China key for Nestlé

25 April 2011

BEIJING: Nestlé, the food group, believes China could become its second-largest global market within the next decade.

Speaking to business services firm KPMG, Frits van Dijk, Nestlé's executive vice president and zone director for Asia, Oceania, Africa and Middle East, expressed optimism about its Chinese prospects.

More specifically, he suggested there was a possibility the Asian powerhouse may soon claim the position as the Swiss corporation's biggest outlet after the US.

"I don't pretend to have a crystal ball, but if I look at the kind of growth we are enjoying, it could be five-to-ten years," said van Dijk.

"It's not a question of if, it's when, through a combination of local and external growth."

"Don't forget, this is a vast country with plenty of opportunities. We have made a huge investment. We're making money in China and we are still investing up front."

The owner of Perrier, Nescafé and Maggi entered China in the early 1990s, and now runs 23 factories across the world's most populous nation, reflecting the rapid surge in demand experienced since then.

"We have been growing by double digits for many years," said van Dijk.

"We saw some slowdown during the financial crisis, particularly in the southern areas, but it was very limited. I was surprised by how quickly it came back."

Beyond temporary fluctuations in the market, van Dijk argued, conditions will evolve further going forward.

"We are there for the long term, and in fact have seen an acceleration over the past couple of years," he said.

"Whatever happens, people still need to eat and drink. China's growth won't be a straight line, but it will continue."

Safety constitutes a primary concern among Chinese shoppers following on from high-profile problems related to tainted baby milk, leaving considerable space for trusted brands.

"The memory of the melamine scandal is still vivid - the while food chain was affected by that," van Dijk said.

"Many consumers to this day are very hesitant when it comes to dairy because of the malpractices that took place."

Thanks to tight control and monitoring covering its supply chain, Nestlé avoided such failings, and is working with the Chinese government in setting new industry standards.

Intense rivalry is a hallmark of almost every sector in China, and van Dijk asserted any multinational lacking a meaningful presence may find it difficult to catch up.

"If a company today is still saying it needs to get into China, it's already too late. That train has left," he said.

Another obstacle comes from indigenous firms, several of which have proved substantially more dynamic than was originally expected.

"In general, foreign companies underestimated the potential of local competitors," said van Dijk.

"In dairy, for example, we have some very strong local competition, and I don't think we anticipated that in the 1990s."

"We see local and regional competitors emerging who are lean and flexible."

Nestlé recently acquired a 60% share in Chinese counterpart Yinlu, and would implement similar deals in the future to enhance its standing.

"We are always on the lookout for acquisitions, but we will also invest in innovation and renovation in China," said van Dijk.

Data sourced from KPMG; additional content by Warc staff