We need to challenge our current ways of working

Peter Brabeck-Letmathe joined Nestlé as a salesman in Austria in 1968. In 1970 he became sales manager and later director of marketing in Chile, moving on to other posts in Latin America including managing director Ecuador and Venezuela. In 1987 he transferred to Nestlé headquarters in Vevey as vice president in charge of the Culinary Products Division and in 1992 he became executive vice president with responsibility for a range of categories including food, ice cream, chocolate and confectionery, petfood and Buitoni. In this role, he developed Nestlé’s branding policy which revolves around a strict hierarchy of brands on the global, regional and local levels.

In 1997 he was appointed to the Board and as CEO. He was elected Chairman of the Board in 2005. Under his leadership Nestlé has experienced a consistent run of healthy sales and margin growth.

ICR: What do you want to achieve during your stint as cochair of ECR Europe?

Peter Brabeck - Letmathe: In October 2006, we agreed as a Board to focus our agenda on generating growth in Europe. It is fair to say that over the past 5 years our industry put a big focus on optimizing the supply side. It was (and is) necessary to have this focus. It helped us to put in place the foundations for the future value chain. Now it is also fundamental that we re-focus our attention on a consumer / shopper centric agenda. We need this to get our Industry in Europe reconnecting with growth. Growth comes through innovation, not only in terms of products we put on the market but in everything we do: our marketing, sales, supply chain processes, communication with consumers and shoppers, etc.
So, in October 2006, the Executive Board launched officially the Demand Side Group of ECR. We asked this Group to work on “joint growth creation through innovation». The Global CEO Forum called for the same action from the industry back in April 2006.

Such action starts with alignment between parties on a common understanding of “innovation” and collaboration where the focus is the consumer / shopper. We need to challenge our current ways of working, identify the barriers that prevent us from delivering growth, and agree on new forms of collaboration where respect and trust are the first drivers. I am convinced that if each ECR Company puts the required effort and commitment behind this initiative we can meet our ambition of joint value creation and growth through innovation.

There are countless areas where retailers and manufacturers could be working together more efficiently and more effectively: supply chain, innovation, data standards, environmental issues, consumer communication, accountability issues (e.g. health claims/the obesity issue), etc. Which in your view are the most urgent/offer the biggest opportunities?

Without minimizing the areas you mentioned, in my view the key word is “mindset”: the mindset to be able to drive together a shopper centric agenda to create and deliver a tangible value to our consumers beyond price. With a right mindset a lot can be achieved: developing new partnerships to anticipate better ways to serve and communicate with our consumers, looking at how to streamline the assortment offer to make it relevant to them in different aspects (natural food, nutrition, health, etc), delivering perceived value through new shopping experiences, optimizing product availability, developing together in-store programmes to share know-how on products with consumers and collect feedback from them – feedback that can help us further improve our offer to them, etc.

Nestlé is in the middle of a big change - from a decentralised multinational company to a “global multi-focal”company with common core “backbone” operations in areas like data, IT infrastructure and supply chain. How is this impacting your relationships with major retailers?

We called this project GLOBE, for Global Business Excellence. It generalized best practices in more than 80% of the Nestlé companies using it, led to cleaned-up data and a common IS/IT infrastructure. For the first time we now have, in real time, a global and comprehensive view of how much business we are doing in a given channel with a given customer. This certainly gives a new - and better - quality to the discussions with our partners in distribution.

Can you provide some examples of what is being done to improve supply chain, as a result?

Specializing our factories, concentrating know-how and following best-in-class methods are the keys to success. Thanks to GLOBE, we now have much better tools to forecast demand and we could refine production planning and thus optimize capacity utilization.

When it comes to organic growth, two of the biggest opportunities seem to point in opposite directions. One opportunity lies ‘at the bottom of the pyramid’ - opening up new markets and distribution channels among people previously too poor to buy Nestlé products.The other opportunity lies in margin-creating innovation in rich mature markets. Right now, which of these is the biggest opportunity?

Looking exclusively at dollar figures, it is clearly the top end of the pyramid. This explains why we are moving toward health, nutrition and wellness, why we spend more money on R&D and why we added medical nutrition and weight management to our portfolio. But we are a long-term oriented company and we know that it makes good sense to get close to consumers at the bottom level and to accompany them as they move up the ladder. This is why we have just opened a factory dedicated entirely to popularly positioned products in the state of Bahia in Brazil’s Nordeste.

Are there any learnings from initiatives in ‘bottom of the pyramid’ markets that could be applied to the rest of the business?

Yes, there are. Let me add that these are not new lessons. In Bahia, we had to find a way to adapt product composition, sourcing of raw materials, choice of portion size and packaging materials to the purchasing power of our consumers. We also had to understand how they live, how they shop and how they cook. In other words, knowing your consumers’ needs, desires and aspirations are key to any successful business transaction. And if this goes against conventional wisdom, so be it!

