Speaker 1  00:03
We are truly multinational, you know, operating in in many countries. We are operating in 186, 187 countries. So there's very few where we are not present. And when you come from a small country, you know, you I think you make you have to make a choice as a businessman as a company. But your growth potential is going to be very limited, or you try to opportunities outside, and that's what Nestle did. This is something you can't do in a short period of time. I mean, that has been there for a long, long time.

Speaker 2  00:27
Bernhard Steffen brings over two decades of international experience across Nestle's global operations. Beginning his career in mergers and acquisitions at Nestlé Waters France, he has held diverse leadership roles spanning Europe, Australia, and Asia, key highlights of his career include serving as country business manager for Nestle Waters Direct in Germany, leading operations for Nestle Peters Ice Cream in Australia, and heading strategy and business development for Nestle China. From 2017, he managed the expansive Zone Asia, Oceania, and Africa region, overseeing critical markets including China, South Asia, and Pakistan. Since March 2023, mr. Stephan has served as chairman and managing director of Nestle Lanka Limited. He joins us today on our latest episode of Advocata Conversations.

Murtaza Jafferjee  01:15
Bernard Stephan, welcome to Advocata Conversation.

Speaker 1  01:19
Good afternoon. Great to be here.

Murtaza Jafferjee  01:20
Thank you. Perhaps we can start by you telling us a little bit about your personal story.

Speaker 1  01:27
Sure. No, that's great. I'm born in Austria, in a quite small European country, a landlocked country, and I grew up there. Spent my my youth there. Grew up to family of a sister. My parents worked in in the public service. My mom was a teacher, English teacher, and a university lecturer, and my dad was a biochemist, but also working for the government. So you know, at a typical childhood for a kid growing up in Europe in the 1970s and 80s, it was an easy life. Education was always important for my parents, so I did my, you know, my undergraduate, my my high school all in Austria, and then when you know I graduated from school, I also started university in Austria, which might be a bit surprising, being in a business role today. I first started business medical school, so I went two years to Vienna Medical School with the the idea to be a doctor. But to be honestly realised quite soon that this is not really what interests me, and then after you know a few years, I decided okay, it's what I want to do is moving in the field of business, and that's when I then changed from going to medical school to do a business degree.

Murtaza Jafferjee  02:35
So Bernie, most of us Sri Lankan viewers will be familiar with Austria from sound of music, but for for the Austrians it's no big deal, right?

Speaker 1  02:46
Absolutely not. It's actually you're very right, you know, Mozart. Most of us don't know sound of music. The first time I ever heard about this when I started, as you know, like a teenager or later travelled to the UK, to the US, and people said, "Ah, Bernie, Austrian, sound of music, and said, "Sound of what? So I never knew about it. We have other movies. It's it's it's a true story. It's based on a true story from a family that migrated from Salzburg in Austria to the U.S. But as the movie was done in English, it it only you know became known and popular. I would say maybe in the the late 80s, early 90s, that then people got a bit more aware. But no, sound and music is not something I grew up with. There were other movies we had.

Murtaza Jafferjee  03:24
So, from my understanding of your country, you had a great empire once upon a time, and then in the more modern era during the Cold War, you were still a slightly socialist country, right? What was the history, political history?

Speaker 1  03:42
No, you're absolutely right. So we were an empire. We had an emperor till World War One, and it was an the Austro-Hungarian Empire. So it was a very interesting state because Austria itself was always small, but there were many other parts of the empire. Today's Hungary, today's you know Czech Republic, Slovakia, but then also a large part of the Balkans, South Tyrol, so it reached quite. It was a multicultural country, which I would say most historians also say was at a certain stage no longer, you know, governable. Different languages, different interests, and then of course you know we had the dark period of of the last century with First World War One, and then you know the the tragedy of World War Two, and after that Austria was first under the control of the four allies, but we were and people today are surprised because we're in the centre of Europe. Austria was at the end of the world, and when I grew up, I never ever went to Hungary or to the Czech Republic. All that is only you know, Budapest is two hours away, but the roads ended in Vienna, so there were no good roads going east or north. We were all connected to the west, to Germany, to the south to Italy, but it was really a country at at the end of Western Europe and. Back then, we had what was called the Iron Curtain. So you had the border line between the Soviet Union, the Iron Bloc, and the West. And this was a bit before I was born, but there was a lot of you know tension, of course, between you know the Soviet Union and the Western world. And there was also a lot of people were quite scared that Austria, when Germany was divided; that Austria could end up in the same way.

Murtaza Jafferjee  05:23
So, but ideologically, economic ideologically, you were not a total capitalist country, right? It was a more socialist country. It

Speaker 1  05:31
was always a more, you know, socialist. We have, you know, a strong socialist Labour Party,

Murtaza Jafferjee  05:36
right?

Speaker 1  05:36
And a conservative party, as you know, you would have traditionally in most European countries. It was very much in the after World War II a country for decades, you know, that was run by two parties. You had the left and the right. Only in the last few decades you would see as many other parts of Europe where smaller parties come up. First, maybe it was the Green Movement, but then you also had more populist parties on the right side and on on the left side.

