Nestlé in Japan: Winning in the New Reality
Kohzoh Takaoka President and CEO Nestlé Japan
Nestlé Investor Seminar, Shanghai September 25th, 2012 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.
1 September 25th, 2012 Nestlé Investor Seminar, Shanghai Agenda
1. Introducing Nestlé Japan
2. Winning in The New Reality
3. Performance
2 September 25th, 2012 Nestlé Investor Seminar, Shanghai Sales by category of Nestlé in Japan 2011
2% Powdered and Liquid Beverages
Confectionery 14%
Milk Products
10% Prepared Dished & Cooking Aids
1% 58% PetCare 4%
Nestlé Professional / Nestlé Health Science / 11% Nespresso Nestlé Waters
2 September 25th, 2012 Nestlé Investor Seminar, Shanghai Sales contribution in total AOA
2011 Japan 9%
3 September 25th, 2012 Nestlé Investor Seminar, Shanghai Japan overview
Population (2011) : 128 million 23% ≧65 yrs old Population (2050 Proj.) : 97 million 39% ≧65 yrs old No of Households (2011) : 52 million 32% “1 person” GDP (2011) : 508 trillion yen GDP / Capita (2011) : 4.0 million yen Unemployment (2011) : 4.6% Life Expectancy (2010) : 85.9 years (Female) 79.3 years (Male) Main Area Populations Kanto 43.5 million Kansai 20.9 million
4 September 25th, 2012 Nestlé Investor Seminar, Shanghai Japan‟s Food and Beverage market GDP 508 Trillion yen
Living Expenditure 58%
F&B 14%
Out-of-home In-home 32 Trillion yen 40 Trillion yen
Data: Real GDP (expenditure basis) in 2011
5 September 25th, 2012 Nestlé Investor Seminar, Shanghai The New Reality – challenges No more overall growth / saturated market Population (M) Population Today GDP Growth 130 15%
125 10%
120 GDP Growth 5% 115 0% 110
-5% 105 Declining population & limited GDP growth
100 -10% 1980 1990 2000 2010 Sources: National Institute of Population and Social Security Research; UN; IMF
6 September 25th, 2012 Nestlé Investor Seminar, Shanghai The New Reality – challenges & opportunities: Ageing population The elderly trend in Japan % of elderly % of elderly (≥65y.o.) 32% by countries in 2010 30 29%
25 23% 23 Japan Germany 20 20 Italy Developed 17 France countries UK 15 US 13 Russia 10 8 China Developing countries 5 7 Brazil 5 India
0 1970 1980 1990 2000 2010 2020 2030 Sources: UN (Estimated with: Developing countries-high variant / Developed countries-low variant)
7 September 25th, 2012 Nestlé Investor Seminar, Shanghai The New Reality – Challenges & Opportunities: Changing household profiles Family Size 3.22 2.99 (Av. No persons) 2.67 2.46 50.9 46.8 4.2 (8%) No Household (million) 40.7 (12%) 5.4 7.6 (15%) (No persons) 35.8 6.8 (17%) 7.9 (17%) 9.4 (19%) 5+ 7.2 (20%) 8.8 (22%) 8.8 (19%) 9.1 (25%) 4 13.8 (27%) 7.4 (18%) 11.7 (25%) 3 6.5 (18%) 8.4 (21%) 58％ 6.0 (17%) 2 15.9 (31%) 37％ 12.9 (28%) 9.4 (23%) 1 7.1 (20%) 1980 1990 2000 2010
8 September 25th, 2012 Nestlé Investor Seminar, Shanghai The New Reality – Challenges & Opportunities: Consumers demand a lot of new products Very large No of SKUs: ~40% of SKUs are replaced every year Beverage1) Chocolate 2)
New 116 42% 1,348 39%
98% of them are gone one year after the Existing 157 2,082 launch
Total 273 3,430
1) 2011 for Canned Liquid Coffee 2) 2011 for Chocolate Sources: 1) ASD 2) Intage SRI
9 September 25th, 2012 Nestlé Investor Seminar, Shanghai The New Reality – Challenges & Opportunities: Consumers shopping smarter & looking for lower prices
Consumer shopping style % of Consumer who buy private brands (% of shoppers) 2009 2008 2009 +9%
Multi-store shoppers 89 68 74
