BUSINESSWEEK ONLINE : DECEMBER 11, 2000 ISSUE
BUSINESS WEEK E.BIZ -- WEB SMART COMPANIES A Food Giant Forges an E-Revolution Nestlé CEO Peter Brabeck-Letmathe explains how he's using the Net to modernize and centralize operations at the notably decentralized global corporation Peter Brabeck-Letmathe began his Nestlé career 32 years ago as an ice cream salesman in his home country of Austria. Today, the 57-year-old Brabeck-Letmathe is CEO of the world's largest food company. In an interview with Business Week's William Echikson, he outlined his ambitious strategy to invest almost $2 billion in the next few years in e-commerce. His goal? Nothing less than reshaping the far-flung, decentralized Nestlé, which manufactures in more than 90 countries, into a lean and nimble manufacturing and marketing machine. Q: How have you changed Nestlé since you took over in 1997? A: We went through a period of external growth with numerous acquisitions in the 1980s and early '90s. My job is to consolidate what we acquired, to concentrate the internal organization, and to speed internal growth. I have asked for a minimum 4% growth, real internal growth. It's a tough yardstick for a big company like ours, and we have been outperforming it most years, though we fell below after the Asian and Russian crises. It's like an athlete who can run the 100 meters in 10 seconds making it in 9.8 seconds. Q: Unilever has announced ambitious factory closures and layoffs. Why aren't you closing more factories and firing more workers? A: I said in my inauguration that I will fight against complacency. One of my main tasks is making continuous improvements in our ranks. That's what we have been doing, continuously improving and restructuring. But this is not a crisis situation. We don't need major restructuring. So we will close factories at an ongoing rate. We closed 30 factories in 1999. We have a different approach than Unilever, a continual improvement process, not a major one-time hit. Q: How did you get interested in e-commerce? A: In 1992, when I was appointed a member of the executive board, the director of communications and marketing, I went around the world to see what was happening in the external environment. It was the beginning of the e-revolution. The U.S. and Japan were talking about this, though not much in Europe. I spoke with consultants, partners, and saw that e-technology will definitely change the way we do business. One meeting was particularly instructive: the presentation of a virtual supermarket in New York by one of our communications partners. It showed me that you could create a nonphysical supermarket, one with bits and bytes. Already, they showed me how shoppers would walk in via their computer and visit virtual supermarket shelves. This definitely opened my eyes. In the following years, we began to work on what this means. We developed interactive menus as early as 1993. The Internet didn't even exist then. But we thought about doing interactive television. We participated in Time Warner's Orlando experiment, using our interactive menus. Then in Switzerland, we worked with TV people to put up a virtual shop. We had one in German and one in French, in two small towns. But this was a revolution. At a European supermarket conference in Montreux (Switzerland), I announced the opening of virtual shop. There was a big silence in the room. Q: What did you learn from this experience of the virtual shop? A: It was a relative success. Here in Switzerland, our test area, we achieved sales penetration of about 3% to 4%. But there were reasons why it worked well in Switzerland. Shopping is difficult here. Most shops close at 6 p.m., making it almost impossible for two-income houses to go shopping. Lots of young people also prefer to go skiing than go to the supermarket. These were good targets. Also, the Swiss Post Office is a reliable partner, so we didn't have to spend money building a distribution system. And the Post Office served as our bank, collecting payments. These things favored the process in Switzerland -- and yet even here we saw limits. Once you went into bigger products and larger amounts, you had to build warehouses and we got back to bricks and mortars. So I think there are limits to the e-tailing business. Supermarkets won't disappear. Convenience stores won't disappear. Virtual supermarkets will be only one of many sales channels.... Q: Didn't you have conflicts with your regular distributors and retailers? A: No, we didn't. We informed them. We did not make promotions that were not compatible with their offerings. We were careful. But we learned that shoppers didn't want just a Nestlé supermarket. They wanted a wider range of products. We will continue to work with all new sales channels, particularly with specialized e-tailers such as petfood.com and confectionary channels. But the Internet will be only one of many channels. Q: How important is the Internet in your marketing strategy? A: In 1993, I shocked the advertising world in that interview when I said that interactive consumer communication is the future. I said I didn't want to just work with advertising agencies. I wanted to work with communications partners. Today, we have more than 100 Web sites. Most of them are interactive, and most are state-of-the-art. We are out ahead. The first stage was just making Web sites. The second stage was adding interactivity, so we could communicate with our consumers. And the third stage, where we will be in five years, will see consumers help us develop the business idea and products we want to make. Let me give you a concrete example. Buitoni's target group is people who have an emotional relationship with Italy and Italian lifestyle. So we created a Web site Casa Buitoni, and in the future we will invite those who want to participate, to talk through the Internet to our chefs. We will learn about their desires. They will learn about Italian food. Eventually, we will incorporate their desires in Buitoni products. Q: Will your advertising move from TV to the Net? A: Sure. We are pushing in that direction. Today, 80% of our marketing budget is advertising and 