Click to read the original article for details. Recently, Nestlé Group announced its financial results for the first half of this year. In the first half of 2019, Nestlé's organic growth rate was 3.6%, accelerating from 3% in 2018! Among this, internal growth contributed 2.6%, and pricing contributed 1.0%, indicating that both volume and price achieved growth. According to a previous report by The Beijing News, at the beginning of 2019, Nestlé announced its 2018 financial results, with sales of CHF 91.4 billion (approximately RMB 618.5 billion), revenue roughly equal to the combined total of China's BAT three companies, achieving a net profit year-on-year growth of 41.6% and organic growth of 3%. The first quarter results also continued the positive trend of 2018, with organic growth reaching 3.4%. However, in 2017, Nestlé's organic growth was only 2.4%. In 2018, Nestlé Greater China made frequent major moves, whether it was the cross-category launch of high-protein water "MuscleHunt", the first healthy ready-to-drink soup "Xingshan", or the personalized snack brand "Natural Foodie"; whether it was the launch of the home health assistant smart robot "Nestlé Xiao AI" on JD.com, or the smart nutrition and health platform jointly launched by Nestlé Yiyang and Xiaomi MIUI, or the heartwarming marketing campaign "15 minutes, quality food for a better life" for breakfast... Nestlé, this brand, began to differ from the impression of a company that simply sold coffee, mineral water, and other food and beverages. Jiang Nini, Chief Marketing Officer of Nestlé Greater China, said in an interview with FBIF Food & Beverage Innovation, "In 2017, we found that the group faced some challenges. Why? Because our product updates were too slow to keep up with Chinese consumers' demands." She is the initiator of Nestlé China's innovation incubator and has also led multiple innovation projects at Nestlé China. This year, Nestlé, which pursues a fast-paced approach, even moved its Beijing R&D center from the edge of the Sixth Ring Road to the bustling 798 Art District in Chaoyang, just to accelerate the innovation process. Jiang Nini, Chief Marketing Officer of Nestlé Greater China Image source: FBIF2019 album So the question is, how did Nestlé emerge from the growth dilemma of 2017 and regain growth vitality in 2019? From 34 new products in one year, to 68 new products in 2018, and an expected 170 new products this year, what did it do right? How did Nestlé win the market through innovation? At FBIF2019 Food & Beverage Innovation, Jiang Nini, Chief Marketing Officer of Nestlé Greater China, gave a speech titled "Accelerating Business Transformation through Innovation" Image source: FBIF2019 album Looking back at the growth crisis: the dilemma of 2017 Let's go back two years, to 2017. How was Nestlé's situation? Perhaps it is not an exaggeration to describe Nestlé's 2017 with the word "crisis". In July 2017, Nestlé was first exposed for former employees allegedly violating regulations in developing medical channels. After that, two infant formula products were "named and criticized" by the China Food and Drug Administration for failing to meet label values in selenium content. In August, 11 American consumers also accused Nestlé's Poland Spring mineral water marketing of "fraud". On one hand, negative product news emerged frequently. On the other hand, the pace of new product launches was too slow. Currently, Nestlé has six major subsidiaries, with products covering 14 categories including coffee, beverages, ice cream, and pet food. In 2017, Nestlé China launched 48 products, with an average of less than 3 new products per category. The financial data released by Nestlé in 2016 was also not very good. In 2016, Nestlé's net profit was lower than in 2015, only CHF 8.5 billion, far below the CHF 9.5 billion estimated by analysts. In comparison, competitor PepsiCo performed well in 2016, with net profit growth of 16%. 2017 was also not very "friendly" to instant coffee. Nestlé instant coffee Image source: Nestlé official website As Nestlé's most well-known product, according to Euromonitor International data, instant coffee's share in the Chinese coffee market declined in 2017, and due to the impact of freshly ground coffee and ready-to-drink coffee, its proportion has been declining year after year. Facing the crisis, Nestlé also welcomed its first "external" CEO, Mark Schneider. For Nestlé, the growth dilemma of 2017 was a heavy stone on its heart that had to be removed. Transformation: the innovation fire of 2018 "In 2017, Nestlé's growth encountered some challenges. Product updates were too slow to keep up with Chinese consumers' demands, so the entire group made some efforts over the past three years." This was mentioned by Jiang Nini, Chief Marketing Officer of Nestlé Greater China, when sharing Nestlé's business transformation experience at the FBIF2019 Food & Beverage Innovation Forum. As Ms. Jiang said, Nestlé encountered a crisis. The crisis originated from Nestlé's aging product line that struggled to meet the demands of Chinese consumers who are always seeking novelty. The previous "Nestlé model" of growth fell into trouble. To get closer to consumers and rejuvenate the brand image, Nestlé made great efforts to accelerate business transformation through innovation. So how did it arrange innovation? 