This document discusses Nestle's business strategies for reaching rural and bottom of the pyramid (BOP) consumers. It outlines Nestle's product portfolio, distribution models, and marketing approaches for tapping into this large consumer segment. Specifically, it describes Nestle's focus on (1) small and affordable product sizes, (2) subsidizing rural distribution costs, and (3) culturally relevant local promotions and engagement activities. Case studies of other FMCG companies' rural strategies are also provided. The challenges of inflation and decreasing consumer purchasing power in Pakistan are raised as important factors for companies to address.

1. Rural Marketing &
BOP Consumers

2. IntroductionTrade Structure & BOP ConsumersNestle & Other FMCG Case Studies
Agenda

3. Nestlé: Good Food, Good Life
The world’s leading nutrition, health
and wellness company
Corporate Essence – Improving Quality of Life

4. Nestlé Group Highlights

5. Nestle vs. Our Competitors

6. The Nestlé story – how it all began
1867 1866
1929
1938
1947
1960s
1970s
1980s
1990s
2000s
Henri Nestlé
1866
2010

7. Americas
46.8%
Asia, Oceania, Africa
23.8%
Europe
29.4%
Sales by Zones

8. Sales by Product Group

9. Nestlé tailors its products to suit local tastes and needs
Over 200 different blends of Nescafé to meet consumers'
expectations
Malaysia Japan RussiaPoland Africa,Greece
Russia, Israel
SwitzerlandEurope
Local Tastes needs Local Production

10. Billionaire Brands
(Brands Over CHF 1 Billion)

11. Nutrition
PPP
Out of Home
Premium &
Luxury
Strategic Growth Drivers

12. Sales in excess of CHF 11 Bn
Four Key Areas
a) Infant Nutrition
b) Healthcare Nutrition
c) Performance Nutrition
d) Personalized Weight Management
Nestle Nutrition
The World Leader in Nutrition

13. Out Of Home
Nestle Professional
World Leader in Branded Food Solutions
Tailor Made meal solution for food operators
In industralized world 50% of food spending is out of
home

14. More than just products – the complete experience
Nestle Nespresso
Premium Chocolate
Luxury Ice Creams
Pet Foods
Premium & Luxury Products

15. Emerging Markets – Popularly
Positioned Products (PPP)
Meet nutritional needs in developing countries
-Low price
-High nutritional Value
-Smaller & affordable pack sizes
Different Business model, different advertising, micro distributions

16. Trade Structure
&
BOP Consumers

17. Wholesale
Retail
Modern Trade
Wholesale
Family Grocers
Pharmacy/Mass Retail
Small Stores
Changing Market Place

18. Modern Trade Customers are getting…..
Bigger
Smarter
Smarter
Broader
More
diversified
Bigger

19. 19
As well as chasing shoppers locally, they have continued to follow
them internationally
2010
Source: Planet Retail

20. How important are they to Nestlé?

21. Source: SGDU, Global BW & F&C-CGR
Customers within Top 20 Markets
(NPS Full Year 2008 in mio CHF)
8'216
7'009
4'286
3'922
3'323
2'598
2'597
2'264
2'133
1'977
1'778
1'695
1'675
1'584
1'514
1'512
1'485
1'362
1'260
1'173
1'126
1'123
1'098
1'064
1'060
1'052
11'923
4'652
4'376
USAW
alm
artNPP
NAGerm
anyFrance
Brazil
NPP
EURCarrefour
UKM
exicoOceania
Italy
SpainRussia
Philippines
reaterChina
KrogerSchwarz
Tesco
JapanCanada
VenezuelaAuchan
M
iddle
EastEdeka
M
etroM
Y
/SG
SuperValu
Israel
9 customers within Top 20 Markets
12 “Billionaire” Customers
Our largest customer are already as big as our
business in countries

22. There is huge opportunity within ‘small’ shops to build our business.
22

23. Nestlé is the world’s largest food and beverages company but is
still only 1.7% of the market
Nestlé ~ 1.7%
The 20 largest food companies account for less than
9% of the world market

24. World Income
Pyramid
Rs. 160,000 per
month
Rs. 12,500 -
160,000 per
month
Rs. 12,500 per
month
70%

25. 25
Americas
46.8%
Asia, Oceania, Africa
23.8%
Europe
29.4%
75% of World‘s Population
Sales by Region
Nestle

26. The Nestle PPP Vision
NESTLE WILL EXTEND DOWN IN THE
ECONOMIC PYRAMID TO REACH
CONSUMERS WITH LOWER
INCOMES AND BRING THEM
AFFORDABLE, HEALTHY AND
NUTRITION SOLUTIONS,
JOINING THEM ON THEIR JOURNEY
TO BETTER LIFE..

