk and ready-to-eat canned rice porridge. In fact, Yinlu is a market leader in the instant food market in China, says Euromonitor.

Paul Bulcke, the chief executive of Nestlé, said the Yinlu deal demonstrated the Swiss firm’s long-term investment in China, as well as its intention to develop local brands. The company also announced plans to invest Rmb320 million ($49.4 million) to boost production at one of its instant food and seasoning facilities in Dongguan in Guangdong province.

That’s going to be important as Nestlé continues to expand in China, a market it first entered 20 years ago.

Sales have been growing rapidly, up 11% in 2010 to $3.1 billion, rendering the country its ninth-largest market. It is hoping for growth in excess of 20% this year. That contrasts with 2.3% growth last year in Europe and 3.7% in the Americas, says the Wall Street Journal.

There have been challenges.

Even though Nestlé was not involved in the melamine scandal in 2008, the crisis undermined consumer confidence in dairy products in general. The company was hit too, despite its insistence that its China-made products – items that included powdered milk, Kit Kat chocolate bars and Nestlé ice cream – were all safe to consume.

Taiwanese authorities also announced a complete ban on China-made Nestlé infant formula and powdered milk after reportedly finding traces of melamine in the products.

To restore consumer confidence, Nestlé spent $10.2 million on a Beijing research and development centre, complete with advanced product testing machines that can detect chemicals including melamine.

“The safety of consumers is quite clearly our top priority,” said Bulcke at the time. “This centre will serve as the base and the reference for food safety for Nestlé in Greater China.”

Where next in the PR offensive to win over new consumers? The environment.

For years, Nestlé had been struggling with what to do with coffee grinds leftover from the production of its instant coffee (much of it has ended up in landfills). But CBN Weekly reported recently that another factory in Dongguan handling about 80% of its coffee production has developed a technology that converts leftover materials into biodiesel. Company executives argue that, unlike biodiesel based on soya or corn, coffee-based production need not divert domestic crops or land usage away from food production, leading to an environmentally neater solution.

Nestlé claims that one kilogram of dried coffee grounds generates about 2,150 kilocalories of energy. So, through conversion into biodiesel, the company can save at least 1,000 tonnes of fuel oil per year, as well as reducing about 12,000 tonnes of waste that would have gone to landfill.

“Nestlé encourages all its plants to implement sustainable environmental protection projects,” says Fang Yimin, director of the Dongguan coffee plant, adding that the company is now requiring its 23 factories to share green practices with one another on a regular basis.

Keeping track: according to CBN, the Ministry of Commerce has now given approval for Switzerland’s Nestlé to buy 60% of Yinlu. We reported on the multinational’s bid for the Xiamen-based firm in WiC110. The Chinese firm is a leader in the local instant food market, and form part of Nestlé’s ambitious shopping list of deals (in confectioneries and baby foods) to expand its China business. (Sep 9, 2011)

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