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CREATING SHARED VALUE AT NESTLE IN CHINA JMSB Consulting Samie L.S. Ly Nadim Shamseddine Catherine Sumague Rachel Abourbih

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Page 1: CREATING)SHARED) VALUE)AT)NESTLE)IN) CHINA€¦ · CREATING)SHARED) VALUE)AT)NESTLE)IN) CHINA JMSB)Consulting))) ... Slim)down)to ) benefitpartners) ... and)liquid)beveraged) Water)Products)

CREATING  SHARED  VALUE  AT  NESTLE  IN  

CHINA  JMSB  Consulting  

   

Samie  L.S.  Ly    Nadim  Shamseddine  Catherine  Sumague    Rachel  Abourbih  

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HOW  SHOULD  NESTLE  CONTINUE  TO  ADVANCE  THE  NESCAFE  PLAN  IN  CHINA  

WITH  A  NEW  GENERATION  AND  CONTINUE  ITS  SUSTAINABILITY  COMMITMENT?  

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Recommendation     Analysis   Financials   Alternatives   Action  Plan    

STRATEGIC  RECOMMENDATION    

• Backward  integra/on  • Crop  produc/vity    • Knowledge  Sharing    

VALUE-­‐CHAIN  MODIFICATION  

• Cer/fica/on  requirements    • Alignment  with  Nestle’s  vision    

SUSTAINABILITY  PRACTICES  

• NESTLE  Rural  Coffee  Program  • Crea/ng  share  value  • Compliance  with  4C      

FARMER  COLLABORATION  

A  NEW  GENERATION  OF  COFFEE  MAKERS    

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Recommendation     Analysis   Financials   Alternatives   Action  Plan    

STRATEGIC  RECOMMENDATION    

A  NEW  GENERATION  OF  COFFEE  MAKERS    

3  YEARS    

6,000  Hectares  under  lease  of  

Nestle    60%  of  market  

needs  

$17.5  Million  

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Key  Findings  

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Recommendation     Analysis   Financials   Alternatives   Action  Plan    

VALUE  OF  NESTLE    

Coffee  Farmers     Buyers     Processors     Gov  

Agencies     Exporters     Dealers     Roaster     Distributors     End  User    

STREAMLINE  COMMUNICATION  BETWEEN  SUPPLY  CHAIN  MEMBERS  

Coffee  Farmers    

Gov  Agencies   Roasters   Distributors   End  User  

AWARENESS  

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Recommendation     Analysis   Financials   Alternatives   Action  Plan    

PRICING  

UTILIZE  YOUR  DIFFERENT  SEGMENTS  FOR  PRICING  PURPOSES  

NESPRESSO    LUXURY  BRAND    

NESCAFE    PRICE  SENSITIVE    BRAND    

Involve  Farmers  into  the  Retail  Price      Luxury  Brand  to  create  Higher  Margins  

Channel  for  MarkeKng  push  Price  SensiKve  populaKon    

Channel  for  MarkeKng  push  Richer  PopulaKon    

High  Awareness  in  grocery  stores  

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Recommendation     Analysis   Financials   Alternatives   Action  Plan    

NEW  GENERATION  OF  FARMING    

THE  COLLABORATION  OF  BOTH  GENERATION  CAN  LEVERAGE  NESTLE  BRAND  

COFFEE  Pickers    Average  age  65  years    

Rural  Area    

New  GeneraKon  of  Entrepreneurs  Average  age  of  25-­‐45  years  old    

Want  to  be  in  Urban    

May  not  know  where  their  beans  are  going  

Resourceful    

A  lot  of  Knowledge  in  coffee  picking     Educated  and  Curious    

Ability  to  create  network    

Ability  to  do  Hand  On  Mentorship    

Resistant  to  change  –  TradiKonal    

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Recommendation     Analysis   Financials   Alternatives   Action  Plan    

SUSTAINABILITY  :  DEFINITION    

NESTLE’S  CERTIFICATION  NEEDS  ALL  THESE  REQUIREMENT  

What  does  sustainability  mean  ?    

