---
title: "Diagnosing Nestlé's 30 Years in China: A Good Hand Played Mediocrely"
description: "Nestlé re-entered China in December 1986 and, with its coffee, built a strong reputation, becoming a significant force in China's FMCG industry. However, in 2015, Nestlé's revenue in Greater China grew less than 5% compared to 2014, reaching only RMB 46.338 billion, less than Mengniu, which only does dairy. Mengniu has a history of less than 16 years, while Nestlé has been in China for nearly 30 years, with products including chicken essence, milk powder, coffee, and even coffee machines, all competitive and in urgent demand by Chinese consumers at the time."
author: "消费日曝"
publisher: "New Distribution"
email: "zhaobo258@gmail.com"
telephone: "+8615854817671"
published: "2016-06-07"
language: "en"
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# Diagnosing Nestlé's 30 Years in China: A Good Hand Played Mediocrely

> Nestlé re-entered China in December 1986 and, with its coffee, built a strong reputation, becoming a significant force in China's FMCG industry. However, in 2015, Nestlé's revenue in Greater China grew less than 5% compared to 2014, reaching only RMB 46.338 billion, less than Mengniu, which only does dairy. Mengniu has a history of less than 16 years, while Nestlé has been in China for nearly 30 years, with products including chicken essence, milk powder, coffee, and even coffee machines, all competitive and in urgent demand by Chinese consumers at the time.

Nestlé re-entered China in December 1986 and, with its coffee, built a strong reputation, becoming a significant force in China's FMCG industry. However, in 2015, Nestlé's revenue in Greater China grew less than 5% compared to 2014, reaching only RMB 46.338 billion, less than Mengniu, which only does dairy.
Mengniu has a history of less than 16 years, while Nestlé has been in China for nearly 30 years, with products including chicken essence, milk powder, coffee, and even coffee machines, all competitive and in urgent demand by Chinese consumers at the time. Yet, their development seems to have hit a bottleneck.
After nearly 30 years in China, Nestlé has made progress and grown; China is now Nestlé's second-largest consumer market globally. However, given its high-quality products and favorable factors such as a vast, populous, and rapidly developing Chinese market, Nestlé's growth has been slow. It can be said that despite having the right timing and location, it has played a good hand mediocrely. Nestlé China has failed to fully capitalize on China's demographic dividend.
For Nestlé, today's "Consumer Daily Exposure" (消费日曝) dares to offer some micro-diagnostics and views, hoping to spark discussion.
**1. Nestlé's Greed for Controlling Stakes Prevents Synergy**
Nestlé's early acquisition model, Totole chicken essence, held an 80% stake. Since 2013, it has tried new channel structures, attempting to reach fifth-tier markets directly from headquarters and establish brand specialty stores, but this has not been fully extended to other Nestlé products.
During the Totole acquisition, Nestlé developed a strategy of seeking over 50% equity control, with the compromise of keeping the team unchanged. Later acquisitions of Yinlu (60%), Hsu Fu Chi (60%), and Wyeth followed the same approach. This indeed maintained team and transition stability, but each brand operates independently with little collaboration, resulting in fragmented channels and each fighting for itself. A contrasting case is COFCO and Yihai Kerry, where all brands unite in channel efforts.
Because Nestlé is headquarters-controlled, the overall structure is sales-oriented, with KPIs primarily based on sales performance. Zhang Guohua, the first Chinese president of Nestlé Greater China, achieved his position due to outstanding performance at Wyeth. The same talent and approach that thrived in Wyeth's single system do not work when faced with Nestlé's multiple business lines that do not cooperate, and with vertical data assessments from headquarters, Zhang has limited room to maneuver.
Nestlé China employees at all levels are managers, lacking a strong integrator. Zhang Guohua, despite his ambitions and several internal reform ideas, finds it difficult to implement them and is perpetually worried.
After Yinlu was acquired, its performance has been poor, with no strong leadership change to stimulate improvement, due to too many concerns.
Some say government should be democratic, but enterprises should be autocratic; perhaps Nestlé should learn from this.
A clear product strategy mistake occurred in March 2014, when Nestlé transferred its ready-to-drink coffee business entirely to Xiamen Yinlu Food Group to provide new growth opportunities for its struggling performance. Yinlu also became a model for Nestlé's transformation. However, the ready-to-drink business, i.e., canned, ambient blended coffee, is not a product type favored by domestic consumers.
In China, drinking coffee is more of a social need than a physiological one. Drinking coffee is not like drinking water. Moreover, many Chinese are allergic to caffeine, and the taste of ambient coffee is not acceptable to most. Therefore, this business, delegated to Yinlu, is like a chicken rib—of little value.
