PETALING JAYA: The following are excerpts from the New Straits Times’ exclusive interview with Nestlé Malaysia managing director Alois Hofbauer.
Question: Thanks for having us. Maybe we could start off with you explaining more about innovation, Nestlé’s financials and outlook.
Answer: I think if we start off with the innovation part — and this is said with a lot of confidence and pride — Nestlé Malaysia, especially last year, has really been an innovation machine. Going back to three years ago, around RM100 million to RM140 million of our sales came from our innovations. Last year alone, we generated RM400 million from our innovations. That is very much in line with our commitment to the country.
Over the last seven years, we have invested RM1.5 billion in Malaysia. At the World Economic Forum, I was honoured to be seated with (International Trade and Industry Minister) Datuk Seri Mustapa Mohamed, and I said: “You are always attracting so many foreign investments and they come in with RM200 million to RM300 million, but all the companies that are already in Malaysia, like Nestlé, we are really going out and reinvesting.”
We have eight factories in Malaysia today and we employ (almost) 6,000 people. As you can see in our 2015 annual report, it was not an easy year overall. From a consumer sentiment perspective, our challenge is that we have to (produce and) sell on a daily basis. That is the challenge and the beauty. When it comes to Milo, we sell more than seven million cups a day (in Malaysia). We have to do a good job to build and keep consumer trust.
Over the last few years, we invested heavily in Malaysia for two reasons. One is because Malaysia has a beautiful central location in the heart of Asean. And, over the years, we have built a very powerful company here; we have a great workforce.
One of the things that not many people know is that in our factories, (almost) 100 per cent of our workers are Malaysian. It is a very different model compared with other manufacturing companies here, where you have a lot of foreign labour.
On the fringes, we have foreigners who do the cleaning, but in the factories, the 6,000 workers are all Malaysians. And that is a beautiful thing because some of these people have been with us already into the second generation. These people really know what they are doing. To produce products of top quality, you can only do it with a very diligent workforce.
If you look through our financials, we have performed very strongly. Overall growth in Malaysia was flat (last year), including export growth, but we still delivered a positive growth, and we really strengthened in delivering our operation results.
We had a very good first quarter (this year). We have released the results and we have good growth acceleration, a solid three per cent growth. This is in a market that, they say, was not growing. But our profitability went up nicely, almost 17 to 18 per cent, and export again has been up by 12 per cent, so a very strong start.
Now, the second question would be what is the outlook. I think it remains to be a challenging year, but we have prepared ourselves. We did not start (preparing) only recently. We prepared ourselves many years ago. We have been working very strongly on two areas. We focus on productivity, basically cost-efficiency, that’s one pillar. We work with our factories (technologically-advanced new factories), end-of-the-line manufacturing, etc. And the second area is a very massive innovation drive, as innovation is a key driver of our strategy.
Question: Why is innovation so important to Nestlé?
Answer: Consumers are changing. In 2015, we saw that, overall, (in) big outlets and hypermarkets, sales were rather flat or even decreasing. At the same time, convenience store growth was in the double-digits. People are eating a lot more outside than at home, which is quite an interesting development.
(There are) two areas we have to (discuss) when we talk about this trend. One area is about going into on-the-go consumption. People are more pressured for time, they don’t have time for breakfast and they want a convenient solution, so we invest a lot into that focus. We built our Sri Muda factory, which produces ready-to-drink products.
The second area is about good-for-me products, products that not only taste good, but also have a lot of benefits. For example, reducing cholesterol.
We have also been keeping our prices stable. All the benefits brought in through productivity, etc, we put back into making sure that over the last two years, we have not increased prices. And there are no big plans to raise prices. When economic times are tough, I think that is a contribution from our side to make sure that people get great quality products from us at the most affordable prices.
And the last one is, in many areas, people want to indulge. They want to upgrade. We have our Maggi Curry, which is still a big staple in the Malaysian kitchen, but then, we come in with new offerings, like Maggi Royale Penang (Seafood Curry) and Johor (Seafood Laksa). Once in a while, people want to treat themselves. Another example is the Kit Kat Rubies.
If you don’t innovate and if you don’t change for the consumer, sooner or later, you become extinct, and that is why it is very important. You can see that not only in new products, but in e-commerce, which is also becoming more important for us. Today, it is still small, but it is growing at a very fast pace.
Question: What is the current growth rate (of e-commerce)?
Answer: At the moment, it is small. But the growth rates in the industry are very big and the trends are clear. E-commerce is becoming a big part and will become a big part of our business as we go.
Question: Will it cause a lot of challenges in the way you deliver your products?
Answer: It will challenge the way we approach and deal with our consumers. Today, consumers are used to buying all our products in-store. In the future, (for) a lot of these products, people will order them online and the products will be delivered. Today, in China, around five to 10 per cent (of products) are sold via e-commerce, even in food and grocery stores.
Question: Does that mean Nestlé is becoming a retailer as well?
Answer: No, we are not doing this ourselves. We are working with Lazada, 11street, the e-retailers. We provide our products to them. However, we also have our own e-commerce hubs. For example, if you buy a Nestlé Nescafe Dolce Gusto or Nespresso, that goes directly through our own (people). But that is just a small part of it.
Question: In terms of new and innovative products, are there more in the pipeline, at least for this year?
