Nestlé targets "emerging consumers"

VEVEY: Nestlé, the food group, is targeting "emerging consumers" with a wide range of affordable products, an audience the company believes is present in mature and developing markets.

Currently, these "popularly positioned products" (PPP) provide around 12% of its total sales, which rose by 6.6% in organic terms during the first half of this year, reaching CHF44.1bn overall.

Wan Ling Martello, the firm's chief financial officer, suggested the "first thing" observers often assume about these offerings, quite wrongly, is that they are best suited to developing nations.

"It's actually for the emerging consumer," he told analysts on a conference call. "So whether the consumer is in the emerging market or in the developed market, it resonates to that consumer who wants to buy our PPP products.

"It's very accretive in terms of growth and profit," he added. "It has helped both the emerging markets as well as the developed markets. So, it's really fascinating to see that how well PPP is also doing in the developed countries."

As evidence he reported that while Nestlé's sales in Europe – where consumer finances are under pressure – climbed by 2.4% on a like-for-like basis during the opening six months of 2012, its popularly positioned products doubled this expansion rate.

Brands from this portfolio have proved equally popular elsewhere, as proved by Shark in China and Munch in India, two lines in the confectionery sector.

"One of the great strengths, one of the capabilities of an organisation that like Nestlé is ability to operate on ... both ends of the spectrum to be able to be successful in PPP and to be successful in ... the high end with Nespresso and other product categories," said Martello.

Indeed, just as the firm's lower-end lines assisted it in overcoming the challenging trading climate in Europe, the returns generated by premium lines came in at around 5%.

One major Nestlé initiative in this segment has been to establish a network of 270 boutiques selling Nespresso coffee products, alongside building an online retail presence for the brand, now yielding 50% of sales.

Martello argued Nestlé's comparative inexperience in ecommerce and bricks and mortar retail had not proved to be a significant obstacle, demonstrating the quality of the company's strategy.

"Being able to do that that speaks to a great strength of Nestlé and it's that ability to manage something new without having to master it first," he said.

Data sourced from Morningstar; additional content by Warc staff, 10 August 2012

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