Help  Farmers  financially    

Alignment  ,  CollaboraKon,  Advocacy  

What  does  Nestle  want  to  do?    

Prosperous  communiKes    

Use  sustainable  harvesKng  techniques  

Create  Awareness  with  the  end  user  about  the  product  they  are  

purchasing  

Protect  biodiversity    

Respect  for  human  rights     Make  Rural  –based  employment  a\racKve  to  workers  

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Recommendation     Analysis   Financials   Alternatives   Action  Plan    

NESTLE’S  3-­‐P  SUSTAINABILITY  CYCLE    

THE  CYCLE  WILL  ALLOW  NESTLE  TO  KEEP  THEIR  PROMISES  

PEOPLE  

PLANET  

PARTNERSHIP  

THIRD  PARTY  ORGANIC  

CerKficaKon    

NESTLE’s  RURAL  COFFEE  PROGRAM    

THIRD  PARTY    FAIR  TRADE  CerKficaKon    

Healthy  CondiKon  in  the  Farm    

Through  out  the  supply  chain  of  Nescafe  

Promoted  Soil  and  Water  conservaKon  

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Recommendation     Analysis   Financials   Alternatives   Action  Plan    

NESTLE  IS  THE  BEST  PARTNER  FOR  FARMERS  

NESTLE  IS  THE  BEST  PLAYER  TO  TAKE  A  FURTHER  STEP  WITH  FARMERS  

Presence  in  major  grocery  stores    

Extensive  Knowledge  in    Coffee  Supply  Chain    

Has  the  ability  to  become  the  hub  of  all  stakeholders  

Solid  FoundaKon  as  a  coffee  player,  Infrastructure    (22.4%)    

Global  brand    

Best  posiKon  to  create  a  knowledge  

transfer  from  generaKon  to  generaKon    

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Recommendation     Analysis   Financials   Alternatives   Action  Plan    

STRATEGIC  OVERVIEW    

NESTLE  IS  AT  THE  BEST  POSITION  TO  LEVERAGE  THEIR  POWER  AS  A  COFFEE  PLAYER  

Nestle’s  Value  Chain    

Align  Sustainability  communica/on  

with  all  stakeholders    

Farmer’s  collabora/on    

Slim  down  to  benefit  partners  

(Farmers,  Produc/on  workers)    

Communicate  what  Nestle  wants  to  workers  from  the  supply  chain  

They  are  a  great  asset  and  can  

contribute  to  more  

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Financial  Analysis  

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Recommendation     Analysis   Financials   Alternatives   Action  Plan    

FINANCIAL  OVERVIEW  

Revenue  

Farmers  Revenue  

Land  produc/vity  

10%  of  Nestle’s  revenue  is  from  Soluble  Coffee  

Farmers  get  only  1%  of  the  price  of  coffee  

Land  Produc/vity  can  be  improved  by  taking  control  of  the  farming  opera/on  

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Recommendation     Analysis   Financials   Alternatives   Action  Plan    

SOLUBLE  COFFEE  MAKEUP  10%  OF  NESTLE’S  REVENUE  

Powdered  and  liquid  beveraged   Water  Products   Milk  products  and  Ice  Cream   Nutri/on  Products   Other  

MARKET  PRICE  FLUCTUATION  IS  A  BIG  RISK  ON  YOUR  REVENUES  

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Recommendation     Analysis   Financials   Alternatives   Action  Plan    

ONLY  1%  OF  THE  CUP  OF  COFFEE  IS  FOR  COFFEE  GROWERS  

Share  of  the  cost  of  the  cup  of  coffee  

Coffee  growers   Labour  cost  at  coffee  shop   Shop  overhead  

other   Profit  earned  by  retailers   Coffee  millers,  exporters,  importers  

WE  CAN  IMPROVE  THE  LIVELIHOOD  OF  THE  FARMERS  BY  TAKING  CONTROL  OF  THE  SUPPLY  CHAIN  

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Recommendation     Analysis   Financials   Alternatives   Action  Plan    

