Nestlé Invests In Future Growth

Nestlé Pakistan has completed a new factory in Sheikupura, the latest in a succession of expansion projects in the country that have totalled more than US$148mn over the last two years. The new facility has been built to meet increasing consumer demand for Nestlé's dairy, juice and bottled water products, and the company's investment signals continuing confidence in Pakistan as an important growth market. Despite the documented risk associated with investing in Pakistan , Nestlé's continuing success in the market reflects BMI 's optimistic near-term consumer outlook for the country and the opportunities present in the food and drink sector over a longer-term time horizon .

With a population of nearly 180mn, Pakistan's potential consumer base proves particularly attractive for multinational fast-moving consumer goods firms such as Nestlé that follow low-cost and high-volume models. Declining borrowing costs, disinflationary pressure and general economic development continue to drive demand for packaged food products , such as Nestlé's Maggi noodles, which offer both convenience and affordability. Sales of t he company's b ottled water and NESFruita premium juice drinks are also likely to see impressive growth, prompted by growing demand for premium beverage options in a largely non-alcohol drinking population.

The d airy segment is positioned to do particularly well following this recent increase in production capacity , paired with the company's impressive network of 200,000 local dairy farmers. The fact that Nestlé is increasing supply of products such as its UHT fortified MilkPak alongside powdered products such as Nestlé Everyday is in line with growing health consciousness among consumers and increasing demand for nutritional value. Nestlé is well positioned to meet this growth in demand given i ts impressive portfolio of dairy products. Refl ecting a wider strategy to expand dairy production in emerging markets such as China, India and recently Sri Lanka, Nestlé looks confident about the promising growth potential of the dairy segmen t .

Dairy Set For Strong Growth
Pakistan - Processed Liquid Milk Sales (tonnes)

Although growing consumer demand for food and drink products produced by multinationals such as Nestlé provides an attractive platform for growth , numerous risks face investors in Pakistan. Despite having moved up from the bottom of our Asia Pacific Food & Drink Risk/Reward Ratings in Q21 3 , Pakistan remains one of the riskier regional markets . P oor infrastructure, excessive bureaucracy and weak retail distribution systems , paired with ongoing securi ty concerns , present real obstacles to growth. A further risk to Nestlé lies in the fact that c ompetition can also be expected from Karachi-based Engro Foods in the dairy segment and The Coca-Cola Company ( which has recently announced a US$379mn three - year investment strategy in Pakistan) in the bottled water and fruit juices sector.

Bottled Water Stands Out
Pakistan - Fruit/Vegetable Juice & Bottled Water Sales (US$mn)

Nonetheless, Nestlé has clearly identified opportunit y despite well-documented risk s . With Pakistan continuing to attract attention from industry rivals such as Coca-Cola and Unil e ver Pakistan , the potential for success here is evident. Nestlé has continued to prove the strength of its brand value and commitment to sec uring growth , undeterred by political risk concerns in other frontier markets such as Syria , where its plant was recently attacked. With continuing investment in Pakistan signalling long-term commitment to the region, Nestlé is clearly willing to see past immediate risks and focus on the long-term growth potential in the world's sixth most populous nation .

This article is tagged to:
Sector: Food & Drink
Geography: Pakistan, China, India, Sri Lanka, Syria

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