Sunday, 3 April 2011

An interview with former CEO and current Chairman of Nestlé Peter Brabeck.

Nestlé is the biggest food company in the world, with a market cap of roughly 191 billion Swiss francs -- which is more than 200 billion U.S. dollars. To reach its size, the company has spread well past the iconic chocolate bar that comes to the mind of the American consumer and even past the powdered milk and coffee products that made it famous elsewhere in the world. In fact, Nestlé has over 29 brands that earn upwards of a billion Swiss francs for the company every year.

Former CEO and current Chairman of Nestlé Peter Brabeck tells Fortune about managing a global food giant. Brabeck explains why no one at headquarters taste-tests your pizza, where there's a place for Nestlé in other areas, and how biofuels are making the commodities crunch worse.

Nestlé is the biggest food company in the world. How do you make sure a company that size still makes products relevant to consumers?

At the end of the day, every man and woman on this planet needs about 2,400 calories. But one of the big challenges that food and beverage companies face is that there is no global consumer. Every single consumer in this world has his or her own idea about what she or he wants and needs. So you have to be decentralized.
At Nestlé, headquarters has nothing to do with the taste of the pizza you're buying in the U.S. That's the responsibility of local management.

You've got a strong worldwide coffee business. Where do you see potential for growth in the U.S. coffee market?

In the U.S., the big growth is in portion coffee. We are actually launching a new offering for portion coffee, which is Nescafé Dolce Gusto.

How much promise does that product have?

I would make a bet that Nescafé Dulche Gusto will be a billion dollar brand in the next two or three years. This is a business that we launched only three years ago. It's already earning more than half a billion today, and it's growing like crazy.

The perception of Nestlé is quite different from country to country. In the U.S., there is no doubt that for a generation or more, everybody remembers, "Nestlé makes the very best chocolate." I think that it was a campaign from the 1930s.

But if you go to Latin America, for example, people think of Nestlé as more of a nutrition company. Why? Because the first products Nestlé launched in Latin America were infant nutritional supplements and milk powders.

I know you're sick of this question, but how do you view the commodities crunch?

There are some fundamental issues of supply and demand that explain why it's happening. Every second we have 2.5 more people to feed and every second we are losing 0.35 hectares of arable land due to erosion and urbanization. We're running out of water, which is a basic ingredient for agriculture.

The world made some politically wrong decisions like subsidizing and encouraging biofuels, see Brazil for instance, which increase the demand for an already limited supply of food in an unsustainable manner.

There has to be a ban on using food for fuel. A move in that direction would have an immediate effect on bringing down the stress on the food supply. And besides, countries haven't realized that in the near future food will be the most profitable business, as more and more people are born and will need food and the problems in agriculture already mentioned.

But that probably won't happen. So what is Nestlé doing to make food products sustainably?

We are working with more than 600,000 small farmers in our most important areas: milk, coffee and cocoa. We help them with their efficiency and show them how to use less water. Working with the farmers also transforms them into consumers for our products.
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