Nestle SA (NESN), the world’s biggest food maker, said it expects Chinese consumption to recover in the second half as the government encourages domestic spending and urbanization fuels growth.
“They are not growing as fast as they used to be,” Roland Decorvet, the company’s Greater China chairman and chief executive officer, said yesterday on the sidelines of the World Economic Forum in Dalian, China. “If you combine wage increases and urbanization, for food manufacturing companies it’s still an amazing opportunity.”
The Vevey, Switzerland-based 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 has said it expects organic sales growth of about 5 percent this year, the low end of its long-term target, amid price cuts and weaker demand for frozen food and bottled water.
Nestle’s sales in China have also slowed amid rising raw-milk and wage costs and a weaker local economy. The pace of growth in the nation slowed in the last two quarters ended June.
“We do see a slight slowdown, we can’t deny that,” Decorvet said in an interview. “China is not completely insensitive to what’s happening in other parts of the world.”
The company’s China business grew at least 10 percent in the first half, Chief Financial Officer Wan Ling Martello said in a conference call Aug. 8. Sales in Greater China more than doubled last year to 5.16 billion Swiss francs ($5.5 billion).
“You have 350 million people who will not grow their own food and who will come into the city,” Decorvet said. “They have to buy food.”
It’s too early to tell if Nestle’s China sales growth recovered in the second half, Decorvet said, adding he would have a clearer idea next month.
The Swiss foodmaker spent almost 3 billion yuan ($490 million) to open two factories in mainland China this year. Nestle opened its second coffee extraction plant and another food factory in the world’s most populous nation this July.
Nestle has also faced challenges in China this year as its Wyeth infant nutrition unit cut product prices following a anti-monopoly probe by the Chinese government on infant formula companies including Danone and Mead Johnson nutrition Co. (MJN:US)
Wyeth was eventually exempt from punishment as the company had cooperated with investigators.
Nestle will try to keep price increases to a minimum in China, Decorvet said.
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