THE$NESCAFE’$PLAN - mbacasecomp.com · 4alternavesanalyzed,TripleXStrategychosen Alterna-ve%/%Criteria% Cost% Revenue% Business Value Societal Value Risk Final%...

THE NESCAFE’ PLAN

Presented By: Aamer Yehia Amr Soliman Medhat Seoudi

Yassin Bahaa El Din

Agenda

•  Execu;ve Summary • Background • Problem Defini;on • Proposed Alterna;ves • Recommenda;on •  Implementa;on Plan • Risks •  Financial Analysis • Conclusion

Execu;ve Summary Background Problem Alterna;ves Recommenda;on Implementa;on Risks Financials Conclusion

Execu6ve Summary


•  Introduced by Nestle, Nescafe has been always recognized as a synonym of coffee •  Leverage of economic and cultural changes in China, Nescafe has dominated the coffee market in China • Nestle struggles to implement the Nescafe plan in China and aiming to develop it

NESCAFE

•  Follow the Triple X Strategy •  Exploit the Exis;ng Ins;tute to build a new genera;on of young farmers •  Expand the produc;on by leasing a land from the government •  The brand to be Exposed as a suppor;ve to the Chinese society

Recommenda;on

•  Ensure sustainable prac;ces in farming, produc;on and consump;on which will help in securing a green coffee supply

Benefits

Coffee is the world’s second-‐largest traded commodity, a7er crude oil

•  Bo#om-‐of-‐the pyramid (BoP) Markets •  Efficiency depends on the skills of each individual • Women performed more than 70% of work •  Average age of a farmer is 62

Brazil 35%

Vietnam 19%

Central America & Mexico 11%

Others 35%

Coffee Supply


Nestle’ wants to strengthen its commitment to sustainable coffee

Nescafe’

73% Coffee market share

in china

Close to farmers

Close to customers

Equals Coffee


68.8 74.7

87.8

2011 2012 2015

Global Sales of fresh and instant coffee in Billion USD

China is expected to be the second largest coffee market in the coming years

Shi$ from tradi-onal tea drinking to coffee

Retail sales of coffee reached $1.14 billion


Problem Defini6on

Nestle aims to develop the Nescafe plan in china to ensure sustainable prac;ces in farming, produc;on and consump;on which will help in securing a green coffee supply


4 alterna6ves analyzed, Triple X Strategy chosen Alterna-ve / Criteria Cost Revenue Business

Value Societal Value Risk Final

Buy coffee at high prices from farmers û ü û ü û û

Strengthen local efforts û û ü ü û û Backward Integra;on û ü û ü û û Triple X Strategy

•  Exploit the exi;ng Ins;tute to build new genera;on farmers

•  Expand the produc;on by Lease Lands from the state

•  Expose the brand as driver for a prosperous society

û

ü

ü

ü

ü

ü


Crea;ng Shared Value (CSV)

This is how the Triple X works

Exploit

• The established ins;tute to train a new genera;on of young farmers

• Cer;fied as Nestle’ Trained Farmers (NTF)

• Training shall be based on Crea;ng Shared Value (CSV) model

•  Integrate the Fairtrade labelling cer;fica;on

Expand

• Lease 350 Hectares from the Chinese government as a first step

• One consistent land rather than having complex small scale individual farms

• NTF to work on the land • A supervision system to be established to guarantee the apply of the CSV model

• 65% of the produc;on Nestle’ owned

• 35% with high priority to buy at premium price (To workers & society)

Expose

• Capitalize on the percentage of the produc;on bought to enhance services in the villages

• This will cause the brand to be recognized as a driver for a prosperous Chinese community


Nestle’ is the best place to work with

Contract

Provide Loans

Provide Land

Premium Prices

Secure selling

Provide Training

5 years


Implementa6on Ac-vity Q1/2016 Q2/2016 Q3/2016 Q4/2016 Q1/2017 Q2/2017 Q3/2017 Q4/2017

Prepare training programs required material and contracts

Adver;sing to afract trainees

Conduct training for trainees batch (250 trainee)

Field training for the trainees batch by shadowing

Nego;ate and close the deal with the government to lease the land

Marke;ng campaign (beyond fair trade)


Risks are high, but can be mi6gated

Risk Impact Probability Mi-ga-on

Child labor High Medium Nestle’ will supervise closely the working labor

Trained farmers to leave High Low Our Payment system is an

incen;ve to keep our assets

Over produc;on Medium Low Export


Money Talks… Assump6ons Nestle Coffee Market Share in China 72.7% as of 2012

Price of ton is around 2,400$

65% of the produc;on will go to Nestle and the other 35% will go to farmers and rural development