THE  RETAIL  VALUE  OF  THE  TON  OF  COFFEE  HAS  BEEN  INCREASING  ACROSS  ALL  CATEGORIES  

THE  TIME  HAS  COME  TO  TAKE  CONTROL  OF  THE  SUPPLY  CHAIN  TO  CONTROL  COSTS  

24922  

31777  34267   35911  

27972  

47244   48951  43478  

19778  24480  

26725   27962  

0  

10000  

20000  

30000  

40000  

50000  

60000  

2009   2010   2011   2012  

Chart  Title  

Coffee  beans   Fresh  Ground  Coffee   Instant  Coffee  

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Recommendation     Analysis   Financials   Alternatives   Action  Plan    

ROGERS  FAMILY  COFFEE  COMPANY  HAS  BEEN  ABLE  TO  ACHIEVE  HIGHER  PRODUCTIVITY  BY  SOURCING  FROM  ITS  OWN  FARMS  

BETTER  UTILIZATION  OF  LAND  RESOURCES  AND  ENVIRONMENT  CAN  BE  ACHIEVED  BY  TAKING  CONTROL  OF  THE  FARMING  PROCESS  

Rogers  family  coffee  company  sources  10%  of  its  supply  from  its  own  farms  

2000  tons  are  sourced  from  two  

365  hectare  farms  in  two  countries  (Mexico  and  Panama).  

Farm  produc/vity  of  2.86  Tons/Hectare  a  

poten/al  90%  improvement  in  

produc/vity  for  the  Chinese  farmers  

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Alternatives  

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Recommendation     Analysis   Financials   Alternatives   Action  Plan    

STRATEGIC  POSITIONING  ASSESSMENT    

CHINESE  MARKET  Retail  market  stable  &  

predictable   4th  largest  market   China’s  retail  sales  growing  

CONTROL  SUPPLY  CHAIN  

Backward  integra/on   Collabora/on  with  farmers   Sustainability  prac/ces  

CURRENT  STRATEGY  

Sourcing  from  farmers   Pricing  vola/le  Not  sustainable  

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Recommendation     Analysis   Financials   Alternatives   Action  Plan    

STRATEGIC  POSITIONING  ASSESSMENT    

CHINESE  MARKET  Retail  market  stable  &  

predictable   4th  largest  market   China’s  retail  sales  growing  

CONTROL  SUPPLY  CHAIN  

Backward  integra/on   Collabora/on  with  farmers   Sustainability  prac/ces  

CURRENT  STRATEGY  

Sourcing  from  farmers   Pricing  vola/le  Not  sustainable  

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Recommendation     Analysis   Financials   Alternatives   Action  Plan    

STRATEGIC  POSITIONING  ASSESSMENT    

CHINESE  MARKET  Retail  market  stable  &  

predictable   4th  largest  market   China’s  retail  sales  growing  

CONTROL  SUPPLY  CHAIN  

Backward  integra/on   Collabora/on  with  farmers   Sustainability  prac/ces  

CURRENT  STRATEGY  

Sourcing  from  farmers   Pricing  vola/le  Not  sustainable  

CREATE  SHARED  VALUE  IN  CHINA!  

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Recommendation     Analysis   Financials   Alternatives   Action  Plan    

OPTIONS  Op/on  1:  

Higher  prices  to  farmers  via  sustainable  cer/fica/on  

Low  

Low  

Med  

Low  

Op/on  2:  Strengthen  local  

efforts    

High  

Low  

Med-­‐High  

Med  

Op/on  3:    Backward  integra/on  

High  

Med-­‐high  

High  

High  

TAKE  CONTROL  OF  SUPPLY  CHAIN    

Risk  

Capital  Expenditure  

Poten/al  for  growth  

Commitment  to  CSV  

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Recommendation     Analysis   Financials   Alternatives   Action  Plan    

