Africa’s promise gets Nestle on expansion drive

The world’s biggest food group Nestle is investing Sh11.5 billion in the Equatorial Africa region over the next three years, with Sh2.3 billion earmarked for the expansion of production capacity at its Nairobi factory.

While sales from Africa reached Sh240 billion in 2009, representing three per cent of global sales, the firm is keen on riding on the wave of the global economic recovery, which looks more certain in emerging markets than in the developed world that is in the eye of the Euro zone storm.

The firm’s 6.7 per cent, growth in sales in Asia, Oceania, and Africa was the highest, followed by Americas and Europe at 6.5 per cent and 0.3 per cent respectively.

With its divestiture from eye-care manufacturer Alcon expected to fetch Sh2.3 trillion this year, the food maker is searching for investment opportunities to stave off competition from its two European arch-rivals – Unilever and Danone.

The investments also come as analysts predict growth of the packaged foods market. Global Industry Analysts (GIA), for instance, projects the global baby foods and infant formula market to reach an estimated $23.8 billion by 2015, driven by changing lifestyles and increasing number of women in the workforce with disposable incomes. Some of the company’s products in the East Africa region include coffee brand Nescafe, baby food Cerelac, food additive Maggi and milk powder Nido.

Victor Juma spoke to Nestle’s global CEO, Paul Bulcke, on the investments and the company’s strategy in Africa.

What prompts this expansion drive?

This is not Nestle all of a sudden discovering Africa. We have been here for many years. We are deepening and accelerating our investment in the continent where we had around Sh3 billion in sales in 2009 and we are projecting that to grow by Sh1 billion in the next one year. Coincidentally, we also have the East African Community integrating and I would say this is beneficial to us. I’m visiting to familiarize myself with the region and to explore opportunities which have met our expectations. There are good opportunities here .

What is the breakdown of the investment?

We are investing about Sh4.2 billion to expand production capacities in the Nairobi and Harare factories so that they can serve both internal and external demand from neighbouring countries.

The remaining Sh7.3 billion will be used to build new factories in the Democratic Republic of Congo, Mozambique, and Angola. In addition, we will create 13 new distribution chains to add to the eight we have today. By scaling up our distribution capability we can increase our product presence in the Equatorial African region.

What impact will this investment have on Nestle?

As a result of this investment, we will be more than doubling our workforce, creating 750 new jobs. If more companies make similar investments, we will empower consumers to spend more, boosting demand for goods.

The recession impacted household spending abilities, leading to consumer price sensitivity. What is Nestle’s strategy to ensure consumers keep buying?

We have what we call popularly positioned products – PPP. Sometimes large companies have the tendency of bringing in products from the developed market which end up appealing to a small fraction of the population.