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) 13.3% “Nestléis already playing the premiumisation trend well.”
“Nestléwas the first to highlight how CHF100100CHF Bn large the opportunity of premiumisation could be…we think this is a conservative estimate.”
2007 2020F
Source: ING Food, Beverage & HPC –The irreversible forces of premiumisation, May 2008. NestléInvestorSeminar–Vevey N16a-17me J unofe c2008hairman 29 Premium and Luxury brands are driving growth…
Organic Growth Organic Growth Organic Growth* 50% 25% 30% 25% 40% 20% 40% 20%
20% 30% 15%
20% 10% 10%
10% 5% 4.3% 3.2% 2% 0% 0% 0% Nespresso vs. Total Purina Pro Plan vs. Total Mövenpickvs. Total Coffee Market Dog & Cat Food Market Ice-Cream Market
(*) Mövenpickgrowth excluding Switzerland. NestléInvestorSeminar–Vevey N16a-17me J unofe c2008hairman 30 Premium and Luxury brands are driving growth and creating value
Organic Growth Share of the Swiss and French Coffee Markets 50%
40% 40%
30%
20% 35%
20% 10%
2% 3% 0% Nespresso vs. Total Volume Sales Profit Coffee Market
Source: Euromonitor, Datamonitor, Nespresso Financials, Boston Consulting Group Estimates NestléInvestorSeminar–Vevey N16a-17me J unofe c2008hairman 31 Nestlépremium and luxury positions per category
Weaker Building Strong Positions Positions Positions
Bottled Water
Cereals
Chocolate
Coffee
Condiments / Sauces
Dairy
Ice-Cream
Pet Food
Ready to Eat Meals
Nutrition
NestléInvestorSeminar–Vevey N16a-17me J unofe c2008hairman 32 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 33 Why Nestlécan do this better than anyone else…
1 Category expertise and R&D
Market Position in Top 10 Categories by Market
NestléInvestorSeminar–Vevey N16a-17me J unofe c2008hairman 34 Why Nestlécan do this better than anyone else…
1 Category expertise and R&D Global No.1 in most categories Largest F&B research capabilities and spend Market Position in Top 10 Categories by Market Cross-category synergies
NestléInvestorSeminar–Vevey N16a-17me J unofe c2008hairman 35 Why Nestlécan do this better than anyone else…
1 Category expertise and R&D Thirty (30) billionaire brands Strong local brands 2 Platform of strong brands
NestléInvestorSeminar–Vevey N16a-17me J unofe c2008hairman 36 Why Nestlécan do this better than anyone else…
1 Category expertise and R&D
2 Platform of strong brands
3 Long-term commitment
Sales Development
Profitable
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
NestléInvestorSeminar–Vevey N16a-17me J unofe c2008hairman 37 Why Nestlécan do this better than anyone else…
1 Category expertise and R&D Time and continuous investments are key to develop strong premium brand positions 2 Platform of strong brands
3 Long-term commitment
Sales Development
Profitable
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004Long2005 2-t006erm2007 perspective on all brands
NestléInvestorSeminar–Vevey N16a-17me J unofe c2008hairman 38 Why Nestlécan do this better than anyone else…
1 Category expertise and R&D Nestléis the industry benchmark in… Consumer services & 2 Platform of strong brands Relationship marketing
3 Long-term commitment
4 Consumer services experience
NestléInvestorSeminar–Vevey N16a-17me J unofe c2008hairman 39 Why Nestlécan do this better than anyone else…
1 Category expertise and R&D The new pack Brand
GeographicalOrigin/ Emphasyon Tuscany
2 Platform of strong brands Specific-HistoricOrigin/ Emphasyon Villa Panna
Originalproduct
Brand
Long-term commitment Reinforcementof Specific–HistoricOrigin 3 Vevey, 11June 2007 Disciplined Roll-out (Italian restaurants year one…) 4 Consumer services experience Global Presence
Global Communication 5 Global reach and launch capabilities
NestléInvestorSeminar–Vevey N16a-17me J unofe c2008hairman 40 Why Nestlécan do this better than anyone else…
1 Category expertise and R&D
2 Platform of strong brands
3 Long-term commitment
4 Consumer services experience
5 Global reach and launch capabilities
6 In-house experts and experienced people
NestléInvestorSeminar–Vevey N16a-17me J unofe c2008hairman 41 Why Nestlécan do this better than anyone else…
1 Category expertise and R&D In addition, Nestléis the global leader in Nutrition, 2 Platform of strong brands Health and Wellness, which is an important lever in the premium segment 3 Long-term commitment +
4 Consumer services experience
5 Global reach and launch capabilities
6 In-house experts and experienced people
NestléInvestorSeminar–Vevey N16a-17me J unofe c2008hairman 42 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 43 Strong innovation pipeline of premium and luxury products
Super-Premium Fond / Consommé
First premium quality stock for restaurants
NestléInvestorSeminar–Vevey N16a-17me J unofe c2008hairman 44 Strong innovation pipeline of premium and luxury products
Purina ONE Natural Balance. Visible Health for Today and Tomorrow, Naturally. Addressing specific health benefits with natural ingredients known for their nutritional properties.
NestléInvestorSeminar–Vevey N16a-17me J unofe c2008hairman 45 Strong innovation pipeline of premium and luxury products
SanpellegrinoAranciataand Limonatarepresent the most up-scale premium sparkling fruit beverages that fulfill the pleasure of Italian authenticity…
NestléInvestorSeminar–Vevey N16a-17me J unofe c2008hairman 46 Strong innovation pipeline of premium and luxury products
NIDO ExcellaGold for mothers who pride themselves in giving the best possible nutrition to their children for optimum growth and development Nutritionally enhanced milk with Holistic Nutrition (for protection, brain and body growth)
NaturNes, a revolutionary procedure ensuring nutrients and flavors are preserved better. NaturNes, the new generation of 100% natural baby foods for your baby's well-being. In new 'green' packing with 25% less CO2 footprint
NestléInvestorSeminar–Vevey N16a-17me J unofe c2008hairman 47 Strong innovation pipeline of premium and luxury products
Chocolate Research Center, Broc, Switzerland Partnership with Pierre Marcolini Harboring over 100 years of experience in chocolate Nestléhas launched over 200 dark chocolate products in the last 2 years Biggest user of fine Cocoa beans
NestléInvestorSeminar–Vevey N16a-17me J unofe c2008hairman 48 Strong innovation pipeline of premium and luxury products
ComilfoBrand -Acquired in Nov 2007
NestléInvestorSeminar–Vevey N16a-17me J unofe c2008hairman 49 Premiumizationat Nestlé…
Strong market growth and future potential
Highly attractive economics
Leading brand positions
Unique Nestlécapabilities
Strong pipeline for tomorrow
…driving growth and creating value
NestléInvestorSeminar–Vevey N16a-17me J unofe c2008hairman 50 NestléInvestor Seminar 2008
NestléInvestorSeminar–Vevey N16a-17me J unofe c2008hairman 51