RISK  &  MITIGATION  STRATEGIES  

Change  Management  

Establish  educa/on  program  for  farmers  –  Nestlé's  Rural  Coffee  Program  

Create  scorecards,  training  programs  to  ensure  knowledge  

sharing  

Climate  Issues  Keep  27  dedicated  produc/on  facili/es  

intact  Seek  out  alliances  

Misunderstanding  of  Chinese  coffee  

culture  

Tailor  Nestle’s  Rural  Coffee  Program  to  the  Chinese  culture  using  best  prac/ces  

Hire  a  Director  to  run  program  who  knows  the  Chinese  culture  

RISKS   MITIGATION     CONTINGENCY  

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Recommendation     Analysis   Financials   Alternatives   Action  Plan    

STRATEGIC  RECOMMENDATION    

A  NEW  GENERATION  OF  COFFEE  MAKERS    

• Backward  integra/on  • Crop  produc/vity    • Knowledge  Sharing    

VALUE-­‐CHAIN  MODIFICATION  

• Cer/fica/on  requirements    • Alignment  with  Nestle’s  vision    

SUSTAINABILITY  PRACTICES  

• NESTLE  Rural  Coffee  Program  • Crea/ng  share  value  • Compliance  with  4C      

FARMER  COLLABORATION  

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Action  Plan    

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Recommendation     Analysis   Financials   Alternatives   Action  Plan    

TIMELINE  AT  A  GLANCE  SHORT  TERM  (YEAR  1)    

MEDIUM  TERM  (YEAR  2)    

LONG  TERM    (YEAR  3)    

NESTLE’S  PATH  TO  SUSTAINABLE  SUCCESS  

1,000  hectares  leased  

2,000  hectares  leased  

3,000  hectares  leased  

3  produc/on  facili/es  

Nestle’s  Rural  Coffee  Program  

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Recommendation     Analysis   Financials   Alternatives   Action  Plan    

NESTLE’S  REIMAGINED  SUPPLY  CHAIN  

Inputs   Produc/on   Processing  &  Distribu/on   Marke/ng   Consump/on  

OPPORTUNITIES  TO  ACHIEVING  SUSTAINABLE  PRACTICES  IN  SUPPLY  CHAIN  

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Recommendation     Analysis   Financials   Alternatives   Action  Plan    

LEASING  FARMS  IN  CHINA    

REMOVE  PRICE  VOLATILITY  FROM  SUPPLY  CHAIN  

0  hectares    

Current   Year  1:    1,000  hectares    

Year  2:    +2,000  hectares    

Year  3:    +3,000  hectares    

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Recommendation     Analysis   Financials   Alternatives   Action  Plan    

CREATION  OF  NEW  PRODUCTION  FACILITIES  Proximity  to  agricultural  phase  

Reduce  transporta/on  and  logis/cs  costs  in  supply  chain  

Crea/on  of  jobs  for  rural  dwellers  

Reduces  required  resources  (energy,  water)  

Mi/ga/on  risks  of  migra/on  

Ensure  sustainable  prac/ces  in  facili/es  owned  by  Nestle  

PRODUCTION  FACILITIES  NEAR  AGRICULTURAL  FARMS  

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Recommendation     Analysis   Financials   Alternatives   Action  Plan    

NESTLE’S  LEASING  ADVANTAGE  

•  90%  poten/al  improvement  •  Rogers  Family  Coffee  Company  

Improved  Produc/vity  

•  Each  hectare  produces  more  product  •  Less  hectares  required  for  levels  of  produc/on  

Decreased  Waste  

• Water  and  energy  needed  are  reduced  Decreased    

Resources  Use  

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Recommendation     Analysis   Financials   Alternatives   Action  Plan    

NESTLE’S  RURAL  COFFEE  PROGRAM  

Anract  young,  entrepreneurial-­‐minded  genera/on  

Train  and  educate  growers  on  sustainable  coffee  prac/ces    

Incen/vize  growers  by  empowering  them  with  management  of  1  hectares/grower  

