Global

Details

  • Industry: Retail, Food, Drink & Consumer Goods
  • Type: Business and industry issue
  • Date: 6/9/2011

First person: Tetra Pak’s CEO on consumer confidence and the value of innovation 

Tetra Pak’s CEO

Some companies are spun off from successful parents. Some ride the coat-tails of a growing market. But few are as closely associated with disruptive innovation as Tetra Pak. Since it first revolutionized the food industry 60 years ago with the invention of carton packaging, it has risen from homegrown Swedish company to multinational market leader with operations in more than 170 countries.

Today, the company founded by Ruben Rausing and still privately owned by his descendants is the market leader in aseptic packaging, a technology commonly associated with milk. Its products are used for everything from juices and still drinks to soup and wine, and it has diversified into providing processes and service solutions for manufacturers and retailers.


“Consumers have adapted to a new way of living. They’re not about to just go back”


- Dennis Jönsson, CEO, Tetra Pak


 

As a key supplier for almost every consumer markets multinational, Tetra Pak is uniquely placed to assess industry trends. And it must be feeling buoyant, having introduced a new bottle-shaped aseptic milk carton in May 2011 that could rival plastic packaging. At the company’s global headquarters, a stone’s throw from the shores of Lake Geneva in Pully, Switzerland, CEO Dennis Jönsson – a Swedish-born Tetra Pak veteran of 28 years who has held the top job since 2006 – told ConsumerCurrents why he won’t rest in his pursuit of growth in even the most stubborn of markets.

How would you characterize consumer market confidence at the moment?

Looking back to 2008-9, we had a financial crisis, coupled with the melamine crisis in China. Through that period we weren’t sure what we were seeing, and to some extent the results coming back from the market reflected that. China is our biggest market, and a hiccup there is felt across the company.


So, for us, 2010 was surprising. Most of our markets had a very positive and strong recovery, beyond what we had expected. The outlook today is much better. Like any company, we get a lot of feedback and we can see that consumer confidence is up in most places, more so in developing than developed markets.

Do you believe recession has changed consumer behavior for good?

During tough times, consumers adapted to a new way of living. Once you realize certain things are not as bad as you feared, you don’t just go back to the way things were. A lot of consumers chose retail brands they might not otherwise have considered. Those trends are here to stay: we will see some correction, but consumers are finding some of those brands offer more than they expected.


Today’s retail brands are here to stay. And they are trying to position themselves in a completely different way to 20 years ago, catering to consumer need not just through value but by leading in many areas. We have to adjust and adapt. In the past, retailers were the customers of our customers. Today, in many cases, they are our direct customers.


Figure 1

Would it be fair to say you have had increased conversations about cost over the past couple of years?

It’s nothing new for us. Over the past 15 years, we’ve seen a tremendous shift in the value chain that has put more and more power in the hands of retailers. That has translated into price pressure for us. We have been working with our own suppliers, collaborating and creating agreements with them, because the key to meeting the demands our customers put on us is price stability.


When financial crises happen, we are impacted less in the short term than other companies. We don’t need to over-react to short-term problems. At the same time, our customers have been hit and because of that cost is a natural conversation. You adapt, you focus on productivity, your own supply chain and continuous improvement, as ways of meeting those demands.

Do you expect further volatility in food prices?

When you have the sort of surges of demand we have in countries like China, coupled with the events we have seen in North Africa, it only enhances the volatility we are already seeing across all commodities. We are trying to secure enough supply to meet surging demand.

How have recent events in Japan and the Middle East affected your supply chain?

We’re lucky because we have such a strong supply chain, it hasn’t affected us. We’re not dependent in any major way on one particular site or country. We have focused on supply chains in our major growth markets. It proves that what we’ve been doing for many years is right.


Supply chains are part of the risk management analysis we do on a regular basis. We try to establish a supply chain footprint that enables us to shift supply whenever we need to. If you go back 20 years, we were largely dependent on Scandinavia because that was where the company had its origins. But as we saw more growth outside Europe, we have accelerated supply chain development.

A lot of companies are questioning the globalization of supply chains. Do you believe it will continue to work for you?

I don’t believe it would have been healthy in terms of risk or logistics to have continued to rely on any single geography. It also provides us with a natural hedging: costs and revenues are based as much as possible on local currencies.

Tell us about the aseptic bottleshaped carton and the innovation process behind it.

It’s a completely new system and so far the feedback from customers, initially in Europe, is extremely positive. We believe it has the potential to make a big impact on the industry.