Murtaza Jafferjee  06:02
So post World War, you had leftist leaning governments, but ironically you had Advocata, which is a free market think tank, and you also produced Friedrich Hayek, von Mises. You also produced all these completely monetarist free market economies. How did that Austrian school of economics come about?

Speaker 1  06:25
Look, I think it goes a bit back even before that, before when the time for World War One, World War Two, when we were an empire and where you had you know these different cultures coming together was a melting pot. When you look at Vienna today, yes, of course you know it has always been German-speaking, but when you look at many of the names you find of family names in Vienna, they would have a strong influence from either Hungary or you know Slovak languages. So it was always a melting pot of a multi, you know, country empire, and I think that's when a lot of these you know economic theories where they go back to, and not only in economics. Also, when you look at in other areas, a lot of scientists came out of Austria. When you look, for example, Sigmund Freud goes back to to these times. And look, after World War II, we always had a strong you know union movement, but still, I think the country was always quite in the middle. Maybe we had for a longer time a you know a labourer socialist prime minister, but it was never going completely left. But also never going really, as you said, never going completely you know capitalist or being in that economically completely liberal.

Murtaza Jafferjee  07:36
So I believe that there was a large Jewish community also once upon a time, and there was intelligence here, but you know, switching slightly to something that you probably do now, it also punches way above its weight class in gastronomy. The the folklore goes that the Turks were invading Austria and they left behind coffee beans, and the coffee house culture came from that. Is that a true story? It's a true

Speaker 1  08:11
story. It is very true. You know, there was twice the Turks came to Vienna and actually they surrounded it, and they had the second one was a big defeat for the Turks, but yes, luckily they left behind not only coffee, but as you said, they left this coffee house culture. And it's it's not only when we go to you know to a coffee house, it's not only to have a cup of coffee. Actually, the quality is debatable, but it's you know an activity you do. You go to a place, and it's it's perfectly fine that you order one cup of coffee, and you sit there for hours. They have, you know, when people used to read printed newspapers, which I love to do still. You could, you know, get your free copy of a newspaper, and people would sit there for hours, read the news, debate, and they were fine if you only had one cup of coffee. So it was. It's really part of the the Austrian culture. Of course, it's changing now. You know, we also becoming, in that way, more, you know, business driven, but this is part of the the original culture. The story is true. The coffee goes back to the Turkish invasion.

Murtaza Jafferjee  09:07
So the other famous exporter of Sri Lanka is cinnamon, and you are famous for pastries and cakes, and I think many of them have cinnamon in them. Can you explain how that all happened?

Speaker 1  09:22
I cannot, to be honest, and it's a great question. And you know, I have to be very honest. And I love cinnamon, and you know, we had it with you know, as you said, in pastries or even when you had your porridge. You know, my mom would put cinnamon on it. And of course, I had no clue that it comes. You know, a large part of the world cinnamon comes from from Sri Lanka, which I think, by the way, is a huge opportunity for this country because Ceylon tea is world famous. If we could manage to to make cinnamon also, you know, synonymous with this comes from Sri Lanka or you know Ceylon cinnamon, that's a great opportunity because it's it's a wonderful drink and you know food and not. Also, as a drink, when we have the the Christmas market, you know, we love to drink mullet wine, and it's always full of cinnamon. So,

Murtaza Jafferjee  10:06
but where did this pastry and cakes culture come from?

Speaker 1  10:11
I think it's also that we wear this melting pot. So, when you look at many of the sweet dishes, and the sweet dishes play an extremely important part in our cuisine, they come from different parts of the original Austrian Hungarian Empire. So, and it was really then brought a lot of the families in Vienna. They had, you know, chefs or house helpers, to be more honest. It was not a highly educated chef coming with them, and they were start to prepare these sweet dishes, these pastries that are now part of our culture.

Murtaza Jafferjee  10:42
So even apple strudel is from Austria, right?

Speaker 1  10:46
I I would say yes. Maybe the South Germans would disagree, and they say it's from that. It's it's really in our dish that is part from this part of the world.

Murtaza Jafferjee  10:53
So it was this melting pot, and then you came from Austria, and where was your first job.

Speaker 1  11:01
So my first job before I left Austria, when I was a teenager, I did a lot of sports, and I always loved to compete. I did triathlon, which today is a quite you know quite well known sport. Back in the 1980s, I did my first triathlon in 1988 when I was

Murtaza Jafferjee  11:14
full triathlon,

Speaker 1  11:15
not an Ironman like what they call Olympic distance, but still long enough. You know, everybody thought you know I'm crazy, and I realised also. Look, I competed on a relatively high level, but I realised I'm not good enough to be a professional athlete. So then I started to work in sports marketing, and I worked with you know the the Austrian Triathlon Federation, then with the international ones. So that's something I did next to my my university, my business degree, and then when I moved to my MBA in Switzerland in the late 1990s. Then after that, actually, I joined Nestle. So I quite quickly, from you know my degree after working in a few years in sports marketing, after the MBA, I joined.

Murtaza Jafferjee  11:54
Were you at IMD or where were you in

Speaker 1  11:56
Switzerland? I went to university called European Business School.

Murtaza Jafferjee  11:58
Right.

Speaker 1  11:59
IMD. I went later on in my career. I did some executive programmes there. I think the

Murtaza Jafferjee  12:03
European Business School has a branch in Shanghai also.

