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Consumer Currents   Issues Driving Consumer Organizations   Issue 10
Consumer Currents   Issues Driving Consumer Organizations   Issue 10
Consumer Currents   Issues Driving Consumer Organizations   Issue 10
Consumer Currents   Issues Driving Consumer Organizations   Issue 10
Consumer Currents   Issues Driving Consumer Organizations   Issue 10
Consumer Currents   Issues Driving Consumer Organizations   Issue 10
Consumer Currents   Issues Driving Consumer Organizations   Issue 10
Consumer Currents   Issues Driving Consumer Organizations   Issue 10
Consumer Currents   Issues Driving Consumer Organizations   Issue 10
Consumer Currents   Issues Driving Consumer Organizations   Issue 10
Consumer Currents   Issues Driving Consumer Organizations   Issue 10
Consumer Currents   Issues Driving Consumer Organizations   Issue 10
Consumer Currents   Issues Driving Consumer Organizations   Issue 10
Consumer Currents   Issues Driving Consumer Organizations   Issue 10
Consumer Currents   Issues Driving Consumer Organizations   Issue 10
Consumer Currents   Issues Driving Consumer Organizations   Issue 10
Consumer Currents   Issues Driving Consumer Organizations   Issue 10
Consumer Currents   Issues Driving Consumer Organizations   Issue 10
Consumer Currents   Issues Driving Consumer Organizations   Issue 10
Consumer Currents   Issues Driving Consumer Organizations   Issue 10
Consumer Currents   Issues Driving Consumer Organizations   Issue 10
Consumer Currents   Issues Driving Consumer Organizations   Issue 10
Consumer Currents   Issues Driving Consumer Organizations   Issue 10
Consumer Currents   Issues Driving Consumer Organizations   Issue 10
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Consumer Currents Issues Driving Consumer Organizations Issue 10

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  • 1. Strapline Consumer Issue 10 Currents Issues driving consumer organizationsTurningoff thetapsHow water scarcitycould threaten yourfuture production plans p6 Nestlé p14 Grupo Bimbo p10 Brands Frits van Dijk Mexico’s baking giant Why the rise of on the challenge trains its sights on the private labels has of conquering United States multinationals emerging markets running scared© 2011 KPMG LLP a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), , 16 / ConsumerCurrents rights reserved. The KPMG name, logo and “cutting through complexity” are registered trademarks or trademarks of KPMG International. a Swiss entity. All
  • 2. W hat’s in a name? For many of our Food, Drink and Consumer Goods clients – many of whom have invested significantly in their brands, in some cases for decades – the answer is simply “everything”. But brands are facing a new challenge, not just from other multinationals with sharper marketing budgets or fresher ideas. This time, the adversary is brands’ retail partners. Private labels or store brands – which have historically been inexpensive or generic alternatives to better-known brands – have been further transformed over the past couple of years. Cash-strapped consumers, particularly in developed economies, have been looking for lower-priced alternatives in many segments and have increasingly been persuaded to switch from tried and trusted household favorites. This trend may have begun some time ago but it has accelerated, with the result that by some measures private labels accounted for around 25% of total unit retail sales in 2010. We explore this phenomenon, which shows no sign of slowing, on page 10 of this issue, and highlight how many private labels are becoming recognized as brands in their own right, with reputations for quality and price. That poses a challenge to established brands, which will need to play to their strengths and innovate if they are to grow and survive. On page 16, we examine the way water has become the number one sustainability priority for many consumer markets companies. Over recent weeks, conversations that we, and many other KPMG partners, have had with our clients have confirmed that planning for a future in which access to water is more difficult is a key point of discussion for many boards. The issue, although significant, is about more than just the operational implications of water scarcity. Multinationals know that taking sustainability seriously has moved beyond good corporate citizenship: it has now become part of consumer psychology. These issues are altering long-term strategy: but more immediately, turmoil in the Middle East and the tragic events in Japan are reminding companies of global volatility and its potential impact on, among other things, the supply chains they rely on. However, although political upheaval is tough to predict, the growth of emerging markets is most likely to continue unabated. Conventional wisdom states that the world’s economic growth in the coming years will be driven by India and the Asia Pacific region, particularly in China. As China’s economy shifts from being export-driven to consumption-driven, in line with government strategy, its importance to multinationals will only be amplified. There is little doubt that China needs to grow organically, and there are naturally concerns about the expansion of credit in major cities. The economy is unlikely to overheat, as some are predicting, but growth may slow. Still, as Nestlé’s Frits van Dijk points out on page 6, those companies with established operations in China have reason to be optimistic. Success in China has and will come, not as a sprint, but rather with organizations taking a collaborative approach, employing people with local knowledge and working to understand the cultural and political nuances of this complex and fascinating country. Buying patterns in each emerging economy are subtly different, and a one-size-fits- all approach is unlikely to work. That’s how a company such as Yum! Brands, opening approximately 500 stores per year in China, has been able to make headway while more over-confident or overly timid rivals have failed in the country. Not every business is finding it easy, however – talent shortages, particularly in emerging markets, are affecting even big names. On page 19 we look at the issue, and pose some possible solutions, including employee engagement. And on page 22, we look at an unusual way of developing and retaining staff – using games to sharpen their skills and train them in a fun environment. Businesses that succeed in China – like those that react most effectively to consumer demand for private labels or the need to embed sustainability in growth plans – will certainly harness the power of social media and innovate. They will also remember the unrelenting focus on product, price, promotion and placement, which the best consumer companies adopt as a mantra. Whichever side of the debate you find yourself on, the basics never change. Patrick Mark Dolan Larson National Line of Global Head Business Leader, of Retail Consumer Markets 2© 2011 KPMG LLP a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), , a Swiss entity. All rights reserved. The KPMG name, logo and “cutting through complexity” are registered trademarks or trademarks of KPMG International.
  • 3. ConsumerCurrents 10 Contents Frits van Dijk 6 Nestlé’s Zone Director for Asia, Oceania, Africa and Middle East on lessons learned 4 Off the shelf Insights into consumer markets present and future 6 First person Frits van Dijk, Nestlé’s emerging markets guru, reflects on a career at the top 10 Are brands dying? Why the rise of private labels is reshaping the consumer landscape 14 Case study How Mexico’s Grupo Bimbo cooked up success across the border 16 Water worries The sustainability timebomb more pressing than the oil crisis 19 The war for talent Have you got the right people in the right place to drive growth? 22 Lessons from other industries Could playing games sharpen your business acumen? 23 Reports Find out more about the latest consumer markets issues ConsumerCurrents is published by Haymarket Network, Teddington Studios, Broom Road, Teddington, Middlesex TW11 9BE, UK on behalf of KPMG International. Editor Robert Jeffery Production Editor Sarah Dyson Art Editors Chris Barker, Jo Jennings Senior Designer Paul Frost Staff Writer Katie Jacobs Contributors Ben Beasley-Murray, Dina Medland, Lisa Palmer Picture editors Dominique Campbell, Jenny Quiggin Senior Account Manager Caroline Watson Managing Director, Haymarket Network Andrew Taplin Cover images Gaetan Bally/Corbis, Thinkstock. No part of this publication may be copied or reproduced without the prior permission of KPMG International and the publisher. Every care has been taken in the preparation of this magazine but Haymarket Network cannot be held responsible for the accuracy of 04 14 16 19 the information herein or any consequence arising from it. Views expressed by contributors may not reflect the views of Haymarket Network or KPMG International or KPMG member firms. 3© 2011 KPMG LLP a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), , a Swiss entity. All rights reserved. The KPMG name, logo and “cutting through complexity” are registered trademarks or trademarks of KPMG International.
