Nestlé: The big challenge of 2008, profitability

Paul Nuber, general manager of Nestlé Romania, expects the food market to end this year on an upward trend. The company still counts on growth budgeted at the start of the year, of 25% in 2008.

“From what we’ve seen on the market we operate on, I believe Romania has so far weathered the financial crisis better than Hungary and Ukraine. Looking at weekend client flow in a supermarket, it’s clear consumers are not rushing to cut their current expenses though they are well aware of the worsening market conditions,” considers the manager of Nestlé Romania, one of the biggest food industry companies. In the new economic context, companies are likely to rethink their market approach strategy, betting instead on cheaper products, as retailers anticipate. Nuber also states the supply on the market will have to adjust to the new trends. The Swiss company’s domestic turnover could reach almost 200m euros this year, after having increased by around 30% last year, to 150m euros. In the first nine months of this year, the company registered a higher-than-expected sales increase from the same period of 2007, according to company data. “I’m sticking to early 2008 forecasts. From the point of view of sales growth, 2008 will be a good year,” states Nuber. “The big challenge of this year is the company’s profitability, as the RON decline against the euro has gained momentum this year. Our having passed on to prices only half of this year’s cost increases will also have an impact over profitability,” he added. Last year, Nestlé doubled its net income rate, to 5% from 2% in 2006, according to Finance Ministry data. In early 2008, Nuber expected the company’s profitability rate to go up this year. The biggest product classes in the portfolio of Nestlé’s domestic unit are now instant drinks, sweets, ice cream, baby food and food seasonings, in terms of their weight in overall sales. Based on the same criterion, the company’s most important market is Bucharest, which brings around 20% in sales, according to Nuber’s estimates. Nuber specifies that every three months Nestlé tests out its products through market surveys conducted by specialised companies, so as to have a picture about the products’ positions in consumers’ preferences compared to the products of direct rivals.