Nestle's Russian Sales Lead Global Growth

Nestle, the world's largest food company, said Friday that its 2000 sales in Russia grew faster than in any other country it operates in and helped it post its best year in over a decade.

The Swiss-based giant's global net profit jumped 22 percent last year to $3.41 billion on total sales of $48 billion, the company said. Sales in Russia soared 40 percent — more than twice the average for other Eastern European countries.

Nestle declined to give total sales volumes for Russia.

"Our growth was partially due to last year's improvements in the Russian economy, and particularly to the recovery of the consumer goods market," Hans Gueldenberg, Nestle's managing director for Russia, said in an e-mail interview Monday.

Jennifer Gallenkamp, the company's director on external corporate affairs, said the secret to Nestle's popularity lies in its strategy of local production and development of Russian brands.

"We invest in researching traditional Russian tastes in ice cream, such as 48 Kopeks, and in chocolates," she said.

The strategy of emphasizing local tastes is reflected in Nestle's marketing campaigns, which liberally use Russian historical figures and homegrown images.

Vladislav Metnyov, foods and consumer goods analyst at the Aton brokerage, said Nestle's combination of high-quality products and savvy marketing is a recipe for prosperity.

"Initially, consumers flock to foreign goods in order to try them, but research shows they later return to familiar, local products," he said, adding that international manufacturers such as Nestle can capitalize on this trend by making domestic-looking products.

Although the Swiss-based company opened its first representative office in Moscow in the spring of 1995, its relationship with Russia goes back more than a century, when St. Petersburg merchant Alexander Ventsel sealed an exclusive agreement to buy cereal from Nestle's founder, Henri Nestle.

The food giant's products range from cereal and baby formula to pharmaceuticals and pet food, but Nestle leads Russia in sales of instant coffee, ice cream and chocolates, said Alexander Blinov, an analyst at GFK Market Research.

According to GFK, nearly half of Nestle's sales here are in chocolate and candy, where the company has a roughly 35 percent market share. It is followed closely by the company's instant coffee business, which is poised for higher growth from a continued upsurge in coffee consumption.

State Customs Committee estimates coffee supplies to Russia more than doubled last year compared with 1999, as Russians consumed a record 9,400 tons, Interfax reported.

Nestle's sweet success is partially due to the company's distribution network, said Sofia Ragulina, a consumer goods analyst at NIKoil brokerage.

"Unlike some of its competitors, which distribute though retail chains, Nestle has many wholesale warehouses that let small merchants buy the products and resell them in kiosks and [underground walkways]," she said.

Since it first set up shop here in 1995, the company has been on a buying spree, spending a total of $175 million to gobble up stakes in local manufacturers.

Thanks to its aggressive acquisition strategy, Nestle currently has controlling stakes in several major food producers, including the ice-cream factory Nestle Zhukovsky in the Moscow region, candy makers Altai in Barnaul, Altai territory, and Kamskaya in Perm, as well as Khladoprodukt in Timashevsk, Krasnodar territory.

The company also controls Rossiya, a Samara-based confectionery that it merged with another one of its purchases, Konditer, to create Confectionery Union Rossiya.

"Nestle is a classic example of how foreign companies expand through acquisitions," said Aton's Metnyov.

"Since they have Russian factories, they can be price-competitive with local producers," he added, "but they also have an advantage because locals have a poor understanding of branding concept and limited financial resources to market their products."

Nestle's next challenge is on the mayonnaise front. The company's Zhukovsky factory recently launched production of Maggi, a mayonnaise priced identically to its main rival, Calve from Unilever.

Nestle is hoping to cut into Unilever's share of Russia's mayonnaise market, which is estimated at about 6 percent.