  • 4. ConsumerCurrents 10 Off the shelf The hard smell: more today, 83% of companies appeal to the retailers are waking sense of sight only. Scent has the power up to the selling power of scent to bring a brand to life to a consumer, to build a true relationship.” Lindstrom says consumers remember a scent and its associated memory with 65% accuracy after a year, compared to 50% after four months when it comes to visual stimuli. “Scent encompasses the key touch points people associate with a brand, ” says Christopher Pratt, Managing Director of ScentAir UK, which has advised H&M. “It makes the shopping experience more exciting. That increases dwell time, which in turn can increase spend, although the main reasons for using scent remain customer experience and brand-building. ” Pratt, unsurprisingly, sees scent gaining in popularity. ”Retailers have tried using flashy displays and music, and most wouldn’t think twice about spending When success money refurbishing their stores. They should be doing everything they can to maximize opportunity. Investing in scent is heaven scent is part of that. ” Research seems to bear this out. When Samsung trialed a new fragrance created by market leader IFF at its flagship New York store, it reported Record numbers of retailers employ the fast-growing industry is now browsing times increased 20-30%. US smell to influence behavior. But does it worth as much as US$100m as “ researchers have found 84% of people deliver – or get up customers’ noses? ambient scent marketing” specialists were more likely to buy Nike trainers from jostle to advise retailers how to subtly a scented room, with many also saying influence consumer decisions using they would pay US$10 more. C itrus scents to encourage olfactory warfare. Yet not everyone is convinced. Many browsing. Cedar to shift Fashion giants Gap, Zara and H&M are retailers believe the link to increased expensive furniture. Talcum all on the record as using smell to their spend has yet to be established. powder to nurture a feeling of advantage, having realized its connection Consumer advocates grumble that scent safety. The rules of using scent to part to emotion. Sony has employed mandarin marketing is an invasion of privacy. If shoppers from their cash are well- orange in its branded stores to entice it provides a cutting edge, however, documented and are dismissed by many female shoppers through the door. retailers won’t turn their noses up at the as apocryphal. Yet smell, far from being “Seventy-five percent of the emotions phenomenon: 40 years ago, says Pratt, an urban myth, is fast becoming the new we generate on a daily basis are affected most store-owners were sceptical about retail battleground. by smell, says brand guru Martin ” using music. “Scent could be just as The Scent Marketing Institute believes Lindstrom, author of Brand Sense. “But important, he believes. ” Nexttech can range from automated reports about keywords to highly nuanced, personalized updates delivered in real time. Luxury brands, keen to stay on top of subtle shifts in perception, are increasingly using it to track trends. But others Sentiment analysis are using it to run the rule over consumer companies: Google Asking customers for feedback, and keeping an eye on the latest confirmed in December 2010 that it now employs sentiment analysis trends, is second nature to most consumer companies. But in the in its search rankings, so negative customer service recorded by digital age, these traditional skills have a new name, and an added consumer advocacy sites can be penalized. It followed the high- potency. Sentiment analysis – essentially, trawling the web for profile case of a US retailer which openly solicited poor online consumer opinion on products and service, as well as the buzz on reviews to boost its visibility in search rankings. The battle lines, it competitors and chattering in the blogosphere about your industry – seems, have become blurred in cyberspace. 4© 2011 KPMG LLP a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), , a Swiss entity. All rights reserved. The KPMG name, logo and “cutting through complexity” are registered trademarks or trademarks of KPMG International.
  • 5. Trend Spotting Chinese M&A is a waiting game Playing it safe Deal markets in China don’t always play out as expected, says Ryan Reynoldson, Transactions & Restructuring Multinationals are lining up to enter India’s retail market, Leader for Consumer Markets, KPMG in China – which but the government still appears lukewarm on liberalization means multinationals need to rethink their strategies India boasts around Westerners who think they understand the 12 million retail traditional Chinese game of mahjong are often outlets, the highest left dumbfounded when they see it taking place density in the world, in its native country. With more tiles, more rules according to The and more players, a round can last for hours – a Institute of Grocery world away from the simplified version adopted in Distribution (IGD). other parts of the world. To multinational India’s small retailers Deal-making in China is every bit as colorful, and intangible, as retailers, India’s oppose liberalization, mahjong. According to the KPMG International Global M&A while multinationals growing middle wait in the wings Predictor, net debt-to-EBITDA ratios worldwide will fall 18% class and in 2011, an encouraging sign of a healthy accelerating GDP represent a huge opportunity. But while rules deal market. Given China’s insatiable GDP on foreign direct investment (FDI) have been liberalized for growth, you might expect its companies “Chinese single-brand retail, multi-brand is still closed to foreign investors. In November 2010, statements made by Jyotiraditya Scindia, to be particularly acquisitive, and its consumer market to be a target for companies Minister of State for Commerce and Industry, seemed to indicate multinationals. It isn’t quite that simple. are not imminent change. Yet, says the Economic Times, recent food security issues mean change is off the agenda again. There is The business press likes to speculate on a Chinese ‘takeover’ of Western interested a strong lobby opposed to liberalization, says Nandini Chopra, markets. In reality, Chinese consumer in being Executive Director, KPMG in India. “Most large players are pro- markets companies still have an FDI now, but opposition continues from smaller retailers. ” overwhelming focus on the domestic. acquired” For foreign retailers, the result is confusion. Many have taken Even the modest number of outbound stakes in Indian companies or opened franchises, to ensure they plays are generally domestically oriented, aimed at bringing Western have infrastructure in place to capitalize on liberalization. Wal-Mart brands and know-how into the country. has entered an alliance with Bharti Retail. Others, including Metro Acquisitions will happen. Shanghai Bright Food’s attempted and Carrefour, have opened cash-and-carry stores, where 100% purchase of the UK’s United Biscuits in 2010 was an important toe FDI is allowed. Tesco says it will invest in its Indian supply chain in in the water and we may see the company return to the market. 2011, regardless of legislative change. However, Chinese consumer markets companies are likely to Chopra suggests a likely next step will be to separate food remain largely domestically focused until consumer growth slows and drink retail, which is the most opposed, from speciality – an unlikely scenario for some time. retail. “The multi-brand giants are already here” she says. , The unbalanced Chinese economy is plain for all to see. The “Some will wait and watch. But some may become more prosperous middle and upper classes are buying Louis Vuitton aggressive in the way they invest, using other vehicles to find handbags, fine wines and flats. But that ignores the overwhelming a way into the market. ” majority for whom food inflation is a far more pressing concern and whose rise up the value chain – while undeniable – is taking place more slowly. The government is using healthcare and welfare reform to try and redirect household savings towards consumption, Developing fast Looking ahead Percentage of companies but the process will naturally be slow. Where does this leave multinationals with an eye on the The overwhelming importance of emerging expecting to Chinese market? Big ticket acquisitions seem to be off the menu economies to future growth is underlined see a sustained for now, as many large Chinese companies are more interested in increase in Latin America/Mexico by a new KPMG International survey, demand by acquiring businesses abroad than being acquired. With high stock in which senior finance executives in mid-2011 market valuations – typically 40 times earning multiples – it is Source: KPMG consumer markets companies were asked International difficult to find viable targets, even when they are willing to sell. about the level of demand they expect for 100 And yet there are success stories. H.J. Heinz paid US$165m their products and services. Companies in in 2010 for soy sauce and bean curd manufacturer Foodstar, Asia-Pacific emerging economies were 40% more likely 80 hoping to tap into a soy sauce market worth up to US$2bn. US/Canada to expect a sustained increase in demand Others are enjoying organic growth in the country, or exploring 60 % by mid-2011 than those in North America Europe acquisitions of other multinationals’ Chinese assets or Taiwanese- and Europe, where demand is not expected 40 owned companies. M&A here requires as much patience as any to pick up until at least the second half of form of relationship-building in a country still finding its feet on the year. The full report will be available for 20 the global stage. The potential rewards, however, mean no deal- download in late April at www.kpmg.com. maker will be deterred. 5© 2011 KPMG LLP a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), , a Swiss entity. All rights reserved. The KPMG name, logo and “cutting through complexity” are registered trademarks or trademarks of KPMG International.
