Dubai: There’s nothing like having a strong local flavour, even for the world’s largest food and beverage company and owner of brands such as Nescafe and Kit Kat.
Nestle’s regional operations have commenced production at its newly minted coffee and culinary plant in Dubai, built at a cost of $120 million (Dh440.64 million). This is the Swiss major’s second production facility in Dubai (the first opened in 2010) and 18th overall across the Gulf, Iran, Yemen and the Levant. All those localised capacities come in handy in reducing the company’s reliance on imports of packaged goods where possible and, consequently, be less prone to the ebbs and flows of the commodity cycle.
“By the end of this year, we are close to 65 per cent (local/regional) production in our finished production against 40 per cent in 2012,” said Yves Manghardt, Chairman and CEO of Nestle Middle East. “By manufacturing locally, we shorten the lead time of finished products going to store shelves by weeks.. and it could even go up to months.
“Secondly, it gives us the flexibility to manufacture new products and varieties. We recently launched the Kit Kat Mini Moments and we (the Middle East base) were the first in the world to do that. It is the same brand, but with a new offering, because we manufacture Kit Kat here locally.
“Still, there will be some categories that we are not manufacturing locally like Nescafe Gold, Nespresso and pet food.”
For global food companies, the present is one of relative stability when it comes to commodity prices. This is quite unlike what the situation was in 2010-12, during which prices of coffee beans and cocoa were commanding super premiums. Oil prices too were high, which added its own costs to commodity sourcing and end-product logistics.
But, with oil’s weakness and key food commodity prices holding steady, shouldn’t sentiments for food majors be uniformly upbeat? Manghardt, however, prefers a more cautious tone - “It (the low oil price) does not make everything cheaper,” he said.
“For example, it does not have an impact on dairy production. It can influence certain packaging material and, to a certain extent, distribution. But if you look at the proportion of logistics costs on pricing - which has to do with warehousing, land and rental - prices have not reduced.
“All countries, including the UAE, have increased the (local) cost of fuel, water and electricity and are further increasing taxes.
“We are now in a less tense situation than three years ago, where we had price control. We don’t know what will happen when VAT (value added tax) is introduced. Price control is something we have been totally against because it’s not conducive to doing business.
“In January 2010, we voluntarily reduced the price of Nido (Nestle’s powdered milk brand). We were the first to reduce prices after the biggest peak. “When you are free, you react. The problem is when you have price control, you are tensed because you don’t know if you can increase the price back to its original level.
“Free economy and free pricing are always the best, because we don’t want to lose market share and to be less competitive.”
Congratulation!