Lars Olofsson Head of Strategic Business Units and Marketing
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NestléInvestor Seminar 2008 Premiumization– Driving Growth, Creating Value Lars Olofsson Head of Strategic Business Units and Marketing NestléInvestorSeminar–Vevey N16a-17me J unofe c2008hairman 1 Disclaimer This presentation contains forward looking statements which reflect Management’s current views and estimates. The forward looking statements involve certain risks and uncertainties that could cause actual results to differ materially from those contained in the forward looking statements. Potential risks and uncertainties include such factors as general economic conditions, foreign exchange fluctuations, competitive product and pricing pressures and regulatory developments. NestléInvestorSeminar–Vevey N16a-17me J unofe c2008hairman 2 Agenda 1. Consumer Trends 2. The Premium and Luxury Model 3. The NestléOpportunity 4. NestléCapabilities and Expertise 5. Future Outlook NestléInvestorSeminar–Vevey N16a-17me J unofe c2008hairman 3 The target income group for premium products is > US$ 28’000 Annual Per-capita spend on manufacturing value-added food Per-capita income (Purchasing Power Parity) US$ 5’000 US$ 13’000 US$ 22’000 US$ 28’000 Source: UNIDO, WIDER, World Bank, NestléF&C NestléInvestorSeminar–Vevey N16a-17me J unofe c2008hairman 4 As people move up the income ladder, this target group grows faster than any other segment… Number of People with annual income > US$28’000 globally 849M 72% 494M Two years from now there will be more potential premium and luxury goods consumers in China than in whole of Europe (income > 28’000 USD, 2010) Today there are more millionaires in China than any country in Europe (US$) 2005 2015 Source: UNIDO, WIDER, World Bank, NestléF&C NestléInvestorSeminar–Vevey N16a-17me J unofe c2008hairman 5 People increasingly spend more of their discretionary money on premium products -trading up…and down Luxury Premium Mainstream Value NestléInvestorSeminar–Vevey N16a-17me J unofe c2008hairman 6 Examples of strong underlying premium growth drivers • The rise of the middle-class • Urbanization • Individualism –ego acceptance • Growth in single households • Lifestyle changes –convenience • Ageing population • Female spending power • Wising up -growth in education • Fall of structure forming institutions NestléInvestorSeminar–Vevey N16a-17me J unofe c2008hairman 7 75% of the total value growth will come from the > US$28’000 consumer group Global food and non-alcoholic beverage consumption and growth (2007-2015) US$ 190Bn US$ 870Bn 28’000+ US$ 3’000Bn US$ 680Bn The US$ 28’000+ consumers will add US$ 140Bn in manufacturer value added until 2015. 75% of this value growth will come from the 28’000+ consumer group. Global processed Manufacturer Growth Manufacturer food and drinks at Value Added Value Added consumer prices (2007) (2015) (2007) NestléInvestorSeminar–Vevey N16a-17me J unofe c2008hairman 8 Why consumers go for luxury products? The Show-off The Connoisseur The Self-treater The Motivator “Wants to feel “Wants to signal “Buys to reward “Wants to remind superior and status and themselves for oneself of one’s privileged… demands respect achievements true identity Wants to feel Shows gratitude, or consolation Wants to build valued and admiration and from setbacks hope and energy important… affection to the to motivate one- brand it’s about self- self” Wants to feel pampering and special and apart Likes to occasional “I still got it…” from the crowd” demonstrate indulgence” perfectionism” NestléInvestorSeminar–Vevey N16a-17me J unofe c2008hairman 9 Agenda 1. Consumer Trends 2. The Premium and Luxury Model 3. The NestléOpportunity 4. NestléCapabilities and Expertise 5. Future Outlook NestléInvestorSeminar–Vevey N16a-17me J unofe c2008hairman 10 The brand value pyramid Luxury Premium Mainstream Value NestléInvestorSeminar–Vevey N16a-17me J unofe c2008hairman 11 The brand value pyramid: Value Luxury Premium Mainstream Value < 15% of the category average price NestléInvestorSeminar–Vevey N16a-17me J unofe c2008hairman 12 The brand value pyramid: Mainstream Luxury Premium +20% Mainstream Category average price -15% Value < 15% of the category average price NestléInvestorSeminar–Vevey N16a-17me J unofe c2008hairman 13 The brand value pyramid: Premium Luxury > 20% of the category average price Premium Mainly retail distributed brands +20% Mainstream Category average price -15% Value < 15% of the category average price NestléInvestorSeminar–Vevey N16a-17me J unofe c2008hairman 14 The brand value pyramid: Luxury Several times the retail average price Luxury Global brand management and selective route to market > 20% of the category average price Premium Mainly retail distributed brands +20% Mainstream Category average price -15% Value < 15% of the