Currently Nestlé’s Executive Vice President and Zone Director for Asia, Oceania, Africa and Middle East, the genial Dutchman has worked for the Swiss food giant in India, the Philippines and Sri Lanka, as well as managing its Malaysian and Japanese businesses for five years each and heading Nestlé Global Waters. He is now charged with masterminding Nestlé’s growth in its most important – and diverse – emerging markets, a job which involves 20 days on the road each month, few executives in multinationals have as much direct experience of nurturing new businesses.
- Frits van Dijk, Executive Vice President and Zone Director for Asia, Oceania, Africa and Middle East, Nestlé
How central these markets are to Nestlé is outlined by the company’s 2010 financial results, which saw van Dijk’s Zone delivering sales of US$18.2bn, with 8.7% annual organic growth. Many emerging markets achieved double-digit growth, with strong performances in Africa, India and China. Nestlé invested in India, Indonesia, the Philippines and Equatorial Africa in 2010, and since the turn of the year has opened a US$91m factory in Nigeria.
ConsumerCurrents met van Dijk at Nestlé’s global headquarters in Vevey, Switzerland, to ask for his views on future growth – and how he copes with the responsibility of overseeing the company’s most vital markets.
Nestlé has a stated target of achieving 45% of sales from emerging markets by 2020. How realistic is that?
I don’t think reaching 45% is a dream. Today, the total is about 35%, and emerging markets are growing much faster than the developed world. If you add in factors such as demographics and GDP growth of 5-10% in emerging markets, that has a real impact on purchasing power, whether in China, Africa, India or the Middle East.
What defines an emerging market?
For me, these are markets which still have much lower per capita incomes compared to developed markets, where we see a dramatic shift in people leaving the bottom of the pyramid to become emerging consumers – people who earn US$3-4 per day and can, for the first time, afford to buy basic packaged food and beverage products.
In the next 10 years, we expect another billion people to go from subsistence level to emerging consumer level. Those are big numbers. Our task is to make the relevant products available.
If you talk to emerging consumers, their number one concern is falling ill because they don’t have medical insurance. If somebody in the family falls ill, the traditional rice bowl won’t be on the table that evening. These consumers are more conscious of nutrition than you might expect.
We have a tremendous opportunity as a company that sells milk products, cereals and seasoning, and we have a very active program involving our Popularly Positioned Products (PPPs), which are fortified with nutrients including vitamin A, zinc, iron and iodine. We have done a tremendous amount of country-by-country mapping of micro-nutrient deficiencies in emerging markets. We know exactly which part of each generation has a deficiency.
Nestlé has spoken a lot about “creating shared value” (CSV). How does this work in emerging markets?
The concept is not just to create value for our shareholders, but to create value for the societies in which we operate. Clearly, there is a relationship between CSV and PPPs. Take slum areas, for example, whether it’s favelas in Brazil or a township in South Africa. In these places, we are working with the community, employing local people to take part in distribution.
In the Ivory Coast, we couldn’t find local raw materials for our Maggi seasoning range. So we began to work with local farmers to produce cassava. We started with 14 farming families – six years later, we have more than 1,000, which has created a new local economy worth US$3m in annual economic benefit. Six years ago, there were very few shops in that community. Today, we see shops selling Nestlé products, among others, which shows an interesting multiplier effect.
Are food security worries also part of the thinking behind CSV?
Absolutely. We are moving towards a food crisis similar to 2007/8. Costs are going up, because global supply and demand is unbalanced. There is clearly not enough food production, and our individual contribution working with farming communities can partly mitigate that. Governments need to put agriculture higher on the agenda.
How do you view input prices in the food market?
We’ll see high prices in agricultural raw materials for many years to come. Before 2007, agriculture was very low on the agenda in many emerging countries. They prioritized IT, service and industrialization instead. Since 2007, many governments have realized agriculture has been neglected.
Do you see attitudes towards industrial agriculture changing?
We are starting to. It’s high on the agenda in China – in one district we used to work with 3,000 farmers with two or three cows each, but today we see farms with hundreds of cows and automatic milking machines. But let’s be realistic: smallholder farms will be around for many years to come. We’re very active with them, giving technical assistance to increase milk output, improve feed stocks and vaccinations or raise living conditions.
How does political instability in Africa affect the business?
