On the Street: Nestle Opens Biscuit Research Center

January 11/BMI Americas Food and Drink Insights -- Swiss food giant Nestlé has opened a new research and development (R&D) center for biscuits and cereal-based snacks in the Chilean capital of Santiago. The facility is to be a hub for R&D, focusing both on innovation and reformulation of existing products. CEO Paul Bulke said that it will allow for creative development in a "very important product category" and that it will help Nestlé "offer consumers in Latin America and beyond the choice of tasty, healthy, more nutritious biscuits."

Nestlé's biscuit unit generated sales of CHF1.4 billion in 2008, representing around 1.3% of the company's total turnover. The firm generates 60% of its biscuit sales in Latin America which explains why it has chosen to site a research hub in this region. The decision to site the plant in Chile is likely to stem from Nestlé's existing extensive production capacity in the country, which will facilitate the roll-out of new products. In particular, the firm has identified synergies between the new facility and its biscuit manufacturing plant in Maipu, which employs 1,200 workers.

There are many advantages encouraging multinational firms to build production facilities in Chile. The country being in the southern hemisphere means that it produces crops during the opposite seasons to the world's major consumer markets in the northern hemisphere. Its elongated shape and north-south orientation also mean that harvests can be staggered throughout the growing season. In addition, relative geographical isolation, thanks to the Andes in the east and Atacama Desert in the north, means it is free of many pests and diseases that affect producers in other countries.

These natural advantages are supplemented by political and economic stability and its liberal trade agreements with many of the major consumer markets including the U.S., Canada, Mexico, China and the European Union. Chile's many advantages are reflected in BMI's Food & Drink Business Environment Rating for the country, which is the highest in the Latin American region. These benefits have prompted several multinational firms to invest in Chile, with a view to creating products that can be exported to the rest of Latin America and beyond. Nestlé is one firm making particular use of Chile's natural advantages, and its Chilean plants produce nearly the entire range of Nestlé products, which are then exported to the rest of Latin America. The firm even produces some products in Chile for export outside of Latin America, such as condensed milk, which is exported to the United States.

While currently representing only a small percentage of Nestlé's total sales, the biscuit category has strong growth potential in both Latin America and other emerging markets. Biscuit consumption is generally prevalent at every socioeconomic level but, unlike staple products such as bread and rice, consumption also increases steadily as disposable incomes rise. This makes it an ideal emerging market opportunity and Nestlé's investment in research into healthier and more appealing biscuit varieties should certainly pay dividends as global affluence increases.  

From the January 18, 2010, Prepared Foods E-dition