Answer: We started off the year strong. There’s quite a number coming. I cannot reveal what is coming. Otherwise, some competitors will read about it. It’s going to be a very strong pipeline, and after Hari Raya, you will see (them). I would say a big number of exciting products (are in the pipeline), very nice ones. You will be the first one to know.
Question: Your products range between premium and mass; what is the ratio like?
Answer: Over 80 per cent are mainstream and 20 per cent comes from what I would call “mainstream premium”, but you may have also heard about it. We just introduced it. It is really a super premium. We just opened up the first Nespresso business in Malaysia. That is super premium, but what we are selling here is mainstream premium. It is still affordable.
Question: Let’s go back to the idea of innovation. How are you managing the Gen Y market? There must be certain products that you want to cater to Gen Y?
Answer: When you are talking about Generation X and Y, a lot of our employees today, specifically in the head office here, are of Generation X and Y. It is very different from my generation. I call my generation Generation D for “dinosaurs”.
Clearly, they’re (Gen X and Y) a little bit different. When it comes to products, it is one thing, but the big change we see with this generation is the way we have to communicate with them. Think about it — 17 million Malaysians are on Facebook. The biggest television channel today happens to be YouTube. So, how do you reach out to them?
When we communicate with the younger generation, we have to use more digital media. They hardly watch TV, this is clear. They spend hours a day on Facebook or WhatsApp. We have to approach them in a different way. Also, to me, the message to them has to be different. It has to be more about storytelling, engagement and the like.
The biggest change I have seen in the last few years, in terms of traditional advertising approaches, is that these are starting to not have the usual impact anymore. You need to communicate by building social conversation in your business, even more so now.
Question: Perhaps you want to touch a little bit on halal products. How do you see Malaysia’s position as a halal hub and how is Nestlé leveraging on that to cater to the global market, especially in the Middle East?
Answer: I think we are honoured and very privileged to have been, from the very beginning, a part of Malaysia’s development in halal (products). Today, the Malaysian Halal certification is a quality seal. You can ship products from Malaysia with halal certificates around the world and Muslims around the world will be assured. I have to say a big thank you to the authorities and the government here. I think they have been quite farsighted.
It has helped us, and that is the reason Nestlé Malaysia is the halal hub in the Nestlé world till today. There are bigger countries out there (in the halal industry), but we are at the centre of expertise. And we are not only working on our own products, we are also working very closely with the authorities to establish a lot of SMEs (small- and medium-sized enterprises) and get them halal-certified.
You asked why do we not have more raw materials from Malaysia? Well, I wish to have more, but we have to work with the government and authorities to establish the suppliers.
I believe this is going to be a big trend in the future. As you go around the world, localisation becomes bigger and bigger. People don’t want to have products from this part of the world shipped to other parts of the world. They trust their own communities, and I think that is a huge opportunity and we are working here with Jakim (Malaysian Islamic Development Department) and the authorities
to help SMEs become our suppliers.
Question: As Malaysia is a regional hub for you, what are your observations on the logistics?
Answer: I think the logistics are good, as well as the infrastructure. What we need to do (is) ready ourselves for the years to come. I want Nestlé Malaysia to be the most competitive company in Asean. But, it’s not as easy anymore because you have (other) countries coming up. Vietnam is coming up very fast (and) Indonesia is investing.
So, let’s make sure that our advantage is not shrinking and we keep ahead of the curve. Malaysia has always been ahead of the curve. And you bring people over. Recently, we had our global procurement team here. We will establish one of our global procurement hubs here in Malaysia. This is a big one. We have been all over Asean. Originally, we were not the first to be listed, but we were able to convince them that Malaysia has the infrastructure and talent.
Today, it is not only about infrastructure. It is also about the software and talent. What will be very conclusive is English education and digital education because that is where the service industry is going in the future.
It is a very important criteria to bring in these global hubs into Malaysia, and we are a forerunner. We are also very grateful to MIDA (Malaysian Investment Development Authority) and MITI (International Trade and Industry Ministry) for working with us. They have really made it possible to bring this global procurement hub to Malaysia and not anywhere else.
Question: When you say procurement hub, what do you mean by that?
Answer: In the future, Nestlé is going to have three global procurement centres in the world. One is, naturally, in Switzerland. One is going to be in Latin America, in Panama, and one is going to be in Malaysia. (The global procurement hubs) will not only source for the region, but also for the whole world.
Question: For Malaysia’s hub, will you also be buying for Nestlé Japan, Nestlé Thailand, etc?
Answer: Yes, (but) not everything, it depends. There will be specific areas that Malaysia will be responsible for. But, we will also have global buying. This is a big testament of the confidence that Nestlé globally has in Malaysia, not only in Nestlé Malaysia, but also Malaysia as a destination. And you can imagine, the competition is intense because everybody wants to go into service and everybody wants to be involved in this.
Question: Especially with the neighbours down south?
Answer: Yes, but I think Malaysia has a lot of competition. It’s clear that we also have a lot of advantages.
Question: So this centre will not be part of Nestlé Malaysia?
Answer: No (it won’t), it is an independent entity.
Question: Where will the centre be located?
Answer: It will be based in Kuala Lumpur. I will give you more news (soon) because we are signing off some final things. MITI and MIDA still need to do some work, but I talked to Mustapa. He is very supportive and the government is also very supportive. I think we are almost there. Once it is official, I will also send you there, but we are closing in. Crossing fingers for Malaysia. I hope we will be able to make the last 100m. So that is in the planning, in the final stages.