Speaker 1  12:06
They have a branch. That's to my understanding a newer one and a smaller one. They also in Barcelona, then Munich, and then then Switzerland as well.

Murtaza Jafferjee  12:14
So you you go to business school, and then where do you get your first job afterwards?

Speaker 1  12:20
So after my MBA was with Nestle, I did an internship. It wasn't even an internship. We did a project through the MBA with Nestle, and that's how the the opportunity came up. And in all honesty, and I even told that to our former CEO, I thought, look, Nestle is a boring company. It was like Swiss food, you know, not really exciting. And I thought I like the idea of consulting, even banking, but you know when you come out of an MBA or so. So look, you are young, you don't have a lot of experience. What could I tell to a senior person? So then Nestle came up. Why don't you join our M and A department in in the waters business in in Paris? Well, that's great. You know I do this for two years, then I leave the boring company and I do something exciting.

Murtaza Jafferjee  13:00
Water business. Yes. Okay.

Speaker 1  13:02
We we have we it's now small. We used to have a very sizeable water business. We have some global brands like Perrier, some Pellegrino, but also in the the late 90s, early 2000s, we bought a lot of regional water businesses around the world. So it was a super exciting time for a young graduate, you know, joining a company, working on a on a growth strategy, travelling the world, you know, from Korea to Uruguay to the Middle East. So that that was a lot of fun. It was exciting, and well, I haven't left a boring company since. And nearly 25 years later, I'm still there, and it wasn't so boring.

Murtaza Jafferjee  13:35
So Nestle is a company that is probably well known to most Sri Lankan households, but tell us a little bit about Nestle, the company globally. How did it start, and what does it do now?

Speaker 1  13:50
So it's all started in Switzerland. It was founded by a German pharmacist who was originally born close to Frankfurt in Germany, but he moved to the Lake of Geneva in the western part of Switzerland, and in the mid 19th century, in 1866, he started his first business. And it was what's hard to believe today. Back then, Switzerland was an extremely poor country. It was a landlocked country in the centre of Europe, heavily relying on agriculture, and infant mortality was extremely high, and that's when the pharmacist, when Henry Nestle, he said, "Look, there's a problem because some mothers can't feed, can't breastfeed. So he developed this first product, which is called Farini Nestle, or it's like infant cereal, and that was the first product back in 1866, and that's how the company started. That's where we have the name from. Till today, our head office is in the same town. Nestle

Murtaza Jafferjee  14:44
means Nestle's his

Speaker 1  14:45
family name. The gentleman, the founder, was called Henry Nestle.

Murtaza Jafferjee  14:49
Okay,

Speaker 1  14:49
that was his name. A lot of people, you've seen our logo has a bird's nest. In German, nest means bird's nest. So Nestle would be like little. Nest, but that's his family name. That's that's how it started, and this is

Murtaza Jafferjee  15:04
still

Speaker 1  15:05
in Vevey at the the lake of Lake Geneva. So it's at the east part, the French part of Switzerland, at very close to the to the French border, relatively close to Geneva.

Murtaza Jafferjee  15:16
So that was the beginning. That was the beginning. Then what was the progression thereafter?

Speaker 1  15:22
So it started with this nutrition product, which is till today very important for us. And then very early on, in the even before 1900, Nestle merged with another company, the Anglo-Swiss Dairy Company. So it was a Swiss company that was founded by two American brothers, the Page Brothers, and they had a dairy business, and so that became the when the company got a bit bigger. And what's interesting, most of Nestle went internationally already at the end of the 19th century. So very early on, the company started to export products to other countries in Europe, but then also quite early went out to you know North America, but also to some of the Asian countries.

Murtaza Jafferjee  16:06
So Switzerland is very good with dairy. Was there some history behind this? Were they very good in cheese making?

Speaker 1  16:17
It was always as it was an agriculturally driven economy back then, and they always had high quality of milk due to you know great pastureland. They you know water was never an issue in winter. Okay, it can get quite cold, but that is actually a quite good climate for for dairy farming. You know, tropical climate is very bad, but cold temperature is fine. So that's I would say how the dairy Swiss how the Swiss dairy industry really, you know, started high-quality milk, and that's, you know, as you said, there is a big dairy industry, which is of course, you know, in cheese, but also milk chocolate was developed in Switzerland. That was also they

Murtaza Jafferjee  16:56
put milk into chocolate.

Speaker 1  16:58
Yes, it's so you mix basically cocoa, you know, mess with milk, and that's when you get the creamy chocolate. Right. Then, when you have the the what they call dark chocolate, right, where you have basically no milk or very a very much lower content of milk, but the creaminess in the chocolate that you know that melts in your mouth, this is when you have milk or milk chocolate.

Murtaza Jafferjee  17:18
So it was in Switzerland where they came up with this? Yes. And was this a business that Nestle acquired into, or

Speaker 1  17:27
we did? There's a company called Cahier. It was a Swiss gentleman, and he started. There were a few people who started to, you know, to make chocolate. But we acquired Cahier also back in the the early 20th century. So that's how we got into the to the chocolate business. And actually, it's an interesting point that you make because, of course, we have many brands today globally. We have 2000 brands, and it's a bit of a mix that there are some brands we developed inside the company at Nestle, for example, Nescafe, and there's many many other brands that people associate with us, or it might even not know it's part of Nestle that we acquired over the the last 150, 160 years.