category average price NestléInvestorSeminar–Vevey N16a-17me J unofe c2008hairman 15 “Top of the Pyramid”Category Examples: Chocolate Artisan (Chocolatier) Luxury brands Godiva Pierre Marcolini Venchi Lindt Excellence Super Premium PeruginaBaci Premium brands Cailler “fines” Toblerone NestléInvestorSeminar–Vevey N16a-17me J unofe c2008hairman 16 “Top of the Pyramid”Category Examples: Coffee Artisan (Barista) Luxury brands Dolce Gusto Super Premium Senseo Lavazza Premium Premium brands NESCAFE Tesco Finest Cap Colombie Colombian NestléInvestorSeminar–Vevey N16a-17me J unofe c2008hairman 17 Luxury is fundamentally different Economics Innovation Marketplace Capabilities Talent MAINSTREAM LUXURY NestléInvestorSeminar–Vevey N16a-17me J unofe c2008hairman 18 Luxury is fundamentally different Economics Innovation Marketplace Capabilities Talent • Annual RIG • 60/40+ • Local brands • Account Mgmt • Job rotation (2-4 years) • EBIT • Renovation • Regional •Trade Spend / adaptations Promotions • Career • Trade Spend • Compared to Advancement MAcompetIitorNST• Dependent Ron E• Local AMinsight local retailers • Intrapreneur • Up-front • Bold • Global brand / • Building • Mgmt part of investments innovation discipline emotions the brand • Long-term • Too different • Price control • Entrepreneur • Emotional value to compare • Creative dedication LUX• Not reUtailer RYdistribution • 10yr growth • Being best dependent • Advisors • Create trend NestléInvestorSeminar–Vevey N16a-17me J unofe c2008hairman 19 Agenda 1. Consumer Trends 2. The Premium and Luxury Model 3. The NestléOpportunity 4. NestléCapabilities and Expertise 5. Future Outlook NestléInvestorSeminar–Vevey N16a-17me J unofe c2008hairman 20 Examples of Nestlépremium and Luxury brands 80% of all Guide Michelin star restaurants exclusively serve S.Pellegrinoas the only choice of sparkling water Perrier belongs to the category called the Champagne of Waters A bottle of Perrier costs up to $50 in Japan Aqua Pannahas the same pH-value as red wine, which makes it the best complement to a fine dinner. NestléInvestorSeminar–Vevey N16a-17me J unofe c2008hairman 21 Examples of Nestlépremium and Luxury brands The raspberries for Mövenpick are picked between 6:00am and 10:30am –when they have the most taste. Häagen-Dazswas created by The best temperature to enjoy Reuben Mattusin the Bronx, Mövenpickis 9.9°Celsius New York Jerry Seinfeld made a whole episode about Häagen-Dazs and the fact that people believe it is Scandinavian NestléInvestorSeminar–Vevey N16a-17me J unofe c2008hairman 22 Examples of Nestlépremium and Luxury brands Pierre Marcolinihas won the world championship in pastry Pierre Marcolinihas been called ChocoChanel in the press Nestléis the world’s largest dark chocolate manufacturer The global premium and luxury chocolate market >20Bn (CHF) NestléInvestorSeminar–Vevey N16a-17me J unofe c2008hairman 23 Examples of Nestlépremium and Luxury brands Purina Pro Plan and Purina ONE focuses on nutritional benefits and pet health… …such as extending a cat’s life Gourmet Gold and Diamantfocus on pure pleasure and indulgence, offering appetizers and soufflés NestléInvestorSeminar–Vevey N16a-17me J unofe c2008hairman 24 Examples of Nestlépremium and Luxury brands Developed by chefs for chefs, CHEF products enable them to unleash their creativity and increase consumers' pleasure… NestléInvestorSeminar–Vevey N16a-17me J unofe c2008hairman 25 Examples of Nestlépremium and Luxury brands NestléInvestorSeminar–Vevey N16a-17me J unofe c2008hairman 26 Premium and Luxury Market Highlights Europe Premium and Luxury Market [Retail Sales US$, 2007] Global Food Service Market (US$) $7.9Bn $1.6Tr $220Bn $6.9Bn $5.9Bn $4.5Bn $4.4Bn $3.9Bn $3.2Bn Full Service Rest. Hotels Home Meal Replacem. Bottled Water Chocolate Condiments Ready to Eat Ice Cream Coffee Pet Food Global Food Service Premium and Gourmet and Sauces Meals Market [Estimate] Note: Europe market size figures are only packaged goods and do not include Food Service. Source: Datamonitor, 2008 NestléInvestorSeminar–Vevey N16a-17me J unofe c2008hairman 27 Premium and Luxury Market Highlights US Premium and Luxury Market [Retail Sales US$, 2007] US Chocolate Market Growth CAGR $8.0Bn (2004-2007) 25% 24% 12% $5.7Bn $5.3Bn $3.8Bn $3.4Bn $2.8Bn $1.3Bn $1.3Bn $1.2Bn 4% 4% Pasta and Condiments Ready to Dairy Bottled Pet Food Ice Cream Coffee Chocolate 2006 2007 Baked and Sauces Eat Meals Water Goods Note: Market size figures are only packaged goods and do not include Food Service. Source: Euromonitor, Datamonitor, Packaged Facts NestléInvestorSeminar–Vevey N16a-17me J unofe c2008hairman 28 ING estimates global premiumisation growth: 13.3% Premium Food, Beverage and HPC Market CHF5065C0HF6 Bn “[Nestlé] enjoys a high premium products exposure and has good prospects for further momentum” CAGR (2007-2020)