1. Accelerated innovation in core categories Core categories occupy an important part of Nestlé's profits. To this end, Nestlé carried out organizational reforms to comprehensively accelerate the speed of new product launches in core categories. In the past, as a large company with a history of over 150 years, with complex processes and organizations, coupled with a cautious attitude towards new product launches, Nestlé's more than 2,000 brands launched only about 20 to 30 new products per year. Image source: From the speech of Jiang Nini, Chief Marketing Officer of Nestlé Greater China at FBIF2019 Now, Nestlé has adjusted its organizational structure, making the division of labor between R&D and technical departments clearer, while also subdividing innovation. Existing business groups focus on core category innovation, while the group marketing department focuses on blank areas and experiential innovation. Nestlé also innovatively launched a new innovation process called I&P, compressing the previous 6-8 month innovation product process into 4 days. That is, on the first day, there is a carpet-style background search and brainstorming; on the second day, everyone works together to come up with solutions, generating hundreds of concepts; on the third day, R&D materializes the concepts into products; and on the fourth day, consumers taste and provide feedback. The final result is that in the past three years, Nestlé has achieved innovation acceleration. In China, it launched 34 new products in 2017, 68 new products in 2018, and is expected to launch 170 products in 2019. In 2018, the entire Nestlé Group launched more than 1,500 new products, one-third of which were improvements to existing products. 2. Finding new growth points, targeting blue ocean markets As we all know, new business growth points are an important factor determining a company's future. So how can such a large group flexibly and accurately hit market demands and provide products that meet them in a timely manner? Nestlé's method is to use internal innovation teams to target market gaps and launch new products with a fast-paced approach. This team is also called the "Innovation Incubation Team". Ms. Jiang Nini once referred to it as internal entrepreneurship in an interview with the media, which means exerting entrepreneurial spirit within a large group. Image source: FBIF2019 album In the past, Nestlé's products generally took 18-24 months from concept to market, but now the incubation team's goal is to launch a new product or brand in 6-8 months, and try to enter new categories that Nestlé has never been involved in. From 2018 to now, the incubation team has launched three new products: the Chinese medicinal soup brand Xingshan, the protein water brand Jilie, and the personalized snack brand Natural Foodie. Image source: Marking Awards 2019 entry, Nestlé Jilie high-protein water Correspondingly, the promotion channels for the three brands are also different from the "serious" route taken by most Nestlé brands. These three brands abandoned big media and big channels, and instead cooperated with small but beautiful precision channels. The products not only focus on appearance, but also cooperate with channels such as mother and baby stores, yoga and wellness clubs, gyms, light meal restaurants, Xiaohongshu, Douyin, etc. 3. Supply chain innovation for new retail In the era of fragmentation, new retail omni-channel development is rapid. As an FMCG giant, Nestlé, to adapt to the pace of new retail, innovated its supply chain and built a "omni-channel, one inventory" supply chain system. So how does Nestlé achieve one inventory? Yu Juan, General Manager of Nestlé (China) E-commerce Sales, and Zou Yu, Director of Nestlé (China) E-commerce Supply Chain, once shared their experience at the Cainiao New Logistics Open Class. Mainly breaking through from four points. First, supply chain embraces commerce. Traditional supply chains rely heavily on distributors, and the connection between supply chain and business departments is not strong. In Nestlé, the supply chain is consumer-centric, and supply chain teams are embedded in business department teams, which not only improves service quality and data feedback to better guide business and sales departments, but also allows more direct contact with consumers. Through closer integration with business, they jointly complete the integration of distributors. Second, warehouse-to-warehouse direct delivery of products. After integrating distributors, there is no need for distributor logistics and warehousing. Nestlé