Nestle Indonesia to Invest $100 Million to Make Milo

Bloomberg/Businessweek, By Claire Leow, December 09, 2010

Dec. 9 (Bloomberg) -- Nestle SA, the world’s largest food company, will invest $100 million in Indonesia to make Milo chocolate-flavored products and Cerelac weaning formula as purchasing power grows in Southeast Asia’s biggest economy.

The company’s factory in West Java will be ready by the end of 2012 and initially employ about 300 people, PT Nestle Indonesia President Director Arshad Chaudhry said in an interview in Jakarta on Dec. 6. Nestle will buy about 10,000 tons of cocoa powder annually from local farmers to make Milo, he said. Indonesia is the world’s third largest cocoa producer.

Nestle, which in August raised its full-year forecast as demand in emerging markets boosted first-half sales faster than analysts estimated, will focus on nutrition and wellness products, Chief Financial Officer Jim Singh said then. The maker of KitKat and Nescafe is targeting Indonesian households with a monthly income of between 800,000 rupiah ($89) and 1.45 million rupiah, whose purchasing power is rising, Chaudhry said.

These markets represent “people who are continuously seeking good solutions for providing them nutritious food with the limited money that they would have,” he said. “Products like Milo fit into this well.”

Nestle aims to replicate the success it has had with milk formulas such as its Ideal milk powder, which can be sold in packets for 1,000 rupiah, Chaudhry said. Milk powder and products such as Dancow, Bear Brand sterilized milk and Ideal contribute about half of Nestle Indonesia’s annual sales of about $1 billion, he said.

Dairy Products

After the new factory is operational there are plans to add capacity between 2013 and 2015 to provide for domestic needs, Chaudhry said at a press conference today.

Nestle Indonesia’s largest investment is in Kejayan, East Java, where it expanded milk production with a $100 million investment last year. The factory processes about 700,000 liters of milk bought from 33,000 dairy farms in East Java daily.

This factory, “one of the top 10 factories for Nestle” by volume, will also supply some of the milk needed to make Milo products at the new plant, the executive said.

Nestle has gained 10 percent this year while the Swiss Market Index has lost 0.6 percent. Still, the Vevey, Switzerland-based company’s stock trails the 14 percent climb by Northfield, Illinois-based Kraft Foods Inc., its closest rival.

Fox’s Candy

Nestle Indonesia was established in 1971 and employs about 2,600 people. It has another factory in Lampung, South Sumatra province, producing Nescafe soluble coffee and coffee mixes, and buys about 10,000 tons of green coffee a year from about 10,000 local coffee farmers, he added. Nestle has a plant in Cikupa, Tangerang making confectionery such as Fox’s candy.

Milo is a chocolate-flavored beverage marketed in Southeast Asia as an energy drink, and Nestle Indonesia sells about 15,000 to 20,000 tons of the product a year, a business that is growing 20 percent annually, Chaudhry said.

“We expect similar type of growth in the coming years,” he said. Besides the beverage, other Milo products include Choco Blazz, introduced this year as a snack bar, he said.

Nestle currently ships Milo to Indonesia from factories in Malaysia and Singapore.

Cerelac Formula

With the new factory, Nestle Indonesia will also seek local suppliers for red rice and mung beans for its Cerelac formula, Chaudhry said. Mung beans are an important source of vegetable protein for developing countries.

Other Nestle products contributing to the $1 billion annual sales in Indonesia include Nestea packets selling for 500 rupiah each, said Chaudhry, who worked in Pakistan, Switzerland and China before moving to Indonesia in September 2009.

“When you have limited money, you are very interested to spend that money wisely especially because getting sick is not an option,” he said. “When you get sick, you have to spend more money. To avoid that, there is a great deal of focus in purchasing products which show them good quality and good nutrition.”

--With assistance from Eko Listiyorini in Jakarta. Editors: Suresh Seshadri, Frank Longid.

To contact the reporter on this story: Claire Leow in Singapore at cleow@bloomberg.net; Eko Listiyorini at elistiyorini@bloomberg.net.

To contact the editor responsible for this story: Frank Longid at flongid@bloomberg.net

Nestle Indonesia president director Arshad Chaudry, right, says the world’s largest food company will invest $100 million in Indonesia to make Milo chocolate-flavored products and Cerelac weaning formula as purchasing power grows in Southeast Asia’s biggest economy. (Antara Photo)

Related Article:

Nestle Indonesia to Invest $100 Million to Make Milo, Cerelac