CREATING SHARED VALUE AT NESTLE IN
CHINA JMSB Consulting
Samie L.S. Ly Nadim Shamseddine Catherine Sumague Rachel Abourbih
HOW SHOULD NESTLE CONTINUE TO ADVANCE THE NESCAFE PLAN IN CHINA
WITH A NEW GENERATION AND CONTINUE ITS SUSTAINABILITY COMMITMENT?
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
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
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
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
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
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
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
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
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
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
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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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
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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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
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
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
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!
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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