Juan Carlos Peralejo-Serrano
Vice President of Chocolate and Confectionery
Nestlé Mexico
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View from the Top

Mexico, Set to Become a Top Cocoa Producer Despite Challenges

By Andrea Villar | Wed, 11/25/2020 - 05:00

Q: How has Nestlé’s chocolate division fared over the past few months?

A: This is a very atypical year because of both the pandemic and the new labeling law. This has had an impact on businesses but has also generated opportunities. Amid the health crisis, chocolate was not seen as a primary need in the consumer's mind. In March and April, consumers focused on other categories but as time passed, chocolate started to gain relevance again and sales have started to increase, which is the opportunity we see. 

Regarding the new labeling norm, we have worked to meet all the deadlines required by law. For years, Nestlé has provided nutritional information voluntarily on its labels. Any information that can be provided to the consumer is always positive. Our portfolio is very clean, with real chocolate and Mexican cocoa used in high proportion in our recipes. Having said that, it is important for clients to understand that chocolate is a healthy food because its main element is cocoa, which has many nutritional properties. 

Chocolate has the three essential nutrients: carbohydrates, proteins and fats. In other words, it is an energy source that has nutritional value and there are not many foods that have those three essential nutrients. If a person eats an 18g bar of Carlos V, it provides less than 100kcal. It is a product that can be perfectly introduced to a balanced diet and a healthy lifestyle. This means that parents can give their children chocolate in moderate quantities with complete peace of mind. 

Q: How has the company migrated from retail to digital channels?

A: There has been a change in consumer behavior. They are not leaving the house as much and make far fewer impulse purchases on the street. Bulk purchases and e-commerce have become part of their lifestyle. Since we have a multichannel strategy, we have been able to capitalize on these changes. Our goal is to be present and close to the consumer through all channels. Between January to May, the sale of chocolate products through digital channels has grown almost 300 percent. Having said that, before there was no habit of buying chocolate through e-commerce. 

Q: How have you approached customers through new channels? 

A: It is all about developing a habit. Discounting those who were already brand lovers, we have developed great strategies involving major retailers’ e-commerce platforms to capture new customers. We have promoted, for example, recipes with Chocolate Abuelita and gifts to encourage sales for special occasions such as Mother's Day or Children's Day. We are also present in grocery apps and have implemented strategies that have yielded good results, such as complementing certain meals with a bar of chocolate. This habit is here to stay. Digital sales channels will enjoy strong growth with or without a pandemic. 

All products that are for home consumption have skyrocketed. Chocolate used to make dishes like mole or for hot drinks has sold very well. Visits to our recipes website, RECETAS NESTLÉ, have skyrocketed, as customers are more and more interested in cooking at home.

Also, chocolate such as Carlos V or KitKat, which can be bought for consumption at home, have started to rebound as the pandemic has progressed. Once the consumer's primary needs were met, they started thinking about more appealing products. Parents also have their children at home. Schools and many retail stores may be closed but children and consumers are still there. We are seeing a major upturn in chocolate purchased for home consumption. 

Q: Does Nestlé anticipate any further impact on its chocolate products from the new labeling norm?

A: We have experience in other Latin American countries where this type of labeling has been implemented. The consumer understands that chocolate is highly nutritious and a source of energy. As a result, we have not noticed any substantial variation in consumption habits. The consumer will not be taken by surprise because they will be simply confirming what they already knew from the information we have offered for many years. 

Q: How has Nestlé advanced in its sustainability agenda for cocoa?

A: More than 14 years ago, we launched the Cocoa Plan, a global initiative to ensure sustainable cocoa production. Seven years ago, we started to implement this plan in Mexico and this year, we are the No. 1 buyer of Mexican cocoa.  We bought 20 percent of total production and our plan is to increase that to 40 percent in two to three years. 

The Cocoa Plan is budgeted at MX$100 million (US$4.8 million) and we have already invested more than MX$50 million (US$2.4 million) in three main activities. The first is production of better cocoa. This may seem obvious but it is not. We have greenhouses where we grow cocoa plants and then deliver them to the farmers, which ensures quality. 

The second activity relates to improving harvests. Even if we have good cocoa plants, if there is not a good process for collecting and processing the cocoa, a great deal of quality is lost. To improve this, we are setting up cooperatives focused on cocoa fermentation to have a product that performs very well in chocolate production. The third part of the investment goes to improving the quality of life of the families involved in the collection and processing of cocoa and to make this a sustainable activity. 

We would like farmers to be grouped into cooperatives with a sustainable working structure. Nestlé has an agricultural team located in the area of Tabasco, Chiapas and Veracruz that contributes to training farmers. We have distributed, for example, 900,000 seedlings in the last seven years. After three years, these plants begin to bear fruit and reach optimum yield after four or five years. We have also improved productivity per hectare by 70 percent. All this has improved the lives of many growers who previously had no support. As we boost our purchasing of Mexican cocoa, we will also increase our support for these cooperatives because they are the key to making the whole model sustainable.

Q: What are the main challenges Nestlé faces in increasing its local cocoa purchasing?

A: Even though cocoa harvesting in Mexico dates back to the Mayas, Olmecs and Aztecs, the country does not have a relevant position in world cocoa production. We are not even in the Top 10. This is because the Mexican market has a very fragmented structure. We are not like countries in Equatorial Africa or even Ecuador where the system is much more defined. That said, the challenge is to strengthen this structure and the way to do that is by creating and supporting cooperatives. 

Another challenge is to improve the entire process of harvesting and processing. Only 40 percent of the cocoa harvested in Mexico is fermented. Fermentation is essential because it improves the cocoa bean and makes it ready for processing in the factory. The other 60 percent, which we call beneficiadoor washed cocoa, is not fermented and is complex to handle in factories. As a result, the big challenge is to increase the proportion of cocoa fermentation, which will come by supporting the cooperatives on developing this practice and from investing in states that have a great deal of potential, like Veracruz.

Q: What is the difference between fermented and non-fermented cocoa?

A: The cocoa pod has pulp and cocoa beans inside. Once that pod is