Single store shoppers 11 Total (%) 100 Sources: METI; Fuji Keizai
10 September 25th, 2012 Nestlé Investor Seminar, Shanghai The New Reality – Challenges & Opportunities: From traditional to digital in consumer communication Traditional media Digital media (%) Declining access trend (%) Growing access trend
70 Read newspaper ad usually 70 Collect necessary information from Web usually 60 60 Watch TVCM usually 50 50 Ever clicked banner ad on Web 40 40 30 Read magazine ad usually 30 Watch Web ad usually 20 20 Listen radio CM usually 10 10 Read mail ad usually 0 0 2006 2007 2008 2009 2010 2006 2007 2008 2009 2010 Source : Hakuhodo HABIT2011
11 September 25th, 2012 Nestlé Investor Seminar, Shanghai The New Reality – Challenges & Opportunities:
Channel structure change 3,168 Index (1999 = 100) E- commerce
Alternative channel 200 Drug store 181
150 Convenience store 127
Supermarket 101 100 Traditional channel
50 Department store 67
0 1999 2005 2010
Source: METI / Fuji keizai
12 September 25th, 2012 Nestlé Investor Seminar, Shanghai The New Reality – Challenges & Opportunities: Complex traditional trade still a reality
15% AEON 85% TOP VALUE Investment Rate HASEGAWA 15% AEON GLOBAL 85% 14.7% MERCHANDING 85% NIHONBASHI AEON GLOBAL SCM KABO About 10billion Yen 15% 1.82% MAXVALUE CHUBU 51% 28.41% MARUETSU TOHO 5% MARUHISA DAIEI 1.53% 2.2% JOIS TOBU STORE LAWSON 32.4% 3.61% Shosha 1.56% 28.79 30.01% 4.8% YAMABOSHIYA % SHUREN 73.8% MITSUBISHI LIFE CORP. KOKUBU MARUBENI 83.5% 20% 80% KOKUBU NACS FINE LIFE FOOD SERVICE SHOKUHIN 26.3% SUPER NAKAMURA NETWORK 19.53% YAMAE DAIEI 2.14% 100% HISANO 2.3% 1.96% KANSAI SUPER MARUICHI ALBIS KUZE 3.55% 60.6% SANSHO 3.2% 0.39% 2.22% 0.2% OK Wholesaler
NIPPOON 2% 4.71% SAKE OROSHI JAPAN ACCESS INFOREX 5.05% AEON
UNION
4.25% 5.07%
NIHON SHURUI MARUDAI 6.66% ALLIANCE HANBAI NAGANOKEN TAKEDA HORIUCHI 91.9% 1.5% SEICO SHURUI FOODS NETWORK TOHKAN FRESH FOODS HANBAI 6.66% SANESU KANAKAN 6.66% 2.3% Retailer SEICO MART 98% FUJITOKU BUSSAN 4.69% ITOCHU SATOH ASAHI FOODS UNIVERSAL 2.08% AEON FOOD SHOWA 51.7% HOKKAIDO KATO SANGYO MITSUI 8.26% BUSSAN KAGOSHIMA 31.58% ITOCHU FOODS 11.1% FAMILY MART DOLCE 8.57% MAMMY MART MITSUI FOODS 1.83% 3% 34% SUMITOMO SUMMIT 2% SEVEN&I HOLDINGS IZUMIYA 100% 3% KONFEX YUASA ITO-YOKADO
UNY FUNASHOKU SEVEN ELEVEN JAPAN
13 September 25th, 2012 Nestlé Investor Seminar, Shanghai Challenges & Opportunities in The New Reality Declining total population, increasing single households and elderly population
Increasing polarisation of wealth and consumption
High demands for quality, innovation, freshness and customisation
High "nutrition awareness"
Highly developed alternative communication
Shifting from traditional channels to emerging new channels
Highly complex traditional trade still a reality
14 September 25th, 2012 Nestlé Investor Seminar, Shanghai Agenda
1. Introducing Zone AOA
2. Winning in The New Reality
3. Performance
16 September 25th, 2012 Nestlé Investor Seminar, Shanghai The Nestlé Strategic Roadmap to Win in The New Reality
17 September 25th, 2012 Nestlé Investor Seminar, Shanghai Strategic enablers to achieve Nestlé-in-Japan Mission
Nestlé B to C / Continuous Direct Model Bigger Excellence Bolder From Mass Better Ad (B3) to P2P I &R
17 September 25th, 2012 Nestlé Investor Seminar, Shanghai NESCAFÉ Barista enjoys great popularity B3 Innovation Now the best-selling coffee machine in Japan Launched in March 2010 „Drink instant-coffee-machine style‟ is catching on
Enjoy a cup of café latte for 25 yen !