Around 10 years ago, we decided we had to structure our innovation processes, methodologies and tools much better. It’s important to have a mix between internal and external inputs, including local markets and customers. We strongly believe in open innovation. No company can be good at everything, and that forced us to embrace partnerships with suppliers offering new technologies and competencies. Involving our customers at the start has been the biggest change.

What further innovations can there really be in the packaging market?

Packaging might all look the same to a consumer, but it can involve a lot of innovation. Our new packaging, aside from being innovative in terms of shape, is so easy to open and pour from.


Innovations like the Tetra Classic [Tetra Pak’s original packaging system] don’t come along every year. But we look at every type of innovation. Otherwise, you might focus too much energy on the ‘big bang’ rather than a process of continuous innovation.

How will you innovate in the US, a notoriously difficult market for you?

The US is different. We look at it in terms of other products as well as milk. When you have such a highly developed system of chiller cabinets, the impact of ambient milk products is lessened. In the US, 85-90% of milk is sold in gallons, so coming in with a liter product means looking at the market and its opportunities through a different lens. Our new packaging is a new way of gaining consumers, although it will remain a niche market. Milk has been a commodity in the US for a long time, so we are looking for companies to come in with new types of products, and we are having a lot of constructive discussions around that.

How do you view the Chinese market at the moment?

We started in China in the late 1970s, but didn’t see dairy picking up until the turn of the century. Today, it is our biggest market so we have seen the benefit of hanging in there and not giving up because it doesn’t work out immediately. We still see a lot to be done. Consumption of white milk is still only six liters per person per year, compared to 57 liters in Europe. That shows you the potential.


Milk is mainly consumed in larger cities. In third-tier cities, consumption is insignificant. Multinationals see China accelerating: we have seen a lot of new companies entering the market. The key is having a local base, understanding local consumers and adapting quickly. Things are changing all the time, and if you’re not up to speed you risk being overrun by local competitors.


We are already working on local assembly, sourcing and R&D. But we are accelerating all these activities. The underlying problem is the demand for milk in China and the short supply.

Many economists believe consumer demand in China is slowing, and growth may have been overstated. Do you see any signs of that?

I don’t think that applies to milk. We saw a little tiny bit of slowdown but that was due to the melamine crisis and it has picked up again. I believe consumers trust milk again. We have seen actions by the government to establish and enforce processes and rules. Some smaller companies have closed because they could not fulfill the requirements.


“China changes all the time, and if you’re not up to speed you risk being overrun by local competitors”


Do you worry about Chinese competitors?

We worry about any competitor. But our fiercest competitor is the plastics industry, and in some ways that is worse than a single company. If you look at China, the last time we counted there were 16 companies, all of whom want to play a global role as soon as they can.

Do you think liberalization of retail in India is back on the cards?

Five years ago, we really thought it was happening. There’s still a lot of willingness to see a more liberal retail environment, but it will happen very slowly. Despite being the biggest market for dairy products in the world, only about 20% of milk is packaged. Whether retail is opened up isn’t the issue: it’s about seeing a more developed retail environment, whether with local or international players. If you open things up, that will happen at a considerably faster pace.

What can you do to stimulate growth in developed markets?

We’ve started looking at different areas of growth beyond our core business. We’ve identified processing and services and are ensuring we have the right resources in place. We’ve also identified new types of product such as Tetra Recart, a carton alternative to canned and glass food packaging. We are seeing a tremendous interest that is now being translated into strong demand, and retailers are really supporting it.

Do you foresee acquisitions being part of your future growth?

Being the size we are, I don’t think you’ll see major acquisitions but we continually look at companies that complement our business in core areas, have interesting technologies or specific competencies.

How has being a private company helped you during market upheaval?

The benefit of being private is that you can take a long-term approach without being overly concerned about short-term results. Our owners’ support allows us to take risks, to make investments that might take time to deliver, such as the ones we made in China or Russia.

What has working at so many different levels of the company taught you?

To ask the right questions. I might not have all the answers, but being able to ask forces people to think twice about things. Having been involved in so many areas gives you a natural curiosity, and enough understanding about how things work to have a meaningful discussion.


I’m very intense, but informal. I believe in people and teams, having a good understanding of who you work with. No one person, no matter how great, can make a real difference without a strong team around them.

What’s been your biggest mistake in business?

Underestimating others, be it individuals or competitors.

What’s the best piece of advice you’ve been given?

“Never take work home” is one that comes to mind. It’s something I’ve tried to live up to.

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