  • 6. ConsumerCurrents 10 First person “Any company still saying it needs to get into China has already left it too late” Frits van Dijk, Nestlé’s emerging markets chief, talks tough on growth T he term ‘company man’ is India, Indonesia, the Philippines and often used as a thinly disguised Equatorial Africa in 2010, and since the euphemism for narrow- turn of the year has opened a US$91m mindedness. But nobody could factory in Nigeria. accuse Frits van Dijk of lacking broad ConsumerCurrents met van Dijk at horizons, even though he has spent four Nestlé’s global headquarters in Vevey, decades with the same business. Switzerland, to ask for his views on future Currently Nestlé’s Executive Vice growth – and how he copes with the President and Zone Director for Asia, responsibility of overseeing the Oceania, Africa and Middle East, the company’s most vital markets. genial Dutchman has worked for the Swiss food giant in India, the Philippines Nestlé has a stated target of achieving and Sri Lanka, as well as managing its 45% of sales from emerging markets by Malaysian and Japanese businesses 2020. How realistic is that? for five years each and heading Nestlé I don’t think reaching 45% is a dream. Global Waters. He is now charged with Today, the total is about 35%, and masterminding Nestlé’s growth in its emerging markets are growing much most important – and diverse – emerging faster than the developed world. If you markets, a job which involves 20 days add in factors such as demographics on the road each month, few executives and GDP growth of 5-10% in emerging in multinationals have as much direct markets, that has a real impact on experience of nurturing new businesses. purchasing power, whether in China, How central these markets are to Africa, India or the Middle East. Nestlé is outlined by the company’s 2010 financial results, which saw van Dijk’s What defines an emerging market? Zone delivering sales of US$18.2bn, For me, these are markets which still have with 8.7% annual organic growth. Many much lower per capita incomes compared emerging markets achieved double-digit to developed markets, where we growth, with strong performances in see a dramatic shift in people leaving Africa, India and China. Nestlé invested in the bottom of the pyramid to become 6© 2011 KPMG LLP a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), 6 , a Swiss entity. All rights reserved. The KPMG name, logo and “cutting through complexity” are registered trademarks or trademarks of KPMG International.
  • 7. 7© 2011 KPMG LLP a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), , a Swiss entity. All rights reserved. The KPMG name, logo and “cutting through complexity” are registered trademarks or trademarks of KPMG International.
  • 8. ConsumerCurrents 10 First person emerging consumers – people who earn contribution working with farming day, within the limits of safety and quality. US$3-4 per day and can, for the first time, communities can partly mitigate that. Our business is very basic. Whatever afford to buy basic packaged food and Governments need to put agriculture the economic situation, people still need beverage products. higher on the agenda. to eat and drink. We are much more In the next 10 years, we expect bullish about Africa than many other another billion people to go from How do you view input prices in the companies. In the last three years, we subsistence level to emerging consumer food market? have seen double-digit growth on the level. Those are big numbers. Our task is We’ll see high prices in agricultural African continent, which has led to a to make the relevant products available. raw materials for many years to come. new manufacturing strategy. We are If you talk to emerging consumers, Before 2007 agriculture was very , still importing some products, which can their number one concern is falling low on the agenda in many emerging be problematic even in free trade areas, ill because they don’t have medical countries. They prioritized IT, service and so wherever possible we are moving insurance. If somebody in the family falls industrialization instead. Since 2007 many , towards producing them locally. ill, the traditional rice bowl won’t be on governments have realized agriculture has In 2011, we will open new factories in the table that evening. These consumers been neglected. the Congo, where we’ve never produced are more conscious of nutrition than you before, Mozambique and Angola. They will might expect. Do you see attitudes towards industrial be repacking facilities at first, but when the We have a tremendous opportunity agriculture changing? volume increases to a level where we can as a company that sells milk products, We are starting to. It’s high on the agenda perform fully fledged manufacturing, we cereals and seasoning, and we have in China – in one district we used to work will upgrade them. a very active program involving our with 3,000 farmers with two or three Popularly Positioned Products (PPPs), cows each, but today we see farms with Do you see signs of a slowdown in which are fortified with nutrients including hundreds of cows and automatic milking China, as some economists predict? vitamin A, zinc, iron and iodine. We have machines. But let’s be realistic: smallholder We entered China fairly early, opening done a tremendous amount of country- farms will be around for many years to our first manufacturing operation in 1992. by-country mapping of micro-nutrient come. We’re very active with them, giving Today, we have 23 factories. We have been deficiencies in emerging markets. We technical assistance to increase milk growing by double digits for many years. know exactly which part of each output, improve feed stocks and We saw some slowdown during the generation has a deficiency. vaccinations or raise living conditions. financial crisis, particularly in the southern areas, but it was very limited. I was Nestlé has spoken a lot about “creating How does political instability in Africa surprised by how quickly it came back. shared value” (CSV). How does this affect the business? We are there for the long term, and in fact work in emerging markets? It’s obviously destabilizing. But we are have seen an acceleration in the market The concept is not just to create value for used to it. One of Nestlé’s strengths is over the past couple of years. our shareholders, but to create value for that we always find a way to keep working. the societies in which we operate. Clearly, When inflation in Zimbabwe was over Some people believe property, rather there is a relationship between CSV and 1,000,000% it was very difficult to find raw than consumption, is fueling retail price PPPs. Take slum areas, for example, materials for our factory. So we had to be rises in China. Do you agree? whether it’s favelas in Brazil or a township flexible and use the materials we had each Speculation on property and the stock in South Africa. In these places, we are market in emerging economies needs to working with the community, employing be watched carefully. We all remember local people to take part in distribution. the bubble that burst in Japan in In the Ivory Coast, we couldn’t the 1980s, and I can only hope that find local raw materials for our Maggi politicians are aware of the potential seasoning range. So we began to work Emerging fast Chinese conundrum for that to happen again. But whatever with local farmers to produce cassava. Nestlé’s total food and Private consumption as happens, people still need to eat and beverage sales, 2010 a % of GDP in selected We started with 14 farming families – markets, 2010 drink. China’s growth won’t be a straight Source: Nestlé six years later, we have more than 1,000, line, but it will continue. which has created a new local economy 80 worth US$3m in annual economic benefit. How would you describe Chinese Six years ago, there were very few 60 consumer confidence in food? shops in that community. Today, we see The memory of the melamine scandal shops selling Nestlé products, among is still vivid – the whole food chain was 40 others, which shows an interesting affected by that. Many consumers to this multiplier effect. day are very hesitant when it comes to 20 dairy because of the malpractices that % of GDP Russia Japan Are food security worries also part of Total sales in % took place. Nestlé did not use one liter of Brazil China India E.U. Americas 33.1 US the thinking behind CSV? 0 contaminated milk because we control Europe 20.8 Absolutely. We are moving towards a food Asia, Oceania Source: Economist the supply chain and we check the quality crisis similar to 2007/8. Costs are going & Africa 16.8 Intelligence Unit on the spot when we buy from farmers. up, because global supply and demand is Nutrition 10 But consumer confidence took a severe Waters 8.8 unbalanced. There is clearly not enough Other food and nosedive. We have been working closely food production, and our individual beverage 10.5 with the authorities, who have asked us 8© 2011 KPMG LLP a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), , a Swiss entity. All rights reserved. The KPMG name, logo and “cutting through complexity” are registered trademarks or trademarks of KPMG International.