5 kinds of café 10% of machine menu with one purchasers are button R&G coffee drinkers Machine price reasonable
18 September 25th, 2012 Nestlé Investor Seminar, Shanghai NESCAFÉ Dolce Gusto B3 Creating new segment in coffee machine market Innovation
Enjoy fresh taste & aroma and varieties anytime using capsule for NESCAFÉ Dolce Gusto, completely new and different from traditional electric coffee maker
19 September 25th, 2012 Nestlé Investor Seminar, Shanghai Kit Kat "Sweetness for Adults" B3 Reinforces Kit Kat brand Innovation
Differentiated brand image from original Kit Kat Gained market share ⇒Real 2nd pillar to the brand!
Crushed dark biscuits mixed into chocolate mass
Unique texture Enhanced lightness Less sweet
20 September 25th, 2012 Nestlé Investor Seminar, Shanghai Move to digital accelerates owned/earned Mass Ad Media value to P2P
2001 2011 2011
21 September 25th, 2012 Nestlé Investor Seminar, Shanghai KIT KAT strengthens brand value by PR exposure Mass Ad 5 times more PR exposure than TV every year to P2P KIT KAT Juken Campaign
Campaign born from consumers‟ word-of-mouth KIT KAT sounds like Kyushu‟s dialect "Kitto Kattoh" (Surely win!)‟ and has become a lucky charm for Juken among students since around 2002 Sending message through „third party‟ makes the news more public and sympathetic Students bring it to test room, or teachers, family, or friends send it to students to cheer them up
KIT KAT X Japan Railway KIT KAT X Japan Post
22 September 25th, 2012 Nestlé Investor Seminar, Shanghai Our PR activities are on the right track Mass Ad Brand PR investment vs. exposure to P2P
x 9.6
Investment Exposure 2011
23 September 25th, 2012 Nestlé Investor Seminar, Shanghai Nestlé Consumer site contains E-commerce, brand communication, membership programme, entertainment for wider access and CRM
Registered members： 2.5 million (as of the end of July, 2012) The number of page views: 270 million （2011 in total）
Brand contents nestle.jp Entertainment contents
Online shopping
24 September 25th, 2012 Nestlé Investor Seminar, Shanghai Channel development Direct Established direct selling as growth driver Model ‟Nestlé on-line shopping‟
25 September 25th, 2012 Nestlé Investor Seminar, Shanghai NESCAFÉ Barista Direct Innovations beyond products Model
New Innovative business model exploration - NESCAFÉ BARISTA office
Unique opportunity : 5.3 m small offices
New business model idea: – Installation of free NESCAFÉ BARISTA machine – NESCAFÉ ambassadors engagement – Direct sales of coffee
Test sales (Jun.-Jul. 2012) successfully done in Hokkaido region
Exploring national roll out
TV infomercial
26 September 25th, 2012 Nestlé Investor Seminar, Shanghai Evolution of Nestlé Health Science in Japan
Current businesses
120 Ageing care 111 Critical care 100 Paediatric
Future opportunities
Metabolic health Gastrointestinal Brain health 2009 2010 2011 Sales (2009 = 100) Market Share
28 September 25th, 2012 Nestlé Investor Seminar, Shanghai Agenda
1. Introducing Zone AOA
2. Winning in The New Reality
3. Performance
29 September 25th, 2012 Nestlé Investor Seminar, Shanghai Return to sales growth Nestlé in Japan 100 91 85
2003 2007 2011
Organic Sales Index (Year 2003 = 100)
29 September 25th, 2012 Nestlé Investor Seminar, Shanghai Acceleration of working capital improvement Nestlé in Japan
2007 2008 2009 2010 2011 2012 H1
TNWC as % of sales
30 September 25th, 2012 Nestlé Investor Seminar, Shanghai Winning in the New Reality in Japan The New Reality Nestlé Japan‟s Response Unfavorable demographic trends – Return to Sales Growth shrinking and ageing population Accelerated Profit Margin improvement Consumers becoming more demanding and value conscious Increased Capital Efficiency
Traditional Media giving way to Digital With emphasis on: Media B3 innovations Sales channel structure evolving from “Traditional” to “Alternative” Direct business model
From Mass Ad to P2P communication Complex and expensive trade structure still remains relevant Nestle Continuous Excellence
31 September 25th, 2012 Nestlé Investor Seminar, Shanghai
Thank you!
32 September 25th, 2012 Nestlé Investor Seminar, Shanghai
Q & A
33 September 25th, 2012 Nestlé Investor Seminar, Shanghai