Murtaza Jafferjee  18:05
Now you mentioned Nescafe again. I believe the stories during First World War or after First World War, the Americans asked you all to develop an instant coffee. Am I correct?

Speaker 1  18:16
It was back in 1938, if I'm correct now, where we developed Nescafe, but the interesting thing actually development goes back on a technology that we first used for drying milk. So milk powder was always it was always a problem to you know keep milk, and there's different ways what you can do. I mean, of course, you could chill it, which back then was a technical limitation. One way what many European countries used to do is, you know, you make cheese, but then you also have some byproducts. You have whey, or you can make butter where you use the milk fat. But of course, drying the milk to create milk powder is a good way because milk powder has a much longer, you know, shelf life than than liquid milk. And basically, the same technology that we use for drying milk is also used for Nescafe, where you have liquid coffee, and that is then with heat and pressure dried into soluble coffee. And that's Nescafe invented soluble coffee, and it was then getting a lot of popularity during World War II when the American soldiers, the GIs, they got their coffee through Nescafe.

Murtaza Jafferjee  19:20
So you said that you know Nestle internationalised very early in its in its history. So perhaps the narrative was Switzerland was too small a market, but in its very early days it also went out to the United States. It

Speaker 1  19:37
went out very early, and I think what is what you say is very true. Not only for Nestle, I think for many Swiss companies. When you look today for us, our home market, Switzerland, is less than less than 2% of our revenue. And when you come from a small country, you know you. I think you make you have to make a choice as a businessman as a company. Yes, either you know you want to be you know a big fish in a very small pond and you're happy with this, but your growth. Potential is going to be very limited, or you try to exploit opportunities outside, and that's what Nestle did. But that's what many of the other Swiss companies in the pharma industry, in the you know the water industries did, and I think they always though on one hand kept a bit of the Swissness. So when you look today, we are a global company, but still a lot of people, you know, associate us with being a Swiss company. But we are truly multinational, you know, operating in in many countries, in basically over 180 countries in the world.

Murtaza Jafferjee  20:31
So you mentioned about being a Swiss company. Is there something unique about Swiss companies? What do they do differently, or what is their philosophy?

Speaker 1  20:43
I think it's it's it's hard to say. Is there something unique? But one point we talked about is you know as you come from a small country, you if you want to grow need to go out. And what is different? I've observed that in other countries, when you look at companies coming from big home markets, you know, American companies or German companies or French companies. Very often, the percentage of revenue in the home market is extremely sizable, and that of course cascades through the organisation. If you look at the top management of American companies, very often it's a large number of Americans. Same for German companies. I remember when I lived in China with Nestle, and you know we had these CEO meetings. The German companies always had German CEOs. The French, French, the American Americans, the Swiss companies, Nestle, the pharma companies, ABB, the banks. They had a mix of you know Asians, Europeans. My boss back then was Pakistani. So I think there is this openness to to understand if you want to grow bigger and outside, you need to you know also embrace different cultures, but still I think what's important stay true to your purpose and stay true to your values.

Murtaza Jafferjee  21:55
You know, since my day job is also in the capital markets, internationally when I go to some of the conferences, CFA events, they always recommend Swiss some allocation to Swiss assets, and this is Switzerland. Swiss companies respect capital that they they basically you know are very shareholder friendly. Now Nestle is a purely shareholder. I mean, is it widespread the shareholding? Absolutely.

Speaker 1  22:25
So our largest, we don't have a you know an anchor shareholder, and we we never had the the Nestle family of our founder. They you know moved out. I mean, over 100 years ago. So today, the largest shareholder would be one of the big you know investment funds, institutional investors, but with a shareholding of less than 4%

Murtaza Jafferjee  22:45
Okay, so it's a widespread. Widespread

Speaker 1  22:47
majority of the capital now is held by shareholders of outside Switzerland. You know, for a long time it was Swiss, but of course the Swiss banks, the Swiss institutional investors were very big. But today we have a large shareholder base in the U.S. but it's actually quite widely spread, also into you know other parts of the world like Asia.

Murtaza Jafferjee  23:04
So Bernie, tell us a little bit about Nestle globally. How big are you? How many countries geographically? Your entire product portfolio?

Speaker 1  23:12
Sure. So we are, I would say, one of the most global multinationals. We are operating in 180 687, countries. So there's very few where we are not present. I mean North Korea and all that. But other than that, we are there. We have last year, 2024. The revenue was about 92 billion Swiss francs, which is like 92 billion USD. So it's very similar. And globally, we have over 270,000 SO. employees, 350 factories around the world producing the portfolio. It's a wide portfolio, very much focusing on food and beverage. So the biggest categories we operate in is beverages, coffee, and you know a big brand is Nescafe. But then we have other brands like Nespresso as well. Then dairy is a big part of the portfolio where we have milk powder, but also our infant nutrition business that has been the original, as I told you earlier, the the core of the company. Confectionary is big. KitKat is the the most global brand that you know is again available in many countries around the world. Maggi, a brand that you know in, for example, Sri Lanka, everybody associates with noodles, is also one of our brands in the food portfolio. But then also, what a lot of people might not know, we are in the pet care business. Actually, pet food is our second largest category, nearly 20 billion annual sales, where we sell under a brand called Nestle Perina Pet Care, and we are the the global leader in in the pet care industry. But very much focused on on food and beverage for humans and for animals.

