Memorial University of Newfoundland Nescafé China Good Food, Good Life Edge Consulting
Agenda Problem Statement Neal Key Issues Key ObjecAves Analysis AlternaAves Lindsey RecommendaAon ImplementaAon Plan Angela Financials Ryan Risks and MiAgaAons Angela Conclusion
Problem Statement How can Nescafé create shared value while improving their supply chain and mee>ng Chinese consumer s needs?
Key Issues Company Values Supply Reliability Customer Forces Price VolaAlity
Key Objec>ves q Values fit q Enhance supplier reliability q Favorable market reacaon q Decreases in price volaality
Recommenda>on Nescafé should backwardly integrate into coffee farming in China through the development of two large- scale experien>al farms, with tourism, research and educa>on applica>ons
Assump>ons Government will lease land Consumers willing to pay for ceraficaaon Chinse Demand conanues to grow
Analysis External Analysis Key Worldwide Sources of Coffee Brazil 35% India 3% Indonesia 6% Colombia 7% China Projected to become the 4 th largest market Long term, China to become second largest market Vietnam 19% Others 19% Central America & Mexico 11% China shows promising market poten>al
Analysis External Analysis 1200 1000 Retail Coffee Sales in China 2009-2012 2011, 981 2012, 1,120 800 600 2009, 726 2010, 820 400 200 0 China is growing in demand for Coffee products 2009 2010 2011 2012 Coffee Beans Fresh Ground Coffee Instant Coffee
Analysis External Analysis 60000 Cost of Coffee Goods 50000 40000 30000 20000 10000 Price of buying coffee beans is increasing 0 2009 2010 2011 2012 Beans Fresh Ground Instant
Analysis External Analysis 80% 70% Global Market Shares in Coffee, 2009-2012 Green Mountain Nestle SA Tichbo Private Labels Others Mondelez DE Master Blenders 60% 50% 40% 30% 2009, 22.30% 2010, 22.50% 2011, 22.40% 2012, 22.40% 20% 10% Market share growth stagna>ng 0% 2009 2010 2011 2012
Analysis External Analysis Coffee farming Dominated by older generaaon Unappealing to younger generaaon Supply volaality increase Important to encourage youth for future supply chain stability
Analysis Internal Analysis 900 800 700 600 Nescafe Coffee Sales in China 2011, 702.592 2012, 828.78 500 2010, 576.15 400 300 200 100 China is growing in demand for Nescafe products 0 2010 2011 2012
Analysis Internal Analysis Revenues by Product 2009-2012 25,000 20,000 Powder and Liquid Water Milk and Ice Cream NutriAonal Prepared meals and aids ConfecAonary Pet Care 15,000 Millions of Swiss Francs 10,000 5,000 Nestle coffee has worldwide popularity 0 2009 2010 2011 2012
Analysis Internal Analysis 1.Philanthropy 2.Corporate Social Responsibility 3.Sustainability 4.CreaAng Shared Value
Analysis Internal Analysis CSV Not limited by firm budget Integral to the business model CompeAAve advantage Wealth CreaAon CSV is strategically relevant to Nestle
Alterna>ves 1 3 2 Pay premium prices for fair trade coffee, recouped through futures market investment Engage Chinese farms to idenafy, research, and implement changes to improve their producavity Backwardly integrate into coffee farming through the creaaon of ExperienAal Farms
Alterna>ve One: Pay premium for fair trade, recouped through futures investment - Addresses price volaality - Some fit with Good Food Good Life and CSV - VolaAlity in supply - Lack of farmer buy- in - Labour challenges unresolved - TransacAonal supply chain
Alterna>ve Two: Engage Chinese farmers to iden>fy, research, and implement improvements Edge - Some fit with CSV and Good Food Good Life Values - Slow and piecemeal - Lack of farmer buy- in - TransacAonal supply chain - Labour concerns - Price and supply volaality
Alterna>ve Three: Backwardly integrate into coffee farming through the crea>on of Experien>al Farms Edge - Moves away from transacaonal supply chain - Addresses labour challenges - Complete fit with CSV and Good Food- Good Life Philosophy - Reliable prices and supply - Ensuring farmer buy- in - New terrain
Decision Matrix Supply and Price Vola>lity Consumer choice and profit Nestlé Philosophy Premiums for fair trade Engage with individual Chinese farmers Backwardly integrate with Experien>al Farms Crea>ng Shared Value Principals
Recommenda>on Nescafé should backwardly integrate into coffee farming in China through the development of two large- scale experien>al farms, with tourism, research and educa>on applica>ons