It’s obviously destabilizing. But we are used to it. One of Nestlé’s strengths is that we always find a way to keep working. When inflation in Zimbabwe was over 1,000,000% it was very difficult to find raw materials for our factory. So we had to be flexible and use the materials we had each day, within the limits of safety and quality.
Our business is very basic. Whatever the economic situation, people still need to eat and drink. We are much more bullish about Africa than many other companies. In the last three years, we have seen double-digit growth on the African continent, which has led to a new manufacturing strategy. We are still importing some products, which can be problematic even in free trade areas, so wherever possible we are moving towards producing them locally.
In 2011, we will open new factories in the Congo, where we’ve never produced before, Mozambique and Angola. They will be repacking facilities at first, but when the volume increases to a level where we can perform fully fledged manufacturing, we will upgrade them.
Do you see signs of a slowdown in China, as some economists predict?
We entered China fairly early, opening our first manufacturing operation in 1992. Today, we have 23 factories. We have been growing by double digits for many years. 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. We are there for the long term, and in fact have seen an acceleration in the market over the past couple of years.
Some people believe property, rather than consumption, is fueling retail price rises in China. Do you agree?
Speculation on property and the stock market in emerging economies needs to be watched carefully. We all remember the bubble that burst in Japan in the 1980s, and I can only hope that politicians are aware of the potential for that to happen again. But whatever happens, people still need to eat and drink. China’s growth won’t be a straight line, but it will continue.
How would you describe Chinese consumer confidence in food?
The memory of the melamine scandal is still vivid – the whole food chain was affected by that. Many consumers to this day are very hesitant when it comes to dairy because of the malpractices that took place. Nestlé did not use one liter of contaminated milk because we control the supply chain and we check the quality on the spot when we buy from farmers. But consumer confidence took a severe nosedive. We have been working closely with the authorities, who have asked us for assistance in setting standards for the food chain, as well as how to monitor food companies. It’s sad to see that companies still use melamine in products – they haven’t learned, despite people having been executed.
In hindsight, what might you have done differently in China?
In general, foreign companies underestimated the potential of local competitors. In dairy, for example, we have some very strong local competition, and I don’t think we anticipated that in the 1990s. In hindsight, I would have made earlier investments in the west and centre of the country. Otherwise, we are happy with our progress – 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.
Can you see a time when China is your second-biggest market after the US?
Yes. I don’t pretend to have a crystal ball, but if I look at the kind of growth we are enjoying it could be 5-10 years. It’s not a question of if, it’s when, through a combination of local and external growth. We are always on the lookout for acquisitions, but we will also invest in innovation and renovation in China.
We can’t afford to be complacent in either India or China because we’re not alone. We see local and regional competitors emerging who are lean and flexible. They don’t always work to the same principles we do. In India, we launched a water brand in 2001. We pulled out after two years because we couldn’t compete with local brands. It was a different playing field in terms of compliance.
Are you surprised by the huge number of companies suddenly investing in China
If a company today is still saying it needs to get into China, it’s already too late. That train has left. It makes me laugh when I hear companies discovering there is an opportunity in emerging countries. Many Japanese companies are finally getting out of their home territory because there is no more growth there. They’re going to China or Europe and they’re struggling to adapt. Nestlé’s biggest success factor is our ability to think local.
What are the most important lessons you have learned in your career?
I’ve learned to listen before I make my mind up. I’ve also tried to engage the younger generation at an early stage. That means engaging them in responsible jobs, delegating to them effectively. I’ve learned to take risks – not stupid risks, but calculated ones. We need to do that, because if we don’t, our competitors will run away with the opportunities.
How would you describe your management style?
I’m very much a team player. I’m very transparent and completely apolitical. People know where they stand with me. I cannot stand it when people have a political agenda. I do a lot of managing by walking around – people like it when you take an interest in what they’re doing.
Do you believe your successor will come from an emerging economy?
I hope that my successor, or my successor’s successor, will one day come from the region I cover. But you have to be careful not to fall into the trap of quotas. It has to be based on skills and abilities. I’m not prepared to compromise.
Any nationality can make it at Nestlé. We spend a lot of time on succession planning. I visit several markets every month, and I always have the succession plan with me. I take time to sit down with the market head and the HR people. But you can make beautiful succession plans and there will always be surprises.