80% of that is TV. We must do more segmentation. There must be more at the point of sale. And there must be more on the Net. I would say that in two years, the amount of TV advertising will come down to about 60%. Q: What about sales channels? Will the supermarket remain dominant? A: At a certain point in time, almost 90% of our sales went through supermarkets. That's now down to 70% -- and in Canada, the most advanced country, it's 47%. This is a big trend. But remember in emerging countries, the trend is the other way, with supermarkets growing. Still, we're heading towards more segmentation. Q: What about B2B? A: I realized immediately that Nestlé was not going to become an e-tailer. But we had to participate early on in this new technology, because I thought it would revolutionize our business. In 1994, I visited an Arthur Andersen superstore in Chicago, and they showed me another dimension: the B2B dimension, how we could link up with our retailers electronically. Remember, nobody knew B2B at the time. It didn't exist. The Web didn't exist. The Arthur Andersen example showed me how important technology could be in speeding up our logistics. Until then, there were no links between manufacturers and retailers. We had enormous working capital hanging around warehouses. We took too long a time for delivery and didn't know how the customer was responding. Q: How are you going to improve the situation? A: Well, we are involved in a lot of the Internet marketplaces. We were one of the seven companies who started Transora. And we now have started, with our friends from Danone in Europe, CPGMarket.com. But these are small investments for us. It's a place for us to learn. In my personal opinion, the idea behind these marketplaces is not to squeeze big savings out of suppliers. I see much more internal advantages for our company. It will allow us to be more efficient in our purchasing departments. It will increase our internal productivity. The reason is simple. In most areas, we already have big volumes and a privileged relationship with suppliers. But internally, we have to have to share our experiences better. I still believe that by far the biggest impact of technology will be on how we run a global company. It's my top priority. Q: Could you give some specific examples? A: For the first time in the history of this company, we will have a unified business practice platform. This company is 136 years old and has developed over the years an enormous amount of different, management systems and platforms. Technology lets us redesign this and leverage our size, to make our size a strength and not a liability. A specific example is with product bar codification. Today each of our operating companies has its own codification. If you have a pallet in Spain, it has one code. The same pallet in Sweden has a different code. With one product code, we will be able to exchange supplies within Nestlé much better and become much more cohesive. Q: So you hope to centralize the company using the Internet? A: We proudly say we're the most decentralized company in the world, and indeed, many employees might feel we are betraying the idea of decentralization. But in fact the Internet should allow us to decentralize even more the areas which are critical for consumer goods, the actual taste of products. After all, it is difficult to sell a Bavarian soup to a Taiwanese. At the same time, all that is backstage, everything [aside from consumer taste that] can be centralized and harmonized, we will do it. Q: What will be your cost-savings? A: It's too early to say. I would be lying if I said otherwise. We have so much work ahead of us. We think at the peak of this exercise that we will have 1,800 people working on it. So I hope to have the first concrete ideas next year. And remember, we won't be done implementing the new SAP program until 2003. Q: Isn't that slow? A: Perhaps. But this is a big group. We have factories in more than 80 countries and are sold in every country in the world -- even in North Korea. It's not easy to change over these systems. So it might sound slow for Silicon Valley. But it's not slow for a global consumer-goods company. Q: Do you feel you are at a disadvantage being based in Switzerland rather than Silicon Valley? A: Don't forget we have a $10 billion-a-year business in the U.S.. That's big. Our U.S. management is very involved in this process. But physical location isn't so important anyway in the world, which is connected by the Internet. And Switzerland has some advantages. It is in the forefront of many things. Just look at banks: Swiss e-banking is as advanced as American e-banking. Q: Why don't you have a computer in your own office? A: I don't use a computer. I am connected to the Internet through my mobile phone. In any case, I am very little in my office. I'm out in the markets. I don't want to spend too much time on e-mail, so that goes straight to my secretary. Q: In conclusion, what are your goals for Nestlé? A: I want to make a very good company a better one. My predecessor, Helmut Maucher, transformed Nestlé from one of many food companies into the leading food company. We will stay a consumer-goods company. But we will move far beyond food as a way of survival. We will [use] research and development to become more a nutrition company. And here the e-revolution can also help us. In November, we are launching Nestlé Home Care. It will allow us to offer clinical nutrition at home, including intravenous feeding. Eventually we hope doctors will be able to monitor this online. It's hard to say where we will be in five years. If people told me in 1992, when we started to look at it, that we would have achieved so much more than interactive TV, I would have been surprised. _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ BACK TO TOP					e.biz Contents for Dec. 11, 2000 issue RELATED ITEMS Nestle: An Elephant Dances (int'l edition) TABLE: Putting Order in Nestle's Technology House TABLE: E-Chocolate ONLINE ORIGINAL: A Food Giant Forges an E-Revolution INTERACT E-Mail to Business Week Online

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