Nestle gambles on two new plants in China

The world’s largest food company said it will open two factories in China next month in order to gain a market edge, despite the economic indicators of a slowing economy.

The Swiss food manufacturer told Bloomberg it plans to open a coffee plant in the eastern province of Shandong and a food factory in partnership with Yinlu Foods Group.

The new plant could double the company’s coffee production in China.

China has shown contraction in manufacturing as export demand has slightly eased, but Nestle anticipates a boost in coffee product demand from the world’s most populous nation.  

“We are quite confident in the market,” Roland Decorvet, the company’s China chairman told Bloomberg.

“People still need to eat. The government clearly wants to focus on the growth of the domestic economy. The wages keep increasing; the urbanization keeps increasing as well,” said Decorvet.

Betting on Asia

Nestle recorded $100.5 billion in sales in 2012, and experienced an overall 5.9 percent in organic company growth, much of which is attributed to sales in emerging markets. 

The company saw the weakest growth in China, with just 1.8 percent compared to the media 5.9 percent overall.

But sales in the Asian market have contracted in the first quarter of 2013, and in April the company reported its slowest first quarter revenue growth since 2009.

China has slightly missed government GDP targets, as first quarter growth was 7.7 percent, and not its targeted 8 percent. The decline in growth hasn’t derailed business, but experts foresee a slower unraveling.

Large developing economies, such as China and Russia more or less drove global growth in recent years as Europe struggled with recession, but experts believe the recession may sooner or later catch up with them.

In 2012, Nestle ha a 72 percent market share in the coffee industry in China and plan to spend $16 million on a coffee center in the southwestern Yunnan province. The company also plans to open a fourth plant in conjunction with Yinlu Food Group.

Fixed chocolate

Nestle allegedly played a role in a chocolate fix pricing scandal, and is under investigation by the
Competition Bureau of Canada for conspiring, agreeing, and arranging to fix prices of chocolate products in Canada from 2002. Mars Inc, Hershey Canada Inc., and ITWAL Limited are also under investigation.

The companies face a possible fine of up to $10 million and a possible jail time for executives. The former president of Nestle Canada, Robert Leonida was charged, along with Sanda Martinez, former president of confectionery for Nestle Canada, and David Glenn Stevens, president and CEO of ITWAL.

Nestle has over 330,000 employees worldwide in 83 different countries and 461 factories.