Improve  infrastructure  in  rural  areas  

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Recommendation     Analysis   Financials   Alternatives   Action  Plan    

FARMER’S  COLLABORATION  THROUGH  RURAL  COFFEE  PROGRAM    

Cul/va/on  

Harves/ng  

Packaging  Processing  

Packaging    

ATTRACT  THE  YOUNGER  GENERATION  OF  COFFEE  GROWERS    

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Recommendation     Analysis   Financials   Alternatives   Action  Plan    

MEASURING  SUCCESS  OF  FARMERS’  PRACTICES  

Crop  produc/vity  growth  

Knowledge  sharing  of  best  prac/ces  amongst  local  farmers  

Compliance  with  4C    

INCENTIVIZE  FARMERS’  ACHIEVING  THESE  METRICS  

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Recommendation     Analysis   Financials   Alternatives   Action  Plan    

NESTLE’S  3-­‐P  SUSTAINABILITY  CYCLE    

THE  CYCLE  WILL  ALLOW  NESTLE  TO  KEEP  THEIR  PROMISES  

PEOPLE  

PLANET  

PARTNERSHIP  

THIRD  PARTY  ORGANIC  

CerKficaKon    

NESTLE’s  RURAL  COFFEE  PROGRAM    

THIRD  PARTY    FAIR  TRADE  CerKficaKon    

Healthy  CondiKon  in  the  Farm    

Through  out  the  supply  chain  of  Nescafe  

Promoted  Soil  and  Water  conservaKon  

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Financial  Projections  

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Recommendation     Analysis   Financials   Alternatives   Action  Plan    

COST  ANALYSIS  Item   Cost  

Year  1:  Lease  Educa/on  Produc/on  Facili/es  Farmers’  compensa/on  

 433,000  50,000  1,000,000  1,000,000  

Year  2:  Lease  Educa/on  Produc/on  Facili/es  Farmers’  compensa/on  

 1,300,000  50,000  1,000,000  3,000,000  

Year  3:  Lease  Educa/on  Produc/on  Facili/es  Farmers’  compensa/on  

 2,600,000  100,000  1,000,000  6,000,000  

TOTAL  INVESTMENT  OF  $17,500,000  OVER  3  YEARS  

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Recommendation     Analysis   Financials   Alternatives   Action  Plan    

NESTLE’S  LAND  REQUIREMENTS  

FARM  LAND  UTILIZATION  CAN  IMPROVE  SIGNIFICANTLY  THROUGH  THE  LEASE  OF  THE  LANDS  

Nestle  currently  has  72.6%  of  the  Chinese  markets  valued  at  40576  Tons  

Nestle  needs  around  30000  Tons/year  to  sa/sfy  the  Chinese  market  

At  present  produc/vity  levels  Nestle  needs  19746  

hectars  

By  leasing  the  lands  and  improving  

produc/vity,  Nestle  only  needs  10500  hectars  for  the  

Chinese  market  

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Recommendation     Analysis   Financials   Alternatives   Action  Plan    

COST  PER  TON  OF  COFFEE  BEAN  

Item   Cost  

Land  lease   200  

Farmer  compensa/on   400  

Educa/on   50  

Capital  investment  for  produc/on  facili/es   1,000  

Energy  and  Water   350  

TOTAL   2,000  

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Recommendation     Analysis   Financials   Alternatives   Action  Plan    

STRATEGIC  RECOMMENDATION    

A  NEW  GENERATION  OF  COFFEE  MAKERS    

• Backward  integra/on  • Crop  produc/vity    • Knowledge  Sharing    

VALUE-­‐CHAIN  MODIFICATION  

• Cer/fica/on  requirements    • Alignment  with  Nestle’s  vision    

SUSTAINABILITY  PRACTICES  

• NESTLE  Rural  Coffee  Program  • Crea/ng  share  value  • Compliance  with  4C      

FARMER  COLLABORATION  

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Question  and  Answers    Thank  you!  


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