27. In Paistan’s
Scenario BOP
strategy is
incomplete
without
the Rural

28. 68% Population 32% Population

29. Source : Nielsen Pakistan
626,649 639,680 645,349
270,636 281,827 289,774
356,013 357,853 355,575
0
100,000
200,000
300,000
400,000
500,000
600,000
700,000
2008 2009 2010
National Urban Rural
56%
Evolution of Retail
Universe

30. Exponential Growth
30% plus
Organic Growth

31. Key Factors
In PPP /
BOP Consumers Strategy

32. 1. Awareness

34. 2. Availability

35. Trade Off Between
Distribution Cost
&
Incremental Penetration
Vast Geographical Spread

36. 3. Affordability

37. Low Consumer Disposable Income
&
Limited Purchasing Capacity of Retailers
Avg. Monthly
Consumption Rs.8945/-
Vs.
Income Rs.10,929/-

38. Dependent Upon
Vagaries Of Monsoon

39. Assortments Carried
Smaller SKU’s of
Branded Items
Karyana Items
Unrelated Items
Vegetables, Ice etc

40. Sno. Content Marks
1 Company Background and info.
2 Industry analysis 2
3 Available Dist. Models and one Opted 2
4 Setting up Dist.
Financial Requirements
Sales models and channels
HR & Infrastructure Requirements
Warehousing
4
5 Financials (ROI, P&L, Breakeven) 2
6 Creativity & Advanced Details 3
7 Final Presentation 3
Total 16
Semester Report
Deadline
25th April 2013

41. Ideas For Effective
PPP / BOP Strategy

42. 1. Product Offering

43. Smaller SKUs
Single Serving
(per capita or per time period)

44. Mainly due to illiteracy
Distinctive
Packaging
Brands are
identified &
differentiated
on basis of
color

45. Focussed Innovative
Products

46. Anaemia (Iron Deficiency)

47. 2. Price

48. Attractive Price Points
Rs.10 sachet contributes
around 50% in surf sales
Rs.10 sachet major
growth driver for
powder creamer
Rs.10 sachet rapidly
growing despite challenges
from smuggled tea

49. Per Gram Costing
Brand Large SKU Sachet
Surf Excel 0.20 0.17
Everyday Tea Whitener 0.43 0.40
Sunsilk Shampoo 0.78 0.60
Cheaper Small SKUs
enhances consumer
acceptance

50. Attractive Retail Margins
For Retail Penetration
&
Advocacy

51. Brand Large SKU Sachet
Surf Excel 4.7% 5.5%
Supreme Tea 5.1% 11.1%
Everyday Tea Whitener 8% 10%
Sunsilk Shampoo 9.7% 9.7%
Better Retail Margins on
Small SKUs improves retail
penetration
Retail Margins

52. 3. Promotion

53. Connect in More Understandable Way
Use local dialects to engage
consumers

54. Use Customized
Media
Nestle Maggi Muhallah Shows & sampling
Guddi Baji Unilever Pakistan
Everyday sachet wet and dry sampling
Village Promotion Activities based on fastivals &
Consumer Shows
Use of FM Radio

55. Sales & Display
Competition
Merchandising
Corporate
Consumer
Offer
Town Festivals
Prize
Distribution
Ceremony
Rural Strategy –
Town Storming

56. Trade Engagement Activities
Sachet Display Drives
P&G Golden Stores
2% for Displays
Unilever Project
Interface paying 6-7%
& Perfect Shops for
small stores