Murtaza Jafferjee  24:51
So you said your revenues are about 90 billion Swiss francs, maybe a little bit in excess of 100 billion dollars. How would you slice it? Is the biggest business

Speaker 1  25:01
North America? So from a North America from a geography point of view, so that would account about 30%

Murtaza Jafferjee  25:08
30%

Speaker 1  25:08
Then we are all globally organised in three regions, as we call it: the Americas, going from Canada all the way down to Chile. Then we have Europe, and then we have Asia, Oceania, and Africa. The biggest geographic spread, but biggest is Americas. Single country is the U.S. and so the

Murtaza Jafferjee  25:24
Americas is what percentage? The

Speaker 1  25:26
Americas is close to 40%

Murtaza Jafferjee  25:28
Then

Speaker 1  25:28
the second largest is Asia, Australia, Africa, and then Europe is is the third largest. And from a country perspective, number one is the U.S. followed by China being number two, and then Brazil number three.

Murtaza Jafferjee  25:42
So if you look at in terms of product portfolio, which is the largest revenue product?

Speaker 1  25:49
So coffee is our coffee with the different brands. I said Nescafe, Nespresso, our premium coffee capsule system is also about a 6 billion business. So coffee is the number one. So coffee

Murtaza Jafferjee  26:00
is about what?

Speaker 1  26:01
It's about 25% of the of the portfolio, and pet care is just about 20%

Murtaza Jafferjee  26:10
Right, and the confectionary business is

Speaker 1  26:13
smaller. It's confectionery is one of these businesses. We are not operating in in every country, so it's limited to a few, and there the biggest brand is KitKat, so this is less than 10% our confection business.

Murtaza Jafferjee  26:24
And then you also have an ice cream business.

Speaker 1  26:26
We have an ice cream business. Ice cream is something again that is only operated in a number of of countries. So, for example, in Asia, we operate ice cream in Malaysia and in Thailand. We have some markets in South America, but then also we used to be operating in North America and Europe, and this business we entered into a joint venture with a private equity company that now operates under the name of Fronery, where we are a minority shareholder. But that's actually a quite sizable ice cream business.

Murtaza Jafferjee  26:55
So, what about Movenbik?

Speaker 1  26:57
Movenpick is part of Movenpeak ice cream is part of the the joint venture with with the private equity company Andari, and there we have the the brand for ice cream. Moven Pig is a Swiss another Swiss brand. They operate in coffee in restaurants, but we are so to say only operating in the ice cream.

Murtaza Jafferjee  27:14
So there there is a hotel brand also.

Speaker 1  27:16
There's a hotel brand also

Murtaza Jafferjee  27:17
originally were they all one company or

Speaker 1  27:20
they were originally long, long time ago one company, and that was controlled by holding. And then we acquired the ice cream, the ice cream brand from from that company.

Murtaza Jafferjee  27:28
So we were also chatting before we started this that you all have a minority stake in Laura, the I mean the personal care and cosmetics, right?

Speaker 1  27:41
That's a financial investment. Nestle acquired this in back, I think, going back to the late 70s, early 80s. Okay. And today we have a financial stake in L'Oréal of around 20% of the company, which is a very successful company and very successful investment, I would say. So, can you talk a little bit about what Nestle does in innovation and what you all have done in the last decade? Sure. So, we have you know a very sizable innovation R and D team. One, we have a core innovation centre called Nestle Research Centre in Switzerland, in Lausanne, where we work, we know with a number of also external researchers, even some of the Nobel laureates, where we do some, I would say, really basic and fundamental research on less maybe product related activities, but more how can you you know revel in the sugar molecules and all of this. This is very scientific, and then the next layer, so to say, is we have a category of product technology centres, research centres. So we have one for coffee, we have some for confectionery, for dairy, and this is where we then work more on making a transformation from you know more you know base research into a product, and then of course around the world I told you we have over 300 factories. In all of these factories, we have application groups where we really then work with the local markets to take a idea to a ready to launch product in this market. Our total spend annually is about just under 2 billion Swiss francs, under $2 billion for for R and D, which is a sizeable amount. And I think that has been one of the reasons why we have been, you know, a successful company for 160 years, and why we manage to also in areas that become very you know competitive and where you see new entrants, where we can still stay ahead of the curve, and we don't become a commodity.

Murtaza Jafferjee  29:45
So you don't have a portfolio of local brands.