Nestle needs 5.9 Hectares to produce one ton of Coffee

Price of leasing a Hectare in China is around 8,000$


Coffee is a major source of revenues for Nestle

-‐

5,000

10,000

15,000

20,000

25,000

2008 2009 2010 2011 2012

Revenues Segmenta-on (in M Swiss Francs)

Powdered and Liquid Beverages ( 50% Coffee) Water Products Milk Products & Ice Cream Nutri-on Products Prepared Dishes & Cooking Aids Confec-onery Pet Care Alcon


China is about to be a leading source of Coffee

35.20%

18.90%

18.50%

11.20%

6.60%

6.30% 3.30% 2012-‐2013

Brazil Vietnam Others Central America & Mexico Colombia Indonesia India


Farmers are being financially driven out of the market

$1.35

$1.29

$0.40

$0.25

$0.18 $0.18

$0.07 $0.04

Coffee Value Chain

Labour Costs at Coffee Shop Shop Overhead, including rent Cost of milk Profit earned by retail owner Ini-al investment Coffee millers, exporters, importers & roasters Cost of the cup Coffe growers


By 2012, Nestle sold around 30 K tons of Coffee

2009 2010 2011 2012 Coffee Beans 321 286 321 362 Fresh Ground Coffee 143 127 143 161 Instant Coffee 36,707 33,492 36,707 40,053

-‐ 5,000 10,000 15,000 20,000 25,000 30,000 35,000 40,000 45,000

Qua

n-ty in Ton

s

Retail Sales of Coffee In China 2009-‐2012 (Quan-ty in tons)

Coffee Beans Fresh Ground Coffee Instant Coffee 2009 2010 2011 2012

Nestle Coffee Sales 25,276.28 23,394.45 26,168.38 29,498.75

-‐

5,000.00

10,000.00

15,000.00

20,000.00

25,000.00

30,000.00

35,000.00

Qua

n-ty in Ton

s

Nestle Coffee Sales based on Market Share (Quan-ty in tons)

350,000 Hectares will be needed to secure future produc-on


Dominate the Future

Exploit

Expand Expose

Dominate the Market and create

barrier for compe;tors

The Ul6mate Goal

Next Steps: Explore the possibility to increase produc;on & export to invade new Markets


GOOD FOOD, GOOD LIFE

Presented By: Aamer Yehia Amr Soliman Medhat Seoudi

Yassin Bahaa El Din Thank You

Backup Slide: Needed Land Calcula6on

Units 2012hectres 881,700 tons 150,000 Productivity( How many hectres of to produce one ton) 5.88

Need Production (tons) 60,000 Needed Hectres 352,680

Backup Slide: Cost of Land and Cost Recovery

Price to lease One Hectare 8,000 Needed Land (Hectares) 350,000 Total Amount (30 Years) 2,800,000,000 Total Amount (Yearly) 93,333,333

Coffee Quantity that will be possessed by Nestle (Tons) 40,000 Price Per Ton 2,500 Value of Sales to Nestle 100,000,000

Backup Slide: Nestle Revenues Segmenta6on 2008 2009 2010 2011 2012

Powdered and Liquid BeveragesSoluble Coffee 10,688 10,564 10,938 9,217 9,946 Others 8,191 8,707 9,674 8,987 10,092 Total 18,879 19,271 20,612 18,204 20,038

2 Water Products 9,595 9,066 9,101 6,526 7,178 Milk Products & Ice CreamMilk Products & Ice Cream 11,662 12,501 10,974 12,988 Ice Cream 6,573 6,520 4,456 4,573 Others 1,322 1,339 976 1,003 Total -‐ 19,557 20,360 16,406 18,564

4 Nutrition Products 9,965 10,368 9,744 10,726 Prepared Dishes & Cooking AidsFrozen and Chilled 9,739 10,549 8,046 8,045 Culinary and other 7,466 7,544 5,887 6,387 Total -‐ 17,205 18,093 13,933 14,432 ConfectioneryChocolate 9,369 9,605 7,101 7,524 Sugar Confectionery 1,109 1,127 866 1,310 Biscuits 1,318 1,365 1,096 1,604 Total -‐ 11,796 12,097 9,063 10,438

7 Pet Care 12,938 13,091 9,764 10,810 8 Alcon 7,039 5,109 9 Sales From JVs in health and beauty 891

Total Sales 28,474 106,837 109,722 83,640 92,186

5

6

1

3

Backup Slide, Why not to ver6cally integrate

Reasons

Focus on core

business

May affect reputa;on

Higher cost

More burdens

Less flexibility

THE$NESCAFE’$PLAN - mbacasecomp.com · 4alternavesanalyzed,TripleXStrategychosen Alterna-ve%/%Criteria% Cost% Revenue% Business Value Societal Value Risk Final%...

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