  • 9. for assistance in setting standards for the food chain, as well as how to monitor food companies. It’s sad to see that companies still use melamine in products – they haven’t learned, despite people having been executed. In hindsight, what might you have done differently in China? In general, foreign companies underestimated the potential of local competitors. In dairy, for example, we have some very strong local competition, and I don’t think we anticipated that in the 1990s. In hindsight, I would have made earlier investments in the west and centre of the country. Otherwise, we are happy with our progress – don’t forget this is a vast country with plenty of opportunities. We have made a huge investment. We’re making money in China and we are still investing up front. Frits van Dijk is Can you see a time when China is your bullish about China, where second-biggest market after the US? Nestlé is engaging Yes. I don’t pretend to have a crystal emerging ball, but if I look at the kind of growth we consumers are enjoying it could be 5-10 years. It’s younger generation at an early not a question of if, it’s when, through stage. That means engaging them in a combination of local and external responsible jobs, delegating to them growth. We are always on the lookout effectively. I’ve learned to take risks – for acquisitions, but we will also invest “Inflation in not stupid risks, but calculated ones. in innovation and renovation in China. We need to do that, because if we We can’t afford to be complacent Zimbabwe hit don’t, our competitors will run away in either India or China because we’re 1,000,000% with the opportunities. not alone. We see local and regional but we found competitors emerging who are lean and a way to keep How would you describe your flexible. They don’t always work to the same working. That management style? principles we do. In India, we launched a I’m very much a team player. I’m very water brand in 2001. We pulled out after is one of our transparent and completely apolitical. two years because we couldn’t compete strengths” People know where they stand with me. with local brands. It was a different playing I cannot stand it when people have a field in terms of compliance. political agenda. I do a lot of managing by walking around – people like it when you Are you surprised by the huge take an interest in what they’re doing. number of companies suddenly investing in China? Do you believe your successor will If a company today is still saying it needs come from an emerging economy? to get into China, it’s already too late. That I hope that my successor, or my train has left. It makes me laugh when successor’s successor, will one day come I hear companies discovering there is an from the region I cover. But you have opportunity in emerging countries. Many to be careful not to fall into the trap Japanese companies are finally getting out of quotas. It has to be based on skills of their home territory because there is no and abilities. I’m not prepared to more growth there. They’re going to China compromise. or Europe and they’re struggling to adapt. Any nationality can make it at Nestlé. Nestlé’s biggest success factor is our We spend a lot of time on succession ability to think local. planning. I visit several markets every month, and I always have the succession What are the most important lessons plan with me. I take time to sit down with you have learned in your career? the market head and the HR people. But I’ve learned to listen before I make my you can make beautiful succession plans mind up. I’ve also tried to engage the and there will always be surprises. 9© 2011 KPMG LLP a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), , a Swiss entity. All rights reserved. The KPMG name, logo and “cutting through complexity” are registered trademarks or trademarks of KPMG International.
  • 10. ConsumerCurrents 10 Consumer trends Are bra 10© 2011 KPMG LLP a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), 10 , a Swiss entity. All rights reserved. The KPMG name, logo and “cutting through complexity” are registered trademarks or trademarks of KPMG International.
  • 11. ands dying? Cost-conscious consumers aren’t retreating from private labels as recession recedes. And that’s bad news for manufacturers O n the face of it, these are boom of supermarket labels in the US at 18% times for consumer brands. compared to 15% in 2007 . Recession is often an enemy of In the UK, where 35% of consumers product development, but major were buying a higher proportion of own- retailers’ shelves tell a different story. label goods in 2009 compared with In February 2011 alone, consumers the year before, private label brands couldn’t move for new product launches. are even more established. Japanese In the US, shoppers at Supervalu supermarkets have seen a rise in supermarkets could pick up a six-pack private labels, while German giant Metro of Buck Range Light beer for US$2.99, expected its Real brand to account for a price which drew the attention of late- 25% of food sales in 2010. The aim, night talk-show hosts’ skits. In Spain, said CEO Joêl Saveuse, was to increase visitors to El Corte Inglés shops indulged customer loyalty and profit margins. in a new range of Veckia body lotions and “Manufacturers of brands should be shower gels. And in India, Smart Choice worried by consumers moving away from corn flakes were doing a roaring trade at them at the moment, says Jon Wright, ” upmarket Spencer’s stores. Head of Retailing at market research These launches, however, had one thing company Euromonitor International. in common: they all came from private “Consumers are in many cases defining labels, without a major consumer goods value in terms of price, which is where manufacturer in sight. And they’re part of private labels come into their own. a trend which is reshaping retail: across “In previous economic downturns the world, consumers are turning their private label has taken volume and value backs on brand names in the food, drink share from branded products. After the and consumer goods (FDCG) sector, effects of the downturn have worn off, creating a quandary for manufacturers and consumers invariably look to replace some a tricky position for mainstream retailers, of their new private label purchases with whose relationships with suppliers are branded goods once more, but many rapidly being rewritten. do not. The ultimate effect of this is that Research suggests that the consumer private labels do not hold on to all of their mindset has shifted, perhaps inexorably, new consumers, but overall sales share making the differences between branded goes up for private label products. ” goods and own-label products less important. In January, US consumer Deeper shift intelligence provider Mintel reported The new consumers willing to question that 34% of primary household grocery- the value of branded goods have brought buyers did not consider they were giving a new term into the marketing lexicon. anything up by opting for an own-label “Hybrid consumers” do not buy private- product in place of a branded one. Only label goods simply on principle, but they 19% were clear that it was worth paying have identified product sectors where more for a brand. Separate 2010 figures trading down is an option. Foremost bear this out, showing the penetration among these is cleaning products: in 11© 2011 KPMG LLP a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), , a Swiss entity. All rights reserved. The KPMG name, logo and “cutting through complexity” are registered trademarks or trademarks of KPMG International.
  • 12. ConsumerCurrents 10 Consumer trends the Mintel survey, more than half of branded goods manufacturers. “Those respondents said they did not believe that have will be strongly influenced by branded cleaning products were any their new experiences. If the cheaper better than own-label counterparts. Dairy “Manufacturers of brands products they turn to do not perform as products, cereals and fruit juices may also well, there is a strong likelihood that they be prominent in hybrids’ minds. should be worried by will return to their favorite brands as soon Julian Thomas, KPMG’s Global Advisory consumers moving away as they are able to. Sector Lead for Consumer Markets, from them at the moment” “Areas where quality is important and says social media has accelerated the the incumbent brand offers a differential trend: “Consumers today interact more to domestic own-label products. 7-Eleven ” advantage have tended to fare better. and more through media channels that has particularly aided this phenomenon: Where the branded benefit may be manufacturers and retailers cannot control. its Seven Premium brand now accounts unclear – toilet tissue springs to mind Traditional consumer behavior was based for 20% of sales in its Japanese stores, – brands have to work harder to explain on systematically filtering brand choices a significant figure because its sites are why shoppers should choose them. There to arrive at a final selection. But now, generally mid-ranking in floor-space terms. is plenty of evidence that brands that consumers can evaluate a shifting array of But the drift to private label is continue to promote their benefits in options and remain engaged with a brand not universal, even in its most a downturn emerge stronger. ” through social media after a purchase. prominent markets. Figures “Traditional marketing strategies should from analyst mySupermarket Must try harder be rethought to align with the way the show that over the two For manufacturers looking to counter the relationship between brands and the years to mid-2010, branded rise of private labels, simply slashing prices consumer has changed. ” laundry detergents to match supermarkets’ cut-throat offers While the private label phenomenon is increased market share by is often not an option. “Pricing will remain global, its impact varies widely by region, 13% in the UK, and branded part of the battle, says Wright. “However, ” says Wright: “Private label penetration is cleaning liquid by 6%, while in some ways it is a zero-sum game as very strong in Western Europe, but has bread, fish fingers and either brands undermine the strong work some way to catch up in North America baked beans also showed they have done previously by devaluing the and many markets in Eastern Europe. In gains for well-known product they offer or they squeeze their other regions, particularly Latin America manufacturers. margins so much that it makes it and Asia Pacific, it has even further to go. ” “There are some not worthwhile to do anyway. Natalie Berg, Global Research Director indications that in this “Innovation, either in terms of quality, at analysis firm Planet Retail, says that climate shoppers have not convenience or health and wellness, is in many Asian markets there are still moved away from brands the order of the day for brands. Yet that aspirational factors that give branded as significantly as in other has been the main area where brands products great sway. “That’s changing, downturns, says John ” have let themselves down. They felt the though, she adds, “as large supermarkets ” Noble, Director of the status quo was acceptable as consumer like Wal-Mart and Carrefour move in with British Brands Group, habits had not changed in the past. The their own labels, which in turn give a boost which speaks for most successful companies, such as P&G Consumers care less about brand names – but will that change as recession eases? 12© 2011 KPMG LLP a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), , a Swiss entity. All rights reserved. The KPMG name, logo and “cutting through complexity” are registered trademarks or trademarks of KPMG International.
