Nestlé expects ‘major growth’ in Kenya when oil starts flowing

Story by HowWeMadeitinAfrica

Swiss food and beverage multinational Nestlé is expecting “major growth” in the Kenyan market in five years when recent discoveries of oil begin to flow.

Nestlé Kenya Managing Director Svetlana Obruchkova says the purchasing power of consumers in the East African country is set to rise and push the sales of branded goods.

“There are affluent people and the middle class is growing but it is still not growing at the extent we would like. We strongly believe that this growth will come when the oil and gas is developed and a wider part of the population will get better incomes. The potential is really great… and we expect major growth to come in the next five years.”

Obruchkova told How we made it in Africa that Nestlé’s business in Kenya has grown steadily in the last 47 years, “driven by the increasing income of the population”.

“One of the key signs that the middle class is growing is the number of shopping malls and modern trade outlets which are present here. For the majority of fast moving consumer goods companies the share of modern trade in the total share of our business is over 40%, so it is very big.”

In the last two years Nestlé has invested US$25m in revamping its factory in Kenya which supplies Kenya, Uganda, Tanzania, Rwanda, Burundi, eastern Democratic Republic of Congo, Malawi and Zambia. The Kenyan plant also exports the Milo brand, beloved among the African diaspora, to a UK distributor which then supplies to retail chains.

“The Milo which we produce here is the original recipe originally invented in Australia over 40 years ago. It has a very rich and nice taste and for many people it is nostalgic. There is a big African diaspora in the UK and in Europe. [They]… are very well integrated [but] they still look for some of the things that bring back their memories, feelings and experiences they had in their home country.”

She explains that while Milo produced in Asia is available in the European market it has a different recipe which has evolved over the years.

Nestlé’s best performing brands in Kenya include Nescafé and Milo, as well as food flavouring Maggi.

Growing Nestlé’s coffee and cereal brands

While Kenya’s coffee consumption has grown steadily in recent years, Obruchkova believes “we could do much better”, adding that Kenya and Uganda still maintain a tea drinking culture and view coffee as a “currency” because of its export to the west.

“For us to grow the coffee [industry] in Kenya we need to grow local consumption. We do a lot of sampling and the target audience is the youth.”

Through its My Own Business (MYOWBU) model initially developed in West Africa, Nestlé is using entrepreneurial young people to supply its drinks in high density markets.

The firm is seeking to recruit 500 youths in Kenya by 2016 to promote the Nescafé coffee brand in busy public areas such as open markets, stadiums and bus stops.

“It is really providing an opportunity for people to get an income and it gets our brands to places it wouldn’t reach and at the right occasion. We want to reach more youth with this because for them there is no investment, just their commitment” as Nestlé provides free Nescafé kits.

Obruchkova says the company is also seeking to grow its presence in the breakfast cereals markets which is “growing very fast”. The production of its cereal brands has been challenging in Kenya because of difficulties in accessing high quality maize, a key raw material.

“It is our priority… [but] we want to ensure sustainable supply of raw materials. The struggle was for two or three months we could not produce because we couldn’t find [quality maize],” she says. “This category is growing very fast. I have seen this in my home country (Ukraine). It is a consumption habit with the growth of the population’s purchasing power, improved knowledge, access to information and also people being busy… people go for more convenient products.”

Addressing the challenges

Nestlé sources raw materials such as wheat, sugar, salt, spices and packaging locally. To solve quality shortfalls, Nestlé has a farmer development programme through which it trains and assists 26,000 coffee farmers and 6,000 dairy farmers in rural Kenya.

Other difficulties Nestlé faces in Kenya include frequent power outages and logistical challenges.

“We have a generator that we can run [when power goes off] but there is a certain process in cereal production when if there is a power outage the machine blocks and a lot of material is lost. We are discussing how to overcome that and [we may have] to even run that machine on a generator full time because we cannot face the fluctuations.”

Despite the challenges, Obruchkova says, Nestlé is optimistic that difficulties manufacturing companies currently face are likely to be overcome in coming years.

“The reason why we are here is because of our long-term commitment. We know the growth is coming and we know we have to be here when the growth hits in five years. We know it will be driven by oil and other natural resource discoveries. Look at Angola, the country is in total blossom and the buying power of the consumer has grown.”

Advice to other manufacturers

She advises other manufacturing companies expanding in Africa to learn the market and its unique culture.

“You need to see how you can master excellence here, adapt to the culture, to the [power] outages and everything and then grow.”

She reckons that technological innovation is likely to revolutionise modern trade in Africa and galvanise economic growth.

Companies, she says, will need to adopt a new way of thinking.

“The way we think and look into the future should be different,” she says, adding that companies ought to conduct research that will advise product development and marketing strategies that appeal to the evolving tastes and preferences of the youth.