Nestlé: Nescafé for Myanmar

Via The Financial Times, a report on Nestle’s activities in Myanmar:

Nestlé is one of the few multinationals that never really left Myanmar. It quietly allowed Thai traders to import its instant coffee and other products in the country and retained a small office to keep an eye on things.

But, with economic sanctions ending, the Swiss-based group is making low-key preparations for a big comeback.

Unlike some other consumer goods companies like Coca-Cola Company which have made headlines of their return to Myanmar, the Swiss-based company has not made much of a fanfare. But it’s clear it needs to make big investments if it is to regain the top spot in key market segments, not least instant coffee.

Nestlé was able to remain in Myanmar because sanctions imposed by the European Union – and very similar Swiss restrictions – were far more limited than those imposed by the US on American companies.

US companies were banned from 2003 doing business in Myanmar in US dollars, which, in practice, amounted to prohibition on doing business at all.

But the EU prohibited only trade in precious stones and arms as well as relationships with black-listed individuals and companies linked to the government.

So legally, Nestlé was free to carry on doing business. Clara Portela, a researcher of Singapore Management University who specialises in EU sanctions on Myanmar, says: “Contrary to what many people believe, Europe only banned trade in precious stones and arms. So if Nestlé has been selling products in Myanmar, that has always been perfectly legal.”

But Nestlé’s did stop its advertising support and marketing strategies for the country. The company declined to say why.

However, it seems likely that it wanted to avoid attracting the attention the US authorities and of consumers in the US and Europe, who might have objected.

“It’s likely that Nestle pulled back because it didn’t resonate well with consumers to be in Myanmar,” Portela says. “And of course, there is always a threat of US retaliation against foreign firms, as was the case for European firms active in Cuba.”

Nestlé’s sel-imposed limits on marketing in Myanmar gave regional competitors a chance to win market share. Cheaper Thai brands such as Supercoffeemix and Goldroast gained ground.

Nestlé has been heavily displaced in recent years,” says John Handley, CEO of Sail, a Myanmar marketing company. “After [the sanctions intensified in 2002] the local competition took over.”

But now the sanctions are ending, Nestlé is probably preparing a comeback following its classic recipe, says Rudolf Gildemeister, a Hong Kong based investor, and one of Nestlé’s Myanmar business development managers in the 1990s.

“First, they need to establish a distribution infrastructure. You can’t market anything if it can’t be found [by the customers,” he says.

With its Thai-based distributor Maxxcare, which handles coffee, and an arm of Singapore-headquartered Fraser & Neave (milk products) represented in Myanmar, Nestlé is all set for that first step.

Nestlé told beyondbrics that its in-country representative office was recently upgraded so consumers have a direct contact point.

Beating the local competition won’t be possible everywhere, says John Handley. “Most of Myanmar’s 55 million people live off $70 to $100 a month”, he says. “Only in Yangon, Mandalay and the new capital, Naypyidaw, consumers are affluent enough to afford Nestlé products.”

But if the marketing is done well, Nestlé should be able to reap the benefits of its dormant presence. “Nescafé is grandfathered in here,” Handley says. “All they need to do is turn the volume back up.”

Nestlé’s partners are convinced the results will follow soon. “Nestlé is back, and stronger than ever,” says Handley, who met a Nestlé representative recently. Jirawat Daechasatien, who distributes Nestlé’s milk formula for F&N and expects to have sales worth $10m this year, sees a bright future too. “For next year, I expect a double digit growth,” he says.

Longer-term, there could be other opportunities. Myanmar is said to have an excellent climate for coffee production, and the local salaries are low. That could mean the recent upgrade of Nestlé’s Myanmar’s office wasn’t just for customer support, but also to prepare future production investments, says Daechasatien.

“There are countries with a smaller market and higher wages where Nestlé has production,” Gildemeister says. “Why wouldn’t they want to have it in Myanmar?”

A Nestlé executive from Switzerland will travel to Myanmar with a Swiss economic mission next month.

But at the company’s headquarters, the Myanmar strategy is to say little. Nestlé’s Melanie Kohli told beyondbrics: “For competitive reasons we will not make any forward-looking statement.”

This entry was posted on Thursday, October 4th, 2012 at 11:51 pm and is filed under Burma.  You can follow any responses to this entry through the RSS 2.0 feed.  Both comments and pings are currently closed. 

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