Implementa>on Plan Short Term Experien>al Farm Task Force Nego>a>ons with Government and Community Medium Term Establish Two Experien>al Farm Loca>ons Begin Harvest and Training Ini>a>ves Long term Sale of first harvest Farm inves>ga>on for future countries
What is an Experien>al Farm? Welcome to the Nescafé experien4al farm. In partnership with local farmers, we produce the highest quality FairTrade cer4fied coffee, invest in R&D and provide a training and educa4onal center where we can learn from each other. We hope your experience here will be friendly, educa>onal and refreshing. Wishing you Good Food, and a Good Life. Training and EducaAonal Center Research and Development Coffee ProducAon Facility Agricultural Tourism
Educa>on and Training The Coffee Knowledge Center 1. Staffed by training specialists 2. Support knowledge sharing 3. Open to local teachers and classes 4. Workshops and producaon facility tours 5. ApprenAceship OpportuniAes 6. TasAng panel training
Research and Development Nescafé Innova>on Center State of the art R&D center Ability for test crops Staffed by local Nescafé scienasts and researchers Explore plant variaaons and weather trends Share learning with Nescafé and local farmers iniaaaves
Produc>on Facili>es Produc>on Facili>es PlanAng HarvesAng Crop Processing and RoasAng Packaging MarkeAng and Sales 1. Processing will occur onsite for small batches 2. Larger harvests will be sent to Nestlé producaon faciliaes
Agricultural Tourism The Nescafé TasAng Experience Appeal to growing travel trends CerAfied tour guides Historical Museums on site TasAng Experience Explore the ProducAon FaciliAes Opportunity to explore crops
Logis>cs Lease two 180 hct. Loca>ons from Chinese Government Yunnan Province Guangdong Why Two loca>ons? Risk aversive (Drought, plant disease) Spread out training across Country Sustainability LogisAcal network and supply chain savings Farm Task Force Nescafé China Local Farmers Nescafé InternaAonal
Logis>cs Secure locaaons Community Engagement Task Force ConstrucAon of faciliaes Hiring: Training, R&D, farmers Plant First Crop ProducAon with local beans (For first 4 years) on site, training and R&D EducaAon, training and producaon Tourism and sale of product
Des>na>on Promo>on Promote DesAnaAon through: Local Tourism Boards Invite online influencers: travel, coffee sommeliers, and agricultural bloggers InfluenAal Baristas Employees Worldwide (IncenAve programming) Agricultural Tourism
Sales and Marke>ng of Product New packaging Includes ceraficaaon specifics Quick Facts about ExperienAal Farm About the Farmers, coffee staasacs, desanaaon details Online PromoAon Social Media Instagram, Vine, Farm Blog Promote sharing of site through hashtag #nescafefarm
Teams Involved Nescafé China and InternaAonal Human Resources R&D Supply Chain Management Legal
Time Line Short Term (0 mo.- 1 year) Medium Term (1 2 years) Long Term (2-4 years) Launch Farm Task Force, purchase Land ConstrucAon of Farm and ProducAon faciliaes ProducAon of Local Crops Hiring of Staff, training, set up Plant First Crop Harvest First Crop Tourism and EducaAon
Financials Year One Year Two Year Three Year Four Lease 287.5 287.5 287.5 287.5 Training 575 575 575 575 People 718.75 4312.5 4312.5 4312.5 Infrastructure 11500 8625 575 575 ProducAon 2300 2300 2300 2300 Raw Goods 149.5 149.5 149.5 0 Total 15530.75 16249.5 8199.5 8050 Assump>ons: 1. Tons = 5000 (YR 1-3) 2. 300 Employees/farm 3. Lease Rate $13,000/hct. 4. Cost of beans = $25,000/ ton
Projected Coffee Revenues 3000 2500 2000 1500 1000 500 2010, 576.15 2011, 702.592 2012, 828.78 Assump>ons: 1. ConAnued strong growth in demand at 12%/ year 2. Market Share conanues to grow ~ 4%/year 0 2010 2011 2012 2013 2014 2015
Risks and Mi>ga>ons Risk Level Mi>ga>on Environmental Factors Economic Downturn Demand Shrinkage Medium Low Low Two locaaons, R&D Monitor economic forecast Market Research, markeang, export
What Good Looks Like Edge
Conclusion q Values fit q Enhance supplier reliability q Favorable market reacaon q Decreases in price volaality
Memorial University of Newfoundland Thank You QuesAons? Edge Consulting
Con>ngency Plan Edge
Cer>fica>on Pros and Cons Recogni>on level Cost Company Alignment Fairtrade High High High Rainforest Medium Medium Medium UTZ Low Low High 4C Low Low High Bird- friendly Low Low Low
Cost of a Cup of Coffee Milk, 0.4 Retail Profit, 0.25 IniAal Investment, 0.18 Coffee processors, 0.175 Coffee Cup, 0.07 Coffee Growers, 0.035 Shop Overhead, 1.2 Shop Labour, 1.35