Nestlé targets Africa

07 July 2011

NAIROBI: Nestlé, the food group, is heightening its focus on Africa in a bid engage the region's new generation of "emerging consumers".

Speaking to Bloomberg, Frits van Dijk, the firm's zone director for Asia, Oceania, Africa and the Middle East, argued economic growth and associated trends were exerting a profound effect.

"We are very bullish about the African continent," he said. "The continent will soon have a billion people, and while admittedly income levels are very low, they are rising."

Over the course of last year, when sales in mature markets rose by 2% or less, Nestlé posted $3.5bn in African revenues, following on from a "strong double-digit" lift in percentage terms.

Although Africa only accounts for 3% of the Swiss multinational's total turnover, this figure is likely to increase going forward.

"More and more people are coming from the very lowest income levels, into what we call the 'emerging consumers' category," said Van Dijk.

"For the first time they can afford to buy basic packaged food and beverage products."

In an effort to drive growth, Nestlé plans to invest CHF1.2bn in importing its production capabilities, including plants located in Kenya and Zimbabwe.

Having launched a second Nigerian plant in February, the organisation has also unveiled an equivalent in the Democratic Republic of Congo, with similar schemes in train for Mozambique and Angola.

Organic expansion is the priority, but van Dijk stated Nestlé would be open to making purchases should the right prospects arise.

"We are continuously studying projects and looking at opportunities, but the bulk of our growth is coming from internal growth through innovation and renovation," he said.

One strategy the company has pursued is reducing the size of product packaging to ensure goods are accessible to the 46% of regional consumers living on less than $1.25 a day.

Small servings of its Maggi seasoning powder are available in Kenya for 2 shillings - or 2¢ in the US - while Nescafé single-serve instant coffee sachets are priced at 5 shillings.

As part of a global health and wellness push, many products are being augmented with constituents meeting the nutritional needs of shoppers across various different markets.

Its wider initiatives include buying increasing amounts of ingredients from local farmers, and working with Kenyan farmers to guarantee the milk they provide reaches the requisite standard.

Trading in Africa is not always straight-forward, as shown by the fact that Nestlé's factories and R&D unit based in the Ivory Coast, a key source of cocoa, saw business patterns disrupted by political unrest.

However, van Dijk suggested the potential offered by Africa means events such as this must be placed in a broader context.

"If we would not be willing to take risks we would lose out on a lot of opportunities," he said.

Data sourced from Bloomberg; additional content by Warc staff