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Mapping the Potential of Private Sector Nutrition Solutions in Latin America PROJECT SPONSORS: GAIN –

GLOBAL ALLIANCE FOR IMPROVED NUTRITION

IADB –

INTER-AMERICAN DEVELOPMENT BANK

FUNDACION FEMSA

ANGEL MARCES SAO PAULO, SEPTEMBER 2010


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 60%

Chronic Malnutrition (low height for age and weight children < 5 years) 2008

50% 40% 30% 20% 10% 0%

25% 20% 15%

10% 5% 0% Colombia

Venezuela

Ecuador

Peru

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 Client in Nutrition Market

”Vaso de Leche”, School meals

 NGO participation  Advocacy for Legislative Change / Watchdog  Development of pilot programs  Specific BOP Know-how: rural communities

Technological Partner


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 Value Creation Analysis Framework ď&#x201A;&#x2014; Value Creation Analysis Framework GROWTH (higher revenue)

EFFICIENCY (higher margin)

VALUE

RISK (know-how) POSITIONING (higher future 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) Products Present

New +RISK

Markets

Present

Market Penetration

Product Development

New

Market Development

Diversification

+++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 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) 1.


Opportunities for the Private Sector 1. Better knowledge of BOP market! Different sub-segments

2. Get more return from taking a bit more risk

Risk sharing facilities and partnerships available for product and market development

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

4. Government Decisions that really promote private sector investment in nutritional solutions

Advocate for indirect intervention: distribution advantages, positioning promotion and clearly targeted social programs

5. Cross-country alliances

Companies can find compatible partners and strong synergies in neighboring countries to reach BOP markets


THANK YOU


2010 Nutrition BID GAIN FEMSA