Localization also core element of Nestle's China strategy, says CEO

Paul Bulcke, chief executive officer of Nestle SA, seems enthusiastic after a two-day meeting at China Development Forum, a top annual economic gathering in Beijing that finished on Monday.

The Belgian was keen to hear the opinions and ideas shared about the economic outlook of China, one of the most crucial markets for the Swiss food and beverage maker.

What he considers to be most motivating is the will of the government and its capacity to execute that will. "What you said is what is done," said the CEO, who joined Nestle in 1979 and has been head of many key markets including Germany, Portugal and Peru.

The quick-talking, garrulous Bulcke, who is fluent in six languages, began his career in 1977 as a financial analyst for Scott Graphics International in Belgium.

He lists motorcycling and sailing among his hobbies, which may help him deal with the ups and downs of the market and the obligatory ducking and weaving. After taking up his position in early 2008, during the global financial crisis, he has had to contend with plenty of that, including higher costs for raw materials and falling demand from shoppers. To cope, he sold off companies within the fold that were not central to the core business and began a consolidation process for Nestle focusing on nutrition and health foods. It was indicative, said a colleague, of the fact he was not just a marketer but also a talented manager.

The Chinese economy, among many emerging markets, witnessed a slowdown last year that is expected to continue this year.

But the CEO sees this as a huge opportunity rather than a crisis. He said it is healthy that China's development model is based mostly on internal growth than export growth. "It is soft but more sustainable," he commented.

In 2013 Nestle's sales increased by 2.7 percent to 92.2 billion Swiss francs ($104.6 billion). Meanwhile, its sales growth in China slowed to 27.6 percent, much lower than the 91.4 percent in 2012.

Bulcke said in February that the macro-environment in 2013 was one of soft growth, minimal in the developed world and below recent levels in the emerging markets. "Our response was to increase brand support and to accelerate innovation, to ensure our pricing was sensitive to consumer needs," he said.

The CEO considers it a huge opportunity to be part of the sizable growth of an extremely sizable country.

"The biggest stimulator for the Chinese market is that it is a developing country with a huge population," he said.

In 2013, Nestle's congee brand Yinlu had a particularly strong year, helped by its new premium congees. Another strong performer in China was the adult and senior nutrition milk powder range, Yiyang.

Roland Decorvet, chairman and CEO of Nestle Greater China, said early this month the company is confident about this year because it is focusing on the China economy.

In 2014, in terms of catering, Nestle is changing its strategy to target medium-priced restaurants rather than high-end ones and concentrating on mainstream outlets. "We are focusing more on consumption and less on gifting," he said.

Under Bulcke's leadership, Nestle has developed various brands at different price points, which is considered by observers to be an effective approach in the Chinese market to cope with the current anti-extravagance campaign. The campaign was initiated more than a year ago to curb luxury spending using public funds.

The policy has affected high-end and premium consumer goods, including Nestle's confectionery brand, Hsu Fu Chi, sales of which were flat in 2013.

Bulcke's says the strength of Nestle lies in its different price points and different product segments. Bulcke not only expanded the company's food and beverage empire but also stepped into the new arena of health science.

In February, Nestle announced it will extend its activities to include the field of specialized medical skin treatments through the creation of Nestle Skin Health SA.

The foundation for Nestle Skin Health SA will be Galderma, the joint venture owned by Nestle and the French company The L'Oreal Group. L'Oreal's 50 percent stake in Galderma will be transferred to Nestle as part of a transaction in which Nestle sells part of its shareholding in L'Oreal.

The move sparked interest in whether Nestle is looking into the pharmaceutical sector. However Bulcke said the acquisition was in line with the company's purpose, which is to enhance the life quality of customers through nutrition, health and wellness.

"I said our purpose is to enhance quality for our customers, not for patients. We are not a pharmaceutical company," he insisted.

The Belgian said true innovation based on research and development and science and true innovation into skin health are responses to that challenge. "We have extended our boundaries of nutrition to health science. Skin health makes sense to us," he said.

Localization is vital for Nestle's growth in China. Bulcke said the company came to China for the long term and will not be affected by the rising cost of labor in the country. "Our commitment is not linked with cheap labor, but linked with consumers," he said.

Nestle has invested close to $500 million every year in new equipment and new machines in China and will continue to do that in the future. "Our business is worth about $7 billion but we still have a lot of room to grow," said Rolland.

Nestle operates 33 factories in China, with 90 percent of its products sold in the country manufactured locally. The top priority for Nestle is food safety and customer trust. Bulcke says the company is eager to share its knowledge with local industry and policymakers.

As part of its efforts to strengthen Nestle's food safety research in China, Nestle opened a food safety research center in Beijing on March 25.

The Nestle Food Safety Institute will work with authorities to provide a scientific foundation for food safety polices and standards, including the early management of food safety issues and collaboration with local research institutes and government agencies in relevant areas.

The localization strategy will continue despite an upcoming change in management.

Decorvet has decided to leave Nestle after 23 years of service..

John Cheung has been appointed chairman and chief executive officer of Nestle in the Greater China Region. Cheung, from Hong Kong, has been regional president for Nestle's Wyeth Nutrition business. "He understands the country and is part of this country and has proved his leadership skills," said Bulcke.

wangzhuoqiong@chinadaily.com.cn

Nestle SA's booth at an internatoinal dairy products and imported food exhibition in Beijing. The company's sales growth in China slowed to 27.6 percent, much lower than the 91.4 percent in 2012. Wu Changqing / for China Daily

(China Daily 03/27/2014 page15)