Does the current retail structure in mature markets help or hinder Nestlé in its attempts to innovate and renovate? Given the fact that in many categories retailers are competitors (e.g. own label) as well as supply chain partners, how could retailers and manufacturers work together better in this area?

The key issue is how well and how quickly a company can bring innovations to the market and communicate them in such a way that the consumer sees his or her advantage in purchasing them. The contemporary retail trade has made huge progress in getting fresher products to the consumer which is an essential advantage for the producer.

Nespresso was developed with another manufacturer: Krups. Is this collaborative approach a model for many future innovation projects?

Nespresso was an original invention of Nestlé. The technology in the machines is proprietary to Nestlé. However, we do not want to become makers of coffee machines, so we work together with well established manufacturers. In the R&D sector, we have reoriented our policies to intensify cooperation with universities, other research institutions and companies. The pace of innovation is so quick that even a broad-based and high performance R&D infrastructure like ours cannot keep up by itself. Cooperation with others brings new insights, a higher degree of specialization and a welcome emulation among researchers. In addition, it opens entirely new domains for us; developing the necessary experience and knowhow by ourselves would often take years and a huge investment.

In making the change to become a nutrition, health and wellness company, what is the biggest challenge? For example, does it lie in developing a new portfolio of products and services (e.g. Novartis medical nutrition acquisition), in rethinking existing products and categories, or in ‘softer’ issues such as culture and attitudes, skill sets, external reputation?

Remember, nutrition was the key idea when Nestlé was founded. Today, the service part is starting to play a more important role. In France, for example, we are in a large-scale market test for a home service provided by Nestlé Health Nutrition, and we also offer the individualized nutrition advice handed out by Jenny Craig. Inasmuch as consumers expect the food industry to correct their unbalanced diets and their sometimes unhealthy lifestyle through nutrition, the advice and service part will clearly play a more important role in the future.

You have commented before that “successful brands are no longer simple products but complex compounds of products, services, emotions and increasingly, information.” So far, ECR has focused most attention on the product side. What scope is there for increased collaboration between retailers and manufacturers on the service, emotion and information side?

Brands have always appealed to emotions, aspirations and have always offered a combination of very real, as opposed to perceived benefits, like status. I believe that turning shopping again into a pleasant, entertaining aspect of life would be a great contribution to everybody’s quality of life.

Is the development of ‘labelling’ in its broadest sense - e.g. sugar and fat content of foods, health claims, fair trade claims, supply chain ethics etc - an area where retailers and manufacturers should be working harder to develop joint standards?

A shopper centric agenda may include these types of issues. It can be positioned as part of the common and consistent communication to consumers.

One of your main strategies is to be serving the consumer “whenever, wherever, and however”. Recently, you said “it seems to me that we could be doing more here”. What more are you doing? Does doing more involve opening up channels outside the big retail chains ?

I told my people that Nestlé has to be where the consumer is. And if the consumer is moving toward hard discounters, well, Nestlé should do whatever it can to be present in that channel also. It takes creativity, it takes serious thinking about new business models and ways of doing business – but that’s what entrepreneurship is all about. We already sell most of our confectionery products outside the classical channels – from
the movie theater to the street vendor.

Should the ECR movement seek to include hard discounters?

ECR is about delivering value to consumers, and as such all the players, who pursue such an aim are directly or indirectly part of ECR. Our industry landscape has integrated discounters, this is a fact. Now, it is up to discounters to decide if they want to be active members of ECR. The door is open.

Over the last few years we have seen the development of the International Commerce Institute (ICI) . What is your view of its potential?

The International Commerce Institute (ICI) is the link between global thought leaders in academia, retailing and the Consumer Goods business. It is a very good Industry initiative, which provides different ways of increasing people knowledge and experiences. If I consider the Progressive Management Programme of ICI, to my knowledge, it is a unique place where Retailer and Manufacturer representatives have the possibility to get together and follow a common development programme. This is totally new in our industry and congratulations to ECR Europe, who is the initiator of this idea. I am convinced that such programmes will help us to develop a generation of Managers with the mindset I mentioned before, and that we need today to overcome the challenges that our industry currently faces and drive future business development and growth in Europe.

Our principle at Nestlé is that “People are our best asset”. Opportunities such as ICI complement our internal Management Development Programme and strengthen my People Development Vision. We have participated in the 2006 – 2007 Edition of the ICI Progressive Management Programme (PMP) and we have renewed our participation in the next Edition namely 2008 and 2009. My hope is that many companies will take this opportunity and do the best out of it. I see a huge potential there and we need to communicate it whenever it is feasible.