has achieved seven major warehouses, shortening the chain by 3 to 4 days, effectively reducing e-commerce replenishment time. Third, integration of supply chains across different channels. For example, Tmall flagship stores and Tmall Supermarket under the Alibaba system are integrated through Alibaba's system. Fourth, data interaction and sharing. Break through data silos across channels, carry out effective collaboration, jointly formulate replenishment plans, and effectively transport and replenish. "One inventory" also won the Platinum Award for Best Practice Case at China ECR in 2017 (jointly organized by GS1 China and the China ECR Committee; ECR stands for Efficient Consumer Response, a supply chain management strategy). In terms of final supply chain KPIs, the overall order fulfillment rate increased from over 80% to 97%, cross-warehouse shipment ratio decreased from 60% to 10%, and online availability rate increased from an average of 87% to 95%. These directly mean that online GMV (Gross Merchandise Volume) increased by more than 10%, and there is also a cost saving of about 2% across the entire chain, close to 10 million. In addition, according to foreign media Food Navigator, this year Nestlé headquarters announced the second round of supplier lists, which is also the first time the industry has achieved overall supply chain transparency. Previously, Nestlé had published supplier lists for palm oil, four types of meat, vanilla, soybeans, and hazelnuts. Nestlé China is also striving to expand the use of blockchain technology to track product information. This year, the number of tracked products will increase from 15% to 18%, thereby enhancing product traceability. Future innovation strategy: 170 new products to be launched in 2019 After a series of actions, Nestlé's 2018 financial report showed that full-year organic growth returned to 3%. The report mentioned that "growth was mainly driven by strong momentum in the US and China markets, as well as the infant nutrition business." This year, Nestlé has a full plan and is going all out. Youhu launches new products, enters functional beverages, customized for the Chinese market On April 19, 2019, Nestlé's bottled water brand "Youhu" launched two upgraded new products in Shanghai. One is the newly packaged "Trophy Bottle" purified water, and the other is the functional and refreshing "Hydrate". Comparison of old and new packaging of Nestlé Youhu Image source: Nestlé official website As can be seen from the figure, the new packaging is taller than the original, with a more elegant and smooth "body", and the spiral grip similar to a trophy is also better. The packaging design comes from Nestlé's Xiamen R&D Center. Although the packaging has been changed and costs have increased, the price of the new Youhu bottled water remains unchanged at 2 yuan. At this price point, there are also well-known brands such as Nongfu Spring and C'estbon. "Nestlé Youhu Hydrate+" is a new product targeting the functional beverage market. It fits the low-sugar and healthy trend of beverages, with the slogan "instant hydration", timely replenishment of electrolytes, added dietary fiber, low sugar and low calories, and comes in two flavors. According to Ma Teng, CEO and Chairman of Nestlé Waters Greater China, in an interview with Qdaily, this is the first time Nestlé Youhu has developed a new product specifically for the Chinese market, and it may be introduced to other countries in the future. Image source: Nestlé e-commerce flagship store According to a report by China Commercial Industry Research Institute's "Investment Analysis and Prospect Forecast Report on China's Functional Beverage Market (2018-2022)", the average annual compound growth rate of retail sales in China's functional beverage industry is about 15%. In 2017, retail sales were 41.52 billion yuan, and in the next five years, the compound annual growth rate is expected to exceed 12%. Therefore, Nestlé's move is to increase its investment in China's water business. Conclusion For many domestic food giants, such as Yili and Mengniu, Nestlé has always been one of the benchmarks for development. With a history of 153 years, through ups and downs, the recent crisis may just be a drop in the ocean of history. But crises do not distinguish between big and small; what matters is the attitude and ability of the enterprise to respond. In today's era where new things emerge every minute, absolute stable growth without fluctuation is a fantasy. Even a giant like Nestlé can encounter problems such as product aging, brand crisis, and failure to keep up with consumer demands. From this point, the market is fair to all enterprises. But whether one can embrace change and technology and adjust direction in a timely manner depends on the enterprise itself. In this regard, Nestlé's crisis awareness and spirit of reform are indeed worth learning from. Source: FBIF Food & Beverage Innovation [some content has been abridged]