Speaker 1  29:49
We do have local brands in in countries. So we, I would say, we have. Let me maybe say on our portfolio. I would say we have three types of products of brands. We have some. Global brands, which are actually quite limited, but a global brand would be Nespresso. It's the same product around the world. This is produced. Nespresso is produced in two factories in Switzerland, and if you buy a Nespresso in Switzerland or in New York or in Sydney or in Delhi, it's coming out of the same factory. It's the same product. It's the same way how we connect with consumers, how we reach consumers. So these are the global brands. Other example would be Perrier or some Pellegrino, where we know we produce the water at one source and then it is globally distributed, globally sold. Then we have some global brands. But even when you have a global brand like KitKat, it still varies a bit from country to country. So KitKat originally, you know, comes out of the the UK, but today, for example, our biggest KitKat market in the world is is Brazil. But we have a big KitKat business in Australia, in Japan, in India, and then the taste profile is you know adjusted a little bit to local you know preferences. Some people, when you look at chocolate, they prefer it more milky, more creamy. Other markets like a bit more of a darker, less sweet chocolate. So all that's a global brand. Then you have variations of the product locally, and you know this product is also produced in different factories. In India, we have you know now two factories where we make it. We have a huge one in in Australia, but there's different factories around the the world for KitKat. Same would be true for Nescafe. Yes, it's a global brand, but again, the way how people, local consumers consume, it's different because food is local. Food is not global, and therefore, you know, some like it more sweet, some like their coffee more bitter, and that's why although we have global brands, it is a bit you know, adjusted. Maggi would be the same example. You know, I told you we have Maggi noodles here. Our Maggi noodles in Sri Lanka are very different to the Maggi noodles in India, and the ones in Europe are completely different. The best ones are from Sri Lanka, but that's another story. So these are our, I would say, you know, the global brands, and then also we have some local brands, brands that only exist in one country. For example, we have you know some confectionary brands in in Latin America that you know is really Garoto Brazil is a huge brand there, but it only exists in one market. Or in China, we have you know a brand called Shufuji. It's also in confectionery and snacking that only exists there. We have a food brand there also. So this also exists in some markets where we acquired companies or we entered, you know, partnerships, and then we really develop this brand within a market and don't necessarily take it out.

Murtaza Jafferjee  32:32
So if you take some of your iconic brands, now take the confectionery industry is your centre for confectionery in the UK or is it

Speaker 1  32:47
in the UK? Yes, our research centre is in York, in the centre of the UK. That's where a company called Roundtrees used to be, and we acquired that again back in the 1980's, And we kept our global research centre for confectionary there, and then you know we work on product development, but also for example this week we made an announcement that our research team has worked on ways to make a cocoa plant more resistant to increase and to use not only the centre of the cocoa bean, but actually larger part of the bean which will increase farmers, allow farmers to increase the yield, which will make the product, you know, more well, make it more available, and also more sustainable going forward.

Murtaza Jafferjee  33:31
You know, it's interesting. You probably have read strategy books. You know, the famous strategy professor Michael Porter, and he wrote a book called Competitive Advantage of Nations, and he talked about cluster. And one of the things he talked about is a confectionary cluster that sits in UK. Cadbury's is not very far from York because it is in Birmingham. Exactly, it's in Coventry, and because you have very sophisticated consumers, etc. It's amazing that the chocolate and the robot and very sophisticated consumers. So let's look at that cluster argument and look at Maggi, a product that most Sri Lankan households would know. But Maggi didn't come from Europe, right?

Speaker 1  34:17
Maggi originally comes from Europe. It's a company we also acquired. There was a Swiss gentleman, Julius Maggi. So that's how you pronounce it. So the German part of Switzerland, and he became famous with something that exists still in when I was a kid in every restaurant in Austria, Germany, in Switzerland. Not a restaurant, a pub. You would have a Maggi bottle on the table, and that was a liquid seasoning to season, you know, your soup, your dishes, and it was a fermented yeast product that you know it's it's a quite dark brown sauce. Tastes when you would taste it like that, you know, horrible, but it gives a very nice you know aroma to the product, and that's how Maggie started. But then you know he. Went out to make soup cubes, and when Nestle bought it, we started to try to take these products to other parts of the world. But also, you realise quite quickly, as I said, you know, food preferences are very different. And when you give an you know a consumer a different part of the world this fermented yeast, maybe liquid seasoning, they didn't like it. So then they use the brand for different things. Soup cubes works a bit better, but then somebody, for example, started to use the brand for other food products, noodles. That's something we've done here for a long time. Or talking about Sri Lanka, one product that we have under the under the Maggi brand, and by the way, we only have this product in one country in the world, is coconut milk powder that's made here, and we also use the Maggi brand.

Murtaza Jafferjee  35:42
So, coming back to Maggi noodles, did it start in India, or where did it?

Speaker 1  35:49
It's a great question. I don't know if it started in India. India is definitely our biggest market globally. It's we have it in other countries, Malaysia, Australia, and in in in here as well, but I don't know if it started in India. But India was the one that really made it into a huge success with the you know the the magic. So even in

Murtaza Jafferjee  36:09
in India, is that the biggest?

Speaker 1  36:12
That would be the the one of our biggest products in India.

Murtaza Jafferjee  36:15
So the value proposition of Maggi is that at a relatively cost-effective price, you get a wholesome meal. You get a

Speaker 1  36:23
wholesome meal. You get in India. It's a snack. You know, you get this two-minute move. It's easy. It's very convenient to make. It offers a you know an exciting taste. But I think you know what really played a huge role in the success of making noodles in India was the convenience because that's why now it's two minutes noodles. You need you know in the end hot water. You boil it. You add your, you know, your magic masala to it, and you have a super nice tasting dish.