Through high global R&D investment, aligning with local consumption characteristics, and achieving an organic combination of technology and products, Nestlé's machine has been an unstoppable weapon in global promotion. However, this approach, when applied to China, has resulted in few acceptable products, with many innovations lacking clear purpose.
Nestlé has tried combining traditional Chinese medicine factors with beauty and health; what was the effect? In 2014, L'Oréal transferred its 50% stake in Galderma, its Swiss dermatology company, to Nestlé. Nestlé increased investment in skin health, and previously cooperated with Li Ka-shing's traditional Chinese medicine research institution. These R&D efforts cost a lot but yielded unsatisfactory results.
Nestlé should put more effort into product development close to the market.
**2. Nestlé's Domestic Channels Are Weak and Ineffective**
On June 5, 2016, Nestlé partnered with Alibaba to launch the "Miao Nest Star" strategic cooperation upgrade plan. The focus is for Nestlé Group to offer consumers selected local and overseas products through Alibaba's e-commerce platform, involving various categories such as food, maternal and infant, and beauty, with 15 Tmall official flagship stores and hundreds of products from 30 domestic and international brands.
Nestlé's equity in China is concentrated, employees are all hired workers, management are all managers, lacking aggressiveness in channels, and not many understand channels beyond third- and fourth-tier cities. Additionally, facing rapid changes in China's sales channels and consumption upgrades, Nestlé and its acquired brands, except for Wyeth milk powder, have generally performed unsatisfactorily, developing slowly and falling short of expectations.
The most successful domestic channel experience is the joint sales system used effectively by Wahaha, OPPO, and Gionee, which stimulates channel enthusiasm by treating distributors as brothers and sharing the same pants. Nestlé cannot learn this and can only seek business cooperation.
This cooperation with Alibaba, despite its fanfare, remains to be seen. As Nestlé's partner, Alibaba has also been eager to shed its image of many small vendors and counterfeit goods, and to counter JD.com's plans to cooperate with major brands, Alibaba needs ideal brand partners to join.
"Alibaba is honored to empower global top companies like Nestlé in their digital transformation in the Chinese market. The unique Alibaba ecosystem, composed of integrated e-commerce platforms and data-driven digital media, will bring unlimited possibilities for brand building and customer relationship management, thereby comprehensively enhancing business scale," said Alibaba Group CEO Daniel Zhang. Recently, "empowerment" has become a catchphrase for this former CFO.
However, one point in Zhang's speech is what Nestlé hopes to see. Zhang said, "We will continue to extend cooperation with brands and strengthen infrastructure construction, so that consumers, whether in big cities like Beijing or remote villages, can easily access a vast array of the world's highest quality products." The key point is remote villages.
For the vast rural market, Nestlé products, due to their relatively high prices, have poor penetration, losing to competitors like Wahaha, Master Kong, and Daliyuan.
**3. Nestlé Moves Slowly, Lagging in the Daigou Business**
Nestlé wants to actively embrace new e-commerce opportunities. Currently, e-commerce channels account for 50% of Nestlé China's pet care business and 30% of coffee and infant nutrition business. In 2016, Nestlé reached a strategic cooperation upgrade agreement with Alibaba, the world's largest mobile economy entity, announcing the use of platforms like Tmall, Tmall Supermarket, Rural Taobao, and Juhuasuan to provide convenience and drive business growth.
After the "Nestlé Super Brand Day," Nestlé will also conduct a six-month brand marketing campaign on Alibaba's platform, offering consumers high-quality foods from Nestlé's global origins—such as Nestlé Nido full-fat milk powder from the Netherlands, Nestlé Damak chocolate from Turkey, Nestlé Gold coffee from France, and Nestlé and Wyeth infant nutrition products from Switzerland, the UK, and Germany.
These measures are visionary, but in this daigou-like business, Nestlé has lagged many steps behind. From dairy products including milk powder, this sector is now widely criticized in the industry.
In March 2016, in Yunnan, Nestlé Global CEO Paul Bulcke, when asked by a Consumer Daily Exposure reporter how to evaluate Zhang Guohua's performance, replied with a serious face, "I am never satisfied; the days are still long." Throughout the press conference, Bulcke directed different people to answer different questions, and Zhang Guohua never smiled.
**4. The Future Is Not Optimistic**
In summary, due to the lack of a strong leader to fully steer Nestlé's business, and under a fragmented system and resource constraints, Nestlé may fall behind in the consumption upgrade process, and the future is not optimistic.
Source: Consumer Daily Exposure
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