P R O J E C T S P O N S O R S :

G A I N – G L O B A L A L L I A N C E F O R

I M P R O V E D N U T R I T I O N

I A D B – I N T E R - A M E R I C A N

D E V E L O P M E N T B A N K

F U N D A C I O N F E M S A

A N G E L M A R C E SS A O P A U L O , S E P T E M B E R 2 0 1 0

Mapping the Potential of Private Sector Nutrition Solutions in Latin America

Overview

Why PS Nutrition Solutions and the BOP Market?

Methodology

Nutrition Context

Enabling Factors: Government and NGO Roles

Private Sector Findings

“Stand out” findings and trends

Findings according to Value Creation Analysis Framework

Barriers for the Private Sector

Opportunities for the Private Sector

Why Nutrition and the BOP Market?

70% of population in LA

Segment with most needs and fewest solutions = potential for results

Solutions exist! But problem compounded by lack of education and access to relevant information

Nutrition = “human infrastructure”

Private sector is the most powerful channel to generate sustainable market solutions

Methodology

Review of international literature

Review of country statistics and government sources

Review of online company information

Surveys: 94 companies in 10 countries (Mexico, Guatemala, El Salvador, Nicaragua, Costa Rica, Panama, Ecuador, Colombia, Venezuela, Peru)

Interviews with managers, directors and relevant staff for the research (CSR and nutrition staff)

Average of 20 attributes per each company

Application of Value Creation framework for data analysis

Nutrition Context

Focus is Child Malnutrition

Height and weight for children < 5 years old

Low birth weight & anemia

Directly related to income, education, health care, housing, clean water and other factors.

Obesity rising concern.

No silver bullet solutions

Nutrition Context

0%

5%

10%

15%

20%

25%

Colombia Venezuela Ecuador Peru

Chronic Malnutrition (low height for age and weight

children < 5 years)2008

0%

10%

20%

30%

40%

50%

60%

Source of Data: UNICEF and National Statistical Institute Data from specific countries. Data ranges from 2003-2008

Enabling Factors: Government and NGO Roles

GOVT Main Functions in Nutrition

Regulatory/Legislative------ Fortification, Labeling

Programs & Services----Healthcare, Food Assistance

Promotion------ Campaigns, Information

NGO participation

Advocacy for Legislative Change / Watchdog

Development of pilot programs

Specific BOP Know-how: rural communities

”Vaso de Leche”, School meals

Client inNutrition Market

TechnologicalPartner

Private Sector Findings I: “Stand out” findings and trends

Selection criteria food industry Milk and dairy products Flour and grains / pasta Beverages / Juices Nutritional ingredients and supplements Some snacks, cereal, poultry, meat, fish and eggs companies

Most companies in the sample get 40% or more of their revenues from BOP consumers

Data shows high incidence of claims regarding nutritional attributes, fortification and own nutritional staff (possible consensus within PS that nutrition is an increasingly relevant food attribute)

Most companies that serve BOP markets also serve wealthier segments of the market

Private Sector Findings I: “Stand out” findings and trends

The larger the country, the more BOP targeted products

Global companies have developed a strong presence throughout the regions BOP nutrition market

Several national companies export their production, probably due to higher margin and less transaction cost

Main channels of distribution: supermarkets, bodegas and government programs

Current partnership incidence is not relevant, mostly independent educational/social initiatives

The larger the company, the more prone to develop educational and public awareness programs

Private Sector Findings I: “Stand out” findings and trends

The shorter the value chain, the more likely to work with BOP suppliers (deeper knowledge needed)

High correlation between % of revenue from BOP and children targeted products

Private Sector Findings II: Findings according to ValueCreation Analysis Framework

Value Creation Analysis Framework

VALUE

POSITIONING (higher future revenue)

RISK (know-how)

EFFICIENCY (higher margin)

GROWTH (higher revenue)

Depending on current market conditions and internal situation, companies tend to privilege one (or a combination of more) of these approaches in order to

create value. Typically, large companies tend to favor efficiency over growth, whereas medium and small companies tend to risk more in order to grow faster.

Private Sector Findings II: Findings according to Value Creation Analysis Framework

The most direct/fastest way to create VALUE is GROWTH, but … how do companies grow?

Product-Market Growth Matrix (Ansoff)

Present New

PresentMarket

Penetration

Product

Development

NewMarket

DevelopmentDiversification

Products

Ma

rke

ts

+RISK

+++RISK

Private Sector Findings II: Findings according to Value Creation Analysis Framework

What the data says regarding this framework…

BUSINESS CASE IMPLICIT STRATEGY

COLOMBIA large cacao company: +40% of sales to BOP but no BOP targeting of products

MARGIN, PRODUCT DEVELOPMENT (BOP gets trickle down)

ECUADOR medium size milk and juices company: 12% of sales to BOP, exports 90% of its production, no nutritional staff or labeling, no interest in BOP strategy

GROWTH, MARKET DEVELOPMENT (EXPORT)

PERU medium size milk and juices company: +30% BOP sales, interested in BOP targeting of products, current supplier of govt. program

GROWTH, BOP MARKET DEVELOPMENT DUE TO LESS RISK

MEXICO small bread maker: 12% of sales to BOP, no BOP strategy, no children targeted products, sells mainly in supermarkets, cumbersome access to govt. purchases. Looking for opportunities in traditional bread market

GROWTH,

DIVERSIFICATION

Private Sector Findings II: Findings according to Value Creation Analysis Framework

What the data says regarding this framework…

REGION: Large companies with high % of sales in BOP markets, no BOP strategy and no interest in developing targeted nutritional solutions BUT quite active in social and educational programs in health and nutrition

Investing in POSITIONING, since GROWTH is too risky and targeted nutritional products MARGINS are still too low

OBSERVATION:

Are large-aggressive or medium-innovative companies strategically more prone to develop BOP targeted nutritional solutions?

Barriers for the Private Sector

1. Lack of Consumer Education = large potential demand

2. Distribution: expensive due to transaction costs (long distances, low urban density, informality)

3. Technology and Know-How barrier for small to medium companies to develop products

4. Non-BOP Markets are still underserved and are preferred for product introduction (margin beats volume)

Opportunities for the Private Sector

1. Better knowledge of BOP market!Different sub-segments

2. Get more return from taking a bit more riskRisk sharing facilities and partnerships available for product and market development

3. Partnerships for education & positioning of firmsBe straightforward regarding value creating partnerships with the Government --- move beyond alliances and photos

4. Government Decisions that really promote private sector investment in nutritional solutionsAdvocate for indirect intervention: distribution advantages, positioning promotion and clearly targeted social programs

5. Cross-country alliancesCompanies can find compatible partners and strong synergies in neighboring countries to reach BOP markets

THANK YOU