Bloomberg News

Nestle to Open China Factories on Rising Demand Amid Slow Growth

June 23, 2013

Nestle SA (NESN), the world’s biggest food maker, said it will open two factories in China next month to tap growth in the world’s most populous nation even as the economy slows.

The Swiss foodmaker will open a coffee plant in the eastern province of Shandong, and another food factory with Chinese partner Yinlu Foods Group, Roland Decorvet, the company’s Greater China chairman and chief executive officer, said in a June 21 interview in Beijing. The company didn’t disclose the investment amount.

The Vevey, Switzerland-based firm, maker of Nescafe coffee and Maggi food seasonings, is relying on the world’s second-largest economy to boost sales as demand in other emerging markets slows. Nestle reported in April its slowest first-quarter revenue growth since 2009 as sales for its products in the Asia, Oceania and Africa region decelerate, and government austerity programs weigh on growth in Europe.

China’s economic growth unexpectedly slowed in the first quarter. Still, the weaker economy hasn’t hurt business in the Asian nation, Decorvet said. The Chinese government is trying to boost domestic consumption for growth while reducing reliance on exports and investments.

“We are quite confident for the market,” he said. “People still need to eat. The government clearly wants to focus on the growth of the domestic economy. The wages keep increasing; the urbanization keeps increasing as well.”

Market Share

Nestle, which also sells Nespresso, had the largest market share in coffee sales in supermarkets and shops in China last year with 72 percent, followed by Kraft Foods Group Co. (KRFT:US)’s 12.5 percent, according to data from researcher Euromonitor.

Nestle’s new Shandong coffee plant, its second coffee extraction factory in China, will double the foodmaker’s coffee making capacity in China over the next two years, Decorvet said.

The Swiss company will also open its fourth plant with Yinlu Foods Group, in Chuzhou city in China’s eastern Anhui province, boosting its partner’s production capacity by 25 percent, Decorvet said.

Yinlu makes peanut-milk beverages to congees and Nestle took a 60 percent stake in the company in 2011.

Nestle, which more than doubled Greater China sales last year to 5.16 billion Swiss francs ($5.61 billion), has been expanding in China this year.

In April, the foodmaker said it would invest 500 million yuan to expand its ice cream business in the Southern Chinese province of Guangdong and spend $16 million on a coffee center in the southwestern Yunnan province.

To contact the reporter on this story: Liza Lin in Shanghai at llin15@bloomberg.net

To contact the editor responsible for this story: Stephanie Wong at swong139@bloomberg.net


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