Murtaza Jafferjee  36:47
So, Barry, let's talk a little bit more about Nestle in Sri Lanka. Can you tell us the historical evolution and what you do now currently? Sure.

Speaker 1  36:56
So, it's also one of the countries where we have been for a long time. We came here over 118 years ago, so been in in the country for a long time. First as an import business, and we started bringing in the classical products, milk powder, and all this. And then in the 1980s, we started with our first local manufacturing. First local manufacturing was actually up close to Polonaru in 1984. We opened the factory we still operate today in Panala. Also, first as a dairy factory where we got liquid milk, which is still a very important part. Also, how we work with local communities to make milk powder, and then over time we started to add more and more categories to that. And today, the Panala factory is maybe not the biggest that Nestle has in the world, but it's one of the few where we produce products in various different categories. And today we produce products in six different categories out of one factory, and that's also great because over 95% of what we sell locally here in Sri Lanka we make in our own factory. So,

Murtaza Jafferjee  38:00
what are what is your product portfolio in Sri Lanka?

Speaker 1  38:03
So we have it's also an interesting portfolio, which goes a bit back to your question earlier. We have some of our global brands, but we also have some local brands that only exist here. The biggest brand we have in Sri Lanka is Nestor Mould. It's a brand that many Sri Lankans know that you know is very you know much part of their life. One in four wakes up to a cup of Nestor Mould in the morning. You know, power strength energy. That's what a lot of people know about Nestor Mould. It's a nicely tasting malt flavoured drink. A lot of people drink with tea, but that's our biggest brand we have in the country. Then, in the same which we still call dairy beverage category, we have Milo, which is a malt chocolate drink, that is maybe be targeting younger consumers. Either we have it as a ready to drink in a in a beverage carton, or also as a powder that you know you can drink at home, mix it with milk or hot cold. So this would be our our you know I would say the biggest part of the portfolio. Then of course we have our Maggie range noodles we did talk about, but also coconut milk powder is a very important part of that portfolio. As I said, it's unique because this product is made here in Sri Lanka and it's exported to over 60 countries now, and it was developed here. And actually, it's a it's an interesting story, Montesa, because it was started by a crazy idea of a factory manager. We had, I think it was a Swiss or French factory manager going back to the 1980s, and we made I told you milk powder, and then he of course you know when you're in Sri Lanka, I mean coconut milk is a part of people's daily life and you know daily cuisine, and he said, well when I can dry you a cow milk, why can't I dry coconut milk? So he took this coconut milk to the dryer, and apparently the first tests were a disaster because it's very different when you look milk. Cow milk has about three and a half percent fat. Coconut milk is you know 65, 70% So what came out was clots of fat and something. But over you know some time they mastered it. And that's how coconut milk powder was invented, and today it's an important part of our local portfolio, but also, as I said, proudly exported. And we every year, you know, the the coconut sector is a big sector, and we are big exporter of of coconut milk powder.

Murtaza Jafferjee  40:15
You don't produce it in any other country.

Speaker 1  40:16
Not in any other country. Only here, and it is

Murtaza Jafferjee  40:20
sold globally.

Speaker 1  40:21
It's sold not globally, but as I said, 60 countries. Our biggest export market now is India, followed by the Middle East. But then also, you know, when we go to to Far East, to Asia, Malaysia, even you know, Korea, Japan, but then also, you know, Europe. We do have a good presence, Australia, and even the Caribbean. And and you know,

Murtaza Jafferjee  40:41
these are mainly sold as an ethnic food, right?

Speaker 1  40:44
They are sold as an ethnic food, but in our countries where people have where coconut is part of daily cuisine,

Murtaza Jafferjee  40:52
right?

Speaker 1  40:52
It's less, you know, for a Westerner, you know, we associate coconut with a sweet dish or with a drink, but of course the main consumption of coconuts and curries, you know, making your milk rice, coconut milk rice, and that's where you see our biggest, our biggest. So

Murtaza Jafferjee  41:08
in the product portfolio that you spoke about, you didn't mention Nespray.

Speaker 1  41:13
Nespray, we still have. Right. It is our milk, our milk product, milk powder, but it's a very small part of our portfolio now. It used to be quite sizeable, but we have reduced our you know the presence of that. To be quite frank, classic milk powder is you know quite commoditized product, and we believe that there's you know better use of our technology, better use of our capital, if we you know, add value to a product and make it, you know, valorize it up the value chain, so that's why we still use a lot of milk. We work in Sri Lanka with about 10,000 dairy farmers directly, indirectly, where we collect milk through our chilling centres, and acquire the milk, and then use a lot of that for Milo. Another brand I didn't talk about is Milkmaid, sweetened condensed milk that is used a lot in home, but also our out of home business, which is quite important, uses a lot of this you know sweetened condensed milk for either making you know sweets like toffees, or also the milk tea, where you get this very very unique taste of mixing milkmaid with you know with so

Murtaza Jafferjee  42:21
what proportion of your total portfolio is manufactured here?

Speaker 1  42:26
93, 94%

Murtaza Jafferjee  42:29
So even Nescafe is manufactured. Nescafe.