57. Contribute Towards the Society
CSR Activities creates a
positive brand/company image

58. 4. Distribution

59. These wholesalers supplies product to rural
retailers. Products supplied included branded &
loose (unbranded items)
Traditional Rural Distribution System
Distributor
Retailers
Wholesellers
Wholesale Channel
Playing Dominant Role

60. Product directly distributed to rural retailers
ensuing product availability & minimizing the
influence of wholesale
Direct Rural Distribution System
Distributor
Retailers
Wholesellers
Direct Distribution to
Rural Retailers

61. Major Hurdle in
Direct Distribution
Cost of Distribution

62. …which is overcome by
subsidizing rural distributions
Subsidy varies from 50% t0 100%
of expenses

63. Heads Unilever
(50% sharing)
Unilever (Retail Extension
program 100% sharing)
Rentals (Rs. 700/day @ 25
days)
17,500 17,500
Fuel (Rs. 5/km cost & avg. 50
km/day)
6,250 6,250
Salesman Salary 7,500 7,500
Loader Salary 4,500 4,500
Total Cost 35,750 35,750
Breakeven Sales (assuming
3.5% avg. dist. margin)
1,021,428 1,021,428
Estimated sub-dist margin
( at 3.5% net margin )
35,000
(assuming Rs.40,000
sales/day)
35,000
(assuming Rs.40,000 sales/day)
Company Sharing 17,875 (50% cost
sharing)
35,750 (100% cost sharing)
Net Dist Margin 17,125 (1.7%) 35,000 (3.4%)
Subsidy Van Costing
Unilever Subsidizing its rural
distributors
This subsidy varies from 50%
to 100% in
(Retail Extension Program)
This subsidy helps in
improving distributors ROI &
numeric expansion resulting
in overall rural stronghold
An Example Of How Subsidy Helps

64. …make distribution infrastructure
Self Sustaining
Through Subsidy…

65. How FMCGs
Are
Doing it …

66. Grameen Danone
Project

67. Micro Nutrition Issues
- Iron (49% among young children)
- Vitamin B2
- Calcium
- Vitamin C
- Vitamin A
- Iodine and zinc likely
Health Concerns
- Stunting (41% of young children)
- Diarrhea
- Polluted water (arsenic, bacteria)
Macro Nutrition Issues
- 87% of protein source is vegetal (lentils
and beans), deficiency in essential amino-
acids likely
- Overall energy deficiency, particularly among young
children (between 24% and 40% gap vs RDA)
- Protein deficiency
Addressing the Nutritional
Deficiency

68. Distribution

69. Hundustan Unilever
in
Rural India

71. Kraft Foods -
Mondelez

72. Maggi India Case
Current portfolio tapping just
14% population

73. Project Epicure
Largest Research study conducted covering 42,000
meal occasions & 100, 000 dishes
What makes a housewife please her family and provide nutrition
All to be done in Rs. 40 for a meal of entire family

74. …their food habits & life

75. Through
Nestle R&D

76. Launched Maggi Masala-ae-Magic
An affordable, fortified taste enhancer

77. Out of Box Marketing Strategy

78. Extremely Encouraging Results
Product well accepted by trade &
consumers
Volumes growing month on month
Ground level efforts already highly recognized by
media

79. For Nestle Pakistan
The fastest growing Market for Nestle with
ever increasing penetration in BOP segment…
Nestle Pakistan

80. But…
Major Challenge

81. Inflation
Shrinking consumer disposable
income
21%
12%
Inflation
2009
2010
15%
2011
Maintaing price points becoming
difficult for companies
Increasing Distribution cost &
struggling ROIs of distributors

82. Attractive Price Points
Rs.10 sachet contributes
50% plus in surf sales
Rs.10 sachet major
growth driver for
powder creamer
Rs.10 sachet rapidly
growing despite challenges
from smuggled tea
Surf Excel
promoting
Rs. 15 SKU
Price Increase
to Rs. 12
Decreasing
weight

83. Pressure on Purchasing
Power

84. So Companies Need to be
very ….

85. Change in
Mind-set
Lean Setup

86. So
BOP Consumers
are…

88. Provided
You Move
With …

90. Thank You For Your Time