  • 13. and Gillette, kept innovating despite the fact that they owned some of the most successful and well-liked brands. ” When brands fight back With a tight focus on a single area (Unilever, for instance, owns more than its peak in the 1990s, went out of business 400 brands but gains 70% of its sales from with 6.5% of the market after the fall of the Berlin 25), manufacturers can get an edge over Wispa and annual sales of Wall. But “Ostalgie” (East producers of own-label creations, who Cadbury’s bubble-filled US$275m. German nostalgia) has may not know their customers as well or chocolate bar was put “Communist cola” be able to invest in product development axed in 2003, but the Biba back on the shelves and and marketing strategies. company’s marketing The fashion label is turned it into the reunified Sara Lee, which announced in January department came synonymous with Sixties country’s number two up with an ingenious style, having been fizzy drink brand. that it would be splitting into two companies, has spent much of the past internet-led campaign to modelled by Twiggy bring it back. More than (right) and other Brim several years divesting itself of brand 500 Facebook groups icons. British With its catchy lines. This underlines the increasing slogan – “Fill it to were encouraged to department store importance of tight focus but points House of Fraser the rim with Brim” towards another trend – that as the lobby for Wispa’s return, and on its 2008 relaunch, relaunched it in – this decaffeinated skirmishes between brands and own-label 2010 and was coffee brand was weekly sales hit 1.2 intensify, it will be second- and third-tier million bars. rewarded as it once a household brands that pay the highest price. became its best- name in the US. “It’s not healthy for big brands to have Salon Selectives selling women’s River West Brands too many tail brands, says Planet Retail’s ” This hair care range fashion range. found that 92% Berg. “We’re seeing a cleansing process refuses to die, having of adults over 25 as retailers reduce the number of stock- been revived three Vita Cola were still aware of keeping units (SKUs) and rid the shelves times in three decades, The Eastern the name, and now of products, she says, adding that Wal- ” including a stint under bloc plans a ‘nutraceutical’ Mart has cut SKUs by 15% in recent Unilever’s control. First alternative to version for a new years. “This is beneficial to brand leaders. introduced in 1987 it hit , Coca-Cola generation. [UK supermarket] Asda cut the range of candles available and sales soared. Wal- spend and fully leverage supply chains: banner “Brand Power” trying to persuade , Mart dropped two peanut butter offerings “Organizations that have successfully consumers that a trusted name counts. and, likewise, sales rose. ” navigated the new brand environment The brainchild of Australian agency For some brand-owners, the rise have revised their marketing portfolios Buchanan Group, the campaign is now of private labels is sweetened by the rather than rewriting them. They have active in 14 countries. pay-off they receive as “white label” exploited social media opportunities As a fightback, it is a start. As Nestlé manufacturers of supermarkets’ own while keeping an unwavering focus on CEO Paul Bulcke says, private labels with products, although margins in this area the needs of the consumer. Brands should low margins cannot absorb commodity tend to be lower. Berg says some mid- innovate beyond the familiar and deliver to price rises as well as multinationals, giving market brand manufacturers, which were market rapidly, and clearly communicate them hope of short-term market share previously resistant to white-labelling, have and deliver on their brand promise.” gain. But the impression remains that found capitulating is the best way to keep The problem is that own-label retailers the manufacturer-retailer relationship has their own offerings on the shelves. are having a persistent conversation with shifted. The question is: will things ever Branded products are able to leverage their customers. And their “no brand” return to “normal”? buyers’ feelings of heritage and nostalgia products have, slowly, become brands in (the retro marketing of the Lucky Charms their own right – supermarkets’ premium cereal brand in the US is a notable ranges have become viewed as brands example). And they can use advertising that happen to be manufactured by their and social media in a way that centers retailers. As Devendra Chawla, Business more closely on their products. But Head of Private Brands at Indian retailer inevitably, the very fact that own-labels Future Group, puts it: “ label on the shelf A are selling on their own turf means brands becomes a brand by covering the two-foot must make more effort, says Wright. distance to the trolley. ” “Without strong advertising or talking Noble remains optimistic for his Julian Thomas julian.thomas@kpmg.co.uk directly to consumers, brands are being members: “Brands help people navigate squeezed out of the shopping process, ” complex markets and help them make Julian is KPMG’s Global he says. “Manufacturers need to be informed decisions… the role of branding Advisory Sector Lead for having one-to-one conversations with is arguably more important than ever. ” Consumer Markets and consumers as much as possible. ” Manufacturers seem to realize this: the Lead for the UK firm’s Corporate Advisory KPMG in the UK’s Thomas says many, including Unilever, P&G, Nestlé practice. Julian’s focus consumer markets companies must and Reckitt Benckiser, have banded is supporting global understand the “consumer procurement together to market themselves in businesses to transform journey” to revise strategy, optimize media television and newspaper ads under the and integrate effectively. 13© 2011 KPMG LLP a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), , a Swiss entity. All rights reserved. The KPMG name, logo and “cutting through complexity” are registered trademarks or trademarks of KPMG International.
  • 14. Grupo Bimbo’s range has extended from bread (opposite) to sweeter snacks FACT FILE Name Grupo Bimbo S.A.B. de C.V. Founded 1945 Headquarters Mexico City, Mexico CEO Daniel Servitje Employees 102,000 Key markets Mexico, US, Argentina, Chile, Costa Rica,China Baking up I ts name provokes snickering across the English-speaking world. It promotes its products using a cuddly white bear dressed in baker’s overalls. It remains steadfastly family-owned, rebuffing investors and buying back many of the a storm few shares it has put on the open market. Much of what Grupo Bimbo does may seem idiosyncratic. Yet it has proved devastatingly effective. The bread and baked goods company has conquered the US by acquisition, shrewd management and a focus on logistics. With its US$959m purchase of Sara Lee’s North Mexico’s Grupo Bimbo has become the world’s American baking business, it is ready to largest bread-maker by stealth. Now it’s ready reach new heights. to start making a big noise about its future In Mexico City, where it was founded by Lorenzo Servitje in 1945, Bimbo’s iconic delivery trucks drive thousands of routes every day, taking Marinela biscuits, Barcel snacks and dozens of packaged bread brands to the “mom and pop” stores that dominate the country’s consumer landscape. The company grew 14© 2011 KPMG LLP a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), , a Swiss entity. All rights reserved. The KPMG name, logo and “cutting through complexity” are registered trademarks or trademarks of KPMG International.
  • 15. ConsumerCurrents 10 Case study Grupo Bimbo steadily and by the 1980s already had a stranglehold on the Mexican market, particularly in bread. Bimbo entered the big leagues in December 2008 when it paid US$2.38bn for the US operations of Weston Foods, adding cookies and confectionery to its portfolio. Executed at the height of the financial crisis, it was an audacious move that overnight made Bimbo the world’s biggest manufacturer of baked goods. It also increased the company’s debt by 800%. Bimbo went about the integration of Weston with a customary fortitude. It set a target of 100 days to bring operations and logistics into line, and spent US$50m on a business intelligence system that aimed to identify wastage and improve distribution routes. For 51-year-old CEO Daniel Servitje, son of Lorenzo, the deal was “undoubtedly the most important purchasing decision in the RACING AHEAD US$1bn for supply chain enhancements. history of the company. Servitje Jr.s first ” ’ Grupo Bimbo net sales A greater push in the States will Source: Grupo Bimbo memory was the smell of baking bread. His annual reports offset sluggish growth in Latin American approach to growth, however, is deceptively countries such as Chile and Argentina, 10 ruthless. Bimbo has always been innovative where consumers are reluctant to buy 2010 2009 (it was the first company to wrap bread in packaged bread. Bimbo also has a small US$bn 8 clear cellophane); recently, it has invested bakery operation in Beijing. 2008 in oxodegradable packaging on baked 6 Bimbo is one of relatively few Mexican 2007 2006 goods products, and a joint venture with companies making significant progress 2005 2004 an alternative energy company to build a 4 internationally, says Miguel Leon, Partner, US$200m wind power plant to supply the KPMG in Mexico. “While domestic 2 company’s Mexican needs. consumption has been increasing, they Servitje has also had to deal with have preferred to focus on the Mexican complexity. Bimbo had 5,000 product DOLLAR ECONOMY market, says Leon. “However, their ” lines even before the Sara Lee purchase, Total annual Mexican proximity to the US, and the way they and 1.8 million points of sale. In the exports have been incorporating new technology, US, as much of 14% of its inventory is Source: CIA World Factbook positions them well for future growth. ” returned unsold, as supermarkets favor 300 “Multilatinas” like Bimbo are expected 2010 2009 busy shelves in bread aisles. In Mexico, to become a force to be reckoned with. 2008 250 US$bn But their rise may not be an untroubled 2007 Bimbo has helped its customer base modernize by offering microfinance and one: Bimbo’s latest financial results, 2006 200 2005 insurance to local shopkeepers. while showing modest growth in 2004 150 Pedro Herrera, an HSBC analyst in the sales, demonstrate the effects of rising US, describes Bimbo as “conservatively commodity costs on the company’s managed but very focused – a step ahead bottom line. And as Leon points out: 50 of similar companies in its market. The” “Security issues, poor infrastructure in company is adept at debt management, agricultural regions and public safety he says, while the Weston deal has been issues are holding back many major a “huge success, beyond even what Mexican companies from becoming Bimbo would have expected. ” internationally competitive.” The figures bear this out. Weston gave Servitje sees a focus on modernization the company a 38% boost on operating as key to the company’s future. “In Miguel Leon margins, though net income for 2010 Mexico, we have been very successful miguelleon@kpmg.com.mx was down 9% at US$445m. The US and success typically leads to rigidity has now overtaken Mexico as Bimbo’s and makes it difficult to see changes Miguel is KPMG biggest market, with 43% of revenues. in our environment, he has said. ” in Mexico’s Audit The Sara Lee deal will give Bimbo access “This worries me. We should reflect Sector Lead for on our current situation while keeping Food, Drink and to the Sunbeam bread brand, among Consumer Goods, others, in a market with potential for everything open for change. Whatever ” providing audit and growth. Bimbo believes it has identified path Bimbo pursues, it is unlikely to be advisory services efficiency savings and has pledged bound by convention. to his clients. 15© 2011 KPMG LLP a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), , a Swiss entity. All rights reserved. The KPMG name, logo and “cutting through complexity” are registered trademarks or trademarks of KPMG International.
  • 16. ConsumerCurrents 10 Sustainability Industrial water use, such as these pipelines in Washington, is a growing concern Water: W hen brewing giant SABMiller tentatively released its “blue sky” plans in 2010 for a floating brewery that could be towed from the next port to port depending on where water was most plentiful, the business press immediately leaped on the idea of a “beer ship” Many dismissed it as fanciful, or a . publicity stunt. But what SABMiller and sustainability other multinationals have realized is that water scarcity is becoming business critical. Restricted access to water, or higher costs to use it, is every bit as vital to their future planning as the better- bombshell known issues surrounding oil. The Water Resources Group, an industry body, says water supply will fall by 40% globally before 2030. Even allowing for a margin of error, that has profound implications. The drinks industry is a visible and intensive user of water, Oil might hog the headlines, but many experts believe water but others are equally at risk – food and is the commodity that will become scarcest most quickly – consumer goods manufacturers are also heavy water users, and any industry and that’s particularly bad news for consumer goods groups which relies on silicon chips or paper- based products will face a knock-on effect. Little wonder Nestlé chairman Peter Brabeck-Letmathe has made water the company’s sustainability priority and said in 2008: “I am convinced that if we 16© 2011 KPMG LLP a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), , a Swiss entity. All rights reserved. The KPMG name, logo and “cutting through complexity” are registered trademarks or trademarks of KPMG International.
  • 17. carry on as we are, we will run out of this around. Where water supplies are at his business across the world. And the water before we run out of oil. ” risk, we examine the costs associated amount of water used is only one part of “We all know water is both abundant with alternative sources of water. ” the equation. He points to his cotton shirt and scarce. It covers about 75% of the Wood says companies are beginning as an example. “How much water is in earth’s surface (both in liquid and frozen to understand that the water value supply this? Do you care where it came from? form), but only around 3% of this water is chain is full of blind spots and market Was the cotton grown in an area where fresh and able to be used, says Jo Beatty, ” failures. “Water has not been subject to the water came from natural rainfall, or a Director in KPMG’s Climate Change and strategic thinking by users or transparent was it grown where the water was pulled Sustainability practice in the US. Growing economic planning by governments. The out of the ground for irrigation where populations, rapid industrialization and result? It may be cheap, but it can run out. people have less access to water?” climate change form a triumvirate of Its price is not its value. ” While Alexander says Molson Coors pressures on water’s future. always strives for increased water Water is a global concern, yet its impacts are local. Beatty lists them as: “Companies should efficiency, other factors can make sustainability decisions complex. A facility physical risks, such as reduced water understand the real in Canada recently changed the way it availability and quality; regulatory risks washes returnable bottles. The company from increased standards and licensing value of water, and found it was more energy efficient to requirements for water abstraction, use cold water in the new process, but quality, reuse and recycling, and waste how it impacts them” this also meant more water was used. water discharge; and reputational risks, “We had to think about which was more including opposition to local water No single business sector is exempt important: energy savings or water use. withdrawals and discharges. from the risk of water scarcity. Neither There was adequate supply so we went “One reason that the issue of water is any region. While many countries in with the cold water process and reduced goes unexamined by many leadership the Middle East have spent heavily on our carbon footprint.” teams is that water is low cost. But while desalination, the World Wildlife Fund A strategic focus is the best way it may be cheap, that in itself represents (WWF) says the situation is “critical” to tackle the issue, says Wood. a risk, says Dr. Nick Wood, Associate ” in India, Australia and South Africa. “Many companies can tell us they use Director with KPMG’s Climate Change and Barton Alexander, Chief Corporate four liters of water to make one liter Sustainability practice in Australia. “When Responsibility Officer at drinks company of drink. But they can’t say whether we do our water strategy work we turn Molson Coors, says water issues affect the fruit providers, dairy farmers or 17© 2011 KPMG LLP a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), , a Swiss entity. All rights reserved. The KPMG name, logo and “cutting through complexity” are registered trademarks or trademarks of KPMG International.
  • 18. ConsumerCurrents 10 Sustainability Sources: American Society of Civil Engineers, Pacific Institute, Carbon Disclosure Project, UN World Water Development Report, UN Economic & Social Commission for Western Asia, Water Resources Network H2woe 39% US$21bn Proportion of the Why water is worrying world’s largest corporations multinationals already Amount the experiencing Gulf States negative impact have spent relating to water on water desalination plants in the $1 past four decades 80% The US needs to spend US$255bn in five years to safeguard water infrastructure 40%➟ For each US$1 invested in water sanitation, returns are estimated at US$3-4, depending The year the world is on the region and projected to face Amount global water demand will technology Percentage of the world’s population living in a 40% shortfall in increase in the next ten years involved areas where freshwater supply is not secure water supply hop growers will be able to provide them a Smart Flush device which saves up to with raw materials or even be in business one liter of water per flush. next year. ” KPMG member firms across the globe Wood recommends conducting a water risk assessment right across work with clients to conduct water risk assessments for their operations and “One reason water goes the supply chain, and factoring it into risk supply chains, but most of the emphasis unexamined by leader- management and continuity planning. The is on identifying the metrics companies results can be illuminating – and alarming. need for strategic planning: “Companies ship teams is that its The Water Footprint Network estimates should understand the real value of that the full life cycle of a glass of apple water and the associated economics low cost. But while it juice includes 190 liters of water, while a T-shirt uses 2,700 liters. Such estimates that impact the company. These include capital investments for new or retrofitted may be cheap, that in are open to question, but there is little infrastructure and added operational itself represents a risk” doubt that intensive production processes, costs for supply, treatment and disposal, ” including industrial agriculture, are a major says Beatty. drain on water resources. Developing economies are wrestling Suhas Apte, Vice President of Global with complex supply chain issues. In some Sustainability at consumer products areas, the local population may lack access multinational Kimberly-Clark, wrestles to clean water. PepsiCo is one of a number with water on a daily basis. He says the of multinationals to formally recognize company has used a variety of methods the “human right to water” Others, says . for assessing the impact of water scarcity, Beatty, may decide not to relocate or including a conservation program and a expand manufacturing operations in areas Joanne Beatty Dr. Nick Wood global risk assessment which included which could face future water issues. jbeatty@kpmg.com nickwood@kpmg.com.au suppliers. “We extended the risk There is still hope. Beatty says far- Joanne is a Director Nick is an Associate assessment to provide a multi-criteria sighted companies can improve water with KPMG in the US Director with KPMG’s analysis that brings in a number of factors resources in their local communities, and and sits on the World Climate Change and such as reputational risk, water efficiency, adopt a “catchment” approach to water Business Council Sustainability practice population access to water and sanitation, use that engages both upstream and for Sustainable in the Australian regulatory risk, and future risks, he says. ” downstream use. Those who see water Development Water member firm. Nick Kimberly-Clark’s sustainability team also as the “new oil” should consider the Working Group. She works with his clients leads climate change to develop water led a water life cycle assessment on its reality: some of the finest scientific adaptation and water risk assessments for toilet tissue brands. “It revealed that 75% minds are working to develop viable risk assessments their operations and of water use was toilet flushing in the alternatives to oil. There is no substitute for Consumer supply chains. home, Apte says. The company launched ” in the pipeline for H2O. Markets clients. 18© 2011 KPMG LLP a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), 18 , a Swiss entity. All rights reserved. The KPMG name, logo and “cutting through complexity” are registered trademarks or trademarks of KPMG International.
  • 19. ConsumerCurrents 10 The war for talent Situation vacant With many parts of the world still grasping for growth, and global unemployment rates at historic highs, major companies ought to have their pick of talent. So why are so many struggling to fill roles, particularly in emerging economies? E ven within the luxury sector, LVMH products, the French multinational has stands out as one of the most considerable difficulty filling job vacancies gold-plated companies going. Its in those markets. As LVMH’s General brands, from the eponymous Louis Manager for the Indian sub-continent, Vuitton to Hennessy cognac and De Manishi Sanwal, told India’s Economic Beers diamonds, epitomize ambition Times: “The Indian luxury industry and affluence. In markets such as China is still in its sunrise days. Hiring, he ” and India, the company has admirable says, is a problem. Too few candidates expansion plans as a growing middle understand the industry, or have retail class seeks its own little slice of luxury. experience. When LVMH has hired It may surprise some, then, to learn successfully in India, it has recruited that while consumers in developing from the auto industry. When that fails, economies may be flocking to buy its it focuses on younger recruits. “We train 19© 2011 KPMG LLP a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), , a Swiss entity. All rights reserved. The KPMG name, logo and “cutting through complexity” are registered trademarks or trademarks of KPMG International.
  • 20. ConsumerCurrents 10 The war for talent Emerging markets produce candidates, but the right skills can be hard to find them and empower them to grow with the An endless list of consumer companies candidates in consumer products, but the organization, says Sanwal. ” have similar stories to tell. Their growth pool of high quality retail executives is The company’s woes are not unique necessitates new armies of skilled shallow. Where international experience – either to its sector or the region. As employees, ideally located in expanding has been gained is increasingly relevant, as businesses chase ambitious growth regions. These include general managers, the issues leaders face in mature markets targets and introduce more complex financial executives and salespeople, as are very different to those gained in operational requirements, the need for well as technical specialists in logistics and emerging markets. ” multi-skilled, highly motivated staff is huge. business intelligence. Education systems China’s demographics are a particuarly Manpower’s influential annual survey of cannot keep pace: in India, despite hefty potent factor in its fast-shifting talent employers found that, in 2010, 31% had investment, there are far fewer business requirements, says Ellen Jin, Partner been unable to fill key vacancies. With schools than in developed economies, and for Consumer Markets, KPMG in China: global unemployment around 6.5% and quality is an issue. “China is now producing more than six multinationals learning to do more with Wage disparities mean established million university graduates a year and fewer staff, this shouldn’t pose a problem. Western-based executives are reluctant to people’s aspirations are high. There is Yet getting the right people in the right relocate to emerging economies, except a tightening labor supply in many areas place at the right price is a headache. for inter-company transfers. Recruitment as China is moving from a manufacturing If there is a “war for talent” it could , consultancy Korn/Ferry says the average economy to one based on services and be said that talent has won. The factors CFO salary in India is US$73,000, and innovation. It all makes for a competitive behind this are numerous, but one of the other emerging economies are no more and pressured environment. China’s ” most important is the growth rates large generous, with China a notable exception. relatively high salaries are a reflection of companies are experiencing in emerging Any major rise in operating costs due to the lack of local management experience, economies. Food multinational Sodexo wage inflation could price multinationals says Jin, although she adds: “There are saw modest growth in its largest market, out of local retail markets, and destroy the many people now coming through the the US, in Q1 2011, but sales in emerging cost advantage in manufacturing there. ranks with five to ten years of working economies, principally Brazil and Chile, Jim Hinds, UK Country Manager for experience who are able to take more leaped 11%. Tesco has reportedly targeted executive search firm Russell Reynolds leadership roles. ” Vietnam, Indonesia and the Philippines for Associates, says: “The demand for Ajay Bansal, Russell Reynolds expansion. Swatch announced last year international candidates is as strong as it Associates’ Executive Director in New that 28% of its sales come from China. has ever been. There are many talented Delhi, says companies operating in 20© 2011 KPMG LLP a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), , a Swiss entity. All rights reserved. The KPMG name, logo and “cutting through complexity” are registered trademarks or trademarks of KPMG International.
  • 21. Companies who care when a worker at Ford’s Michigan plant engagement, staff turnover was 51% was sacked for being “caught in the higher, with productivity, innovation and act of smiling” and “laughing with the inventory shrinkage also suffering. other fellows”Today, Google is among . Separate studies of FTSE 100 a number of leading multinationals companies found that 70% now which allow staff to bring pets to conduct regular staff surveys. At leading work, while others have experimented retailer J Sainsbury, employees are with the ROWE (Results-Only Work encouraged to write to CEO Justin Environment) system, which dispenses King (pictured left) with concerns or with traditional corporate structures to suggestions. King personally replies give employees autonomy over where, to each letter: he recently received his when and how they work. “ 30,000th missive. “Employee engagement” – Japan Tobacco International conducted ensuring staff are listened to and feel a global survey of employee engagement empowered to question business and was able to make a number of orthodoxy – has become a priority correlations between satisfaction and for companies desperate to reduce business performance: in particular, it employee churn and attract the pick attributes its market leadership in Russia The concept of valuing staff and of job-seekers. Research by the UK to the high levels of engagement among creating a pleasant work environment government found that in businesses its 8,500 staff there. Caring, it seems, has come a long way since the 1940s, categorized as having low levels of might just pay off. India have to invest in developing and US and Australia, have tightened visa Others are ensuring they have control retaining talent: “FMCG companies requirements for skilled workers, leading of the entire talent value chain. Agri- have traditionally been talent providers to complaints from multinationals unable business Cargill has found recruitment a to the Indian consumer sector. Many to bring senior staff to the West. Japan, problem as it expands into new markets. consumer leaders in India have Unilever says Manpower, has the biggest skills Its solution? Hire 36 managers in China, or P&G stints on their CVs. But, says ” deficit on earth. train them in the US and send them back Bansal, major consumer companies face to their home country to lead Cargill’s competition for executives from other operations there. Another major global sectors, notably telecoms. retailer has asked new executive hires Staff churn rates show why consumer to commit to relocating wherever the companies are nervous about their “Demand is strong, but company considers appropriate. ability to compete. HR consultancy AON Governments understand these issues. Hewitt believes the 2010 staff turnover for the international pool China plans to create an “Ivy League” of foreign-owned companies in China was leading universities. Indian policy-makers 15%. Multinationals’ wage inflation in of high quality retail are investigating how to nurture creativity. the country was put at 7 .2% in the same year. In the Indian outsourcing industry, executives is shallow” Whether they will move fast enough to please anxious businesses is truly anecdotal evidence suggests companies Faced with these issues, businesses a billion-dollar question. have to handle as much as 50% churn. are beginning to react. Employee The Center for Work-Life Policy has engagement (see box above) has risen forecast that by 2012, companies in up the agenda in many boardrooms. India may have five million fewer skilled Recruitment strategies have moved employees than they need. beyond graduate fairs to include “Staff turnover is a big concern, says ” sponsoring studies, or forming lasting E.Balaji, CEO of Indian operations for partnerships with universities. Henkel has recruitment company Randstad. “It is organized “development round tables” 15%-20% or greater across all seniority to identify high-potential employees and Ellen Jin ellen.jin@kpmg.com.cn levels, and that is a conservative ensure they are given extra support and estimate. Wage inflation is also a encouragement. Ellen is the partner in problem and the traditional companies, “There is a strong trend for learning and charge of Consumer which have been operating here pre- development, sponsoring people to go on Markets for KPMG [economic] independence, are the ones MBA programs and develop themselves in China, based in Beijing. She has acted hit hardest. ” and their career, says Balaji. “Consumer ” as lead partner for a Emerging economies may be the pinch companies are competing with other high- number of KPMG in points for these issues, but they are not profile technology companies, investment China’s largest listed alone. Several countries, notably the UK, banking and outsourcing for talent. ” audit clients. 21© 2011 KPMG LLP a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), , a Swiss entity. All rights reserved. The KPMG name, logo and “cutting through complexity” are registered trademarks or trademarks of KPMG International.
  • 22. ConsumerCurrents 10 Lessons from other industries Procter & Gamble, Coca-Cola and Sony. Dragons of industry: Games can involve taking over as CEO gamers may have a to see how your decisions might affect head start at work revenue and staff morale, sharpening sales techniques in a virtual environment, seeing products through a customer’s eyes or getting to grips with the intricacies of financial modelling. Prices start in the hundreds of dollars, with bespoke corporate solutions running to six figures. Adl says they can help with team-building, alignment with corporate strategy and developing future leaders. The solutions on offer are growing in popularity and sophistication. Thousands of European supply chain managers, including representatives of Heinz and “Serious games give employees the chance to make mistakes without causing damage” How to get ahead SABMiller, take part in an annual contest called Fresh Connection, which lets them make key decisions in a competitive of the game environment. BTS is working on a simulation for two global packaged goods companies and their retail Companies are turning to computer simulations to teach skills partners, which will let them virtually tweak their supply chains without and test radical scenarios. Are they just playing around? affecting operations. King’s College London’s Department of War Studies T he new CEO scrolls up and down teaches executives the basics of military the list of options, mulling over strategy to sharpen performance. the consequences on the screen. Many simulations feature spectacular With a sudden decisiveness and a click graphics, including avatar-like of the mouse he instructs his deputy characters striding through offices, but to shutter the company’s Chinese retail Adl says presentation is only part of the operation, making the 2,000-strong battle: “It needs to look good and work workforce redundant and selling its well, but the link to what the company assets to its nearest rival. The board will is trying to accomplish outweighs be furious he has taken such a radical those needs. ” step without consulting them, but Serious gaming might sound frivolous, the business leader won’t be but there’s plenty of evidence to carpeted: he’s playing a game suggest the traits of leading computer where taking outrageous risks games – progressing through levels is all in a day’s work. of achievement, being rewarded for So-called “serious games” success and immersion in a realistic are big business, and consumer environment – enhance learning. companies are lining up to send MIT has a serious games department staff on courses where they can studying the phenomenon. Business simulate work environments, take thinker Daniel Pink, author of A Whole decisions or model strategies. “It New Mind, says the ability to bring basically means they can make mistakes “play skills” into the workplace will without hurting the business, says ” be a key measure of future business Rommin Adl, Executive Vice President achievement. Those youthful hours spent of BTS, which runs computerized with a Dungeons & Dragons set might simulations for companies including not have been wasted after all… 22© 2011 KPMG LLP a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), , a Swiss entity. All rights reserved. The KPMG name, logo and “cutting through complexity” are registered trademarks or trademarks of KPMG International.
  • 23. ConsumerCurrents 10 Insights KPMG member firms provide a wide range of studies, analyses and insights for the Retail and Food, Drink and Consumer Goods (FDCG) industries. For more information, please visit www.kpmg.com/retail or www.kpmg.com/FDCG. Current publications A Global View of M&A in Procurement Fraud in Consumer Leases for Retailers Revenue Recognition Consumer Markets Companies This publication addresses both for FDCG Companies A report based on interviews Procurement is highly the business and accounting The revenue recognition standard with senior KPMG M&A susceptible to fraud and issues that retailers would face proposed by the IASB and FASB professionals, who were misconduct in consumer under the new leasing standard is likely to significantly impact asked to share their outlook for markets companies. This recently proposed by the IASB FDCG companies: in timing and M&A activity in the consumer publication highlights how and the FASB. amount of revenue recognized, markets sectors over the next procurement fraud can be and the treatment of discounts, 18 months. detected and prevented. rebates and marketing spend. KPMG ConsumerCurrents webcasts New publications coming soon CFO Insights: A global survey of Sustainability reporting in the Attend live presentations with KPMG’s leading authorities on these Consumer Markets executives consumer markets industry and other industry topics. Visit www.kpmg.com/ccwebcasts to This recent survey asked How do your company’s register for our next webcast or to watch previous events on-demand. 291 finance executives from sustainability and CSR consumer markets companies reporting practices compare around the world about trends, with others in your industry challenges and opportunities and region? What industry best affecting their industry. To be practices can you learn from? launched in April 2011. To be launched in May 2011. 23© 2011 KPMG LLP a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), , a Swiss entity. All rights reserved. The KPMG name, logo and “cutting through complexity” are registered trademarks or trademarks of KPMG International.
  • 24. kpmg.comContacts Missed anUS contacts issue ofPatrick W. Dolan Ray Kansal ConsumerNational Line of Business Leader, National Line of Business Director, Currents?Consumer Markets Consumer Markets+1 312 665 2311 +1 312 665 3623patrickdolan@kpmg.com rkansal@kpmg.comMark Larson Jenna StonebergGlobal Head of Retail National Associate Marketing Director,+1 502 562 5680 Consumer Marketsmlarson@kpmg.com +1 480 459 3628 jstoneberg@kpmg.comGlobal contactsWilly Kruh Henrik K. IversenGlobal Chair, Consumer Markets +45 38 18 32 77+1 416 777 8710 hiversen@kpmg.dkwkruh@kpmg.com KPMG in DenmarkKPMG in Canada Eric RopertNick Debnam +33 1 5568 7190AsPac eropert@kpmg.fr+852 2978 8283 KPMG in Francenick.debnam@kpmg.com.hkKPMG in China Nandini Chopra +91 (22) 3090 2603John Morris nandinichopra@kpmg.comELLP KPMG in India+44 20 7311 8522john.morris@kpmg.co.uk Wah Meng GanKPMG in the UK +02 6763 2445 wgan@kpmg.itDavid Rogers KPMG in Italy+61 (2) 9335 8188drogers@kpmg.com.au Tatsunaga FumikuraKPMG in Australia +81 (3) 3266 7004 tatsunaga.fumikura@jp.kpmg.comCarlos Pires KPMG in Japan+55 11 2183 3148capires@kpmg.com.br Marc SchönhageKPMG in Brazil +31 206 567725 schonhage.marc@kpmg.nlEllen Jin KPMG in The Netherlands+861 0 8508 7012ellen.jin@kpmg.com.cn Daryll Jackson Back issuesKPMG in China +27 (11) 647 6895 are available to daryll.jackson@kpmg.co.za download from: KPMG in South Africa www.kpmg.com/ consumercurrentsThe information herein is of a general nature and is not intended to address the circumstances of any particular individual or entity.Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate asof the date it is received or that it will continue to be accurate in the future. No one should act on such information withoutappropriate professional advice after a thorough examination of the particular situation.KPMG LLP, the audit, tax and advisory firm (www.us.kpmg.com), is the U.S. member firm of KPMG International Cooperative(“KPMG International”). KPMG International’s member firms have 140,000 professionals, including more than 7,900 partners, in146 countries. Publication name ConsumerCurrentskpmg.com Published by Haymarket Network Ltd Publication no MTL10323© 2011 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member Publication date April 2011firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. The KPMG name, Pre-press by Haymarket Pre-presslogo and “cutting through complexity” are registered trademarks or trademarks of KPMG International. Printed by RR Donnelley

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