Speaker 1  42:31
We have two categories basically we import Nescafe, but it's a very small part of our business. Right. And also infant formula we import. Main reason is that those businesses, you know, require very sizeable factories, and the volume would simply not be here. But both of them, we or coffee, we import bulk, and then we repack into local, you know, formats and local packaging.

Murtaza Jafferjee  42:52
So just to give a sense of how your business is split, what what is the largest category?

Speaker 1  43:00
So dairy beverages is the largest, which is about you know 45% This is Nesto Mould, Milo, Milk Mate that comes into that segment. The second largest then we would say is is the food or the culinary range Maggi, which is our noodles, our coconut milk powder, and also then Maggi seasoning and cubes. Then we have a very small, relatively small Nestor nutrition business that you know is for infants with brands like Nan and Lactogen and Cerigro, but that's less than 10% of our business. And we have a sizeable out-of-home business we call Nestor Professional, where we don't sell to end consumers, but we sell to the horika industry. We sell to cafes, and there the big brands is Milkmaid I talked about, but then also Maggie has a professional range where we have you know seasoning solutions, and also Nescafe. You see it on the streets when you drive around the country. You see this big red mug, and that's a place where you can buy on the go a cup of Nescafe. So

Murtaza Jafferjee  44:00
some years ago, you used to be a listed company in Sri Lanka, and then you decided to delist. What was the thinking?

Speaker 1  44:09
Look, the the honest answer is we were you know always majority owned by our parent company. So Nestle before the delisting had a share of over 92% and in all honesty, from the listing in the 1980s till the delisting two years ago in 2023, we never leveraged the capital market. We never raised capital. We never, in in in that way, you know, were an active member of the the Colombo Stock Exchange. So from that regard, it came to the point where said, look, there is other ways how we can ensure we have the right commitment to the country, but being listed added a lot of bureaucracy, a lot of you know layers and hurdles. So that's why we why we delisted two years ago. But as you know, we continued to invest in the country during the crisis. So from that, nothing has changed. But. Globally, we only have five countries where Nestle is listed, and most of them it is because it's a legal requirement.

Murtaza Jafferjee  45:07
Okay. So, Marie, what is your plans for the business going forward? What are you going to focus on?

Speaker 1  45:15
Well, for us, I would say our local business or our business here has two pillars. Of course, the most important one is the local business being in Sri Lanka for Sri Lanka, and that's why we've been here 119 years. Some of the brands are, you know, loved by local consumers. When we get our annual, you know, the the equity trust, we always rank as the number one food and beverage company, and that's something we are proud of. And that's only possible because you offer high quality food for a long time. You know, trust you don't gain overnight. This happens for a long time. So the local business is is the key part. Why we are here to make the best possible products for the consumers, and that's as I said, we produce the majority here. That's where we work. How can we continuously, you know, innovate our portfolio that it's relevant for the local market, of course, the last few years were not easy. When we went through the economic crisis, we saw you know disposable income collapsing. That had an impact on on the entire you know consumer goods industry. I think now we are in the you know positive way up. You once said it nicely. The economy has stabilised; it has not yet recovered. But I think we are moving in the right way. But so for us, one pillar is being in the market for the local consumer. Then, of course, we also use Sri Lanka as an export market for coconut milk powder, and that's something where we see a huge demand globally, and we would like to really drive this business as well. We kept, you know, investing. We now have two drying towers there, and that's that's something where we see global potential because the quality of Sri Lankan coconut is extremely high, and when you and a lot of that is used by chefs. And when you talk to them, they love the quality. It gives a very consistent, you know, outcome for them. Key part of that is making sure that we get the right supply, because even when we increase our production capacity, we need to ensure that we get the right quantity, the right quality of coconut milk, to make sure that we can fulfil this. But so I think these are the two different parts that we we manage here, and we are, you know, as I said, we continuously invest in the business, and I think we all are positive. We all see, you know, the country moving in the right direction, but clearly it's very fragile, and that's something we also need to be aware of.

Murtaza Jafferjee  47:40
Now we have seen the price of coconuts almost double. There has been a significant increase. Do you have a sense of how big your coconut milk business is? I mean, what percentage of Sri Lanka's total production do you think I tell you exactly? It's less

Speaker 1  47:58
than weight and less than 10% what we buy, we buy that

Murtaza Jafferjee  48:02
sizeable amount, 10% less, less than.

Speaker 1  48:04
But we buy a kind of we work with about 8000 coconut farmers, and last year we procured coconut worth just under 7 billion rupees. This year, I would assume the number in rupees will go up because, as you mentioned, the nut prices went up

Murtaza Jafferjee  48:19
7 billion last year.

Speaker 1  48:21
Last year,

Murtaza Jafferjee  48:21
yeah. So we we it used to be about the wholesale price was about 100 last year and 3 billion nuts. So the the market size about 300 billion, and if you are buying 7 billion, that's about two 2% a little bit about 2% right?

Speaker 1  48:37
And as as you said, you know the the the market of course the the production volume in Sri Lanka was under pressure. Globally, we saw the same. The two big producing markets are Indonesia and the Philippines, that both produce over 13 billion nuts, and everybody dropped. Climate conditions, there were other you know issues. So the whole global coconut output dropped by about 3 billion, which is the size of Sri Lanka, and that's why you know we saw this huge, you know, surge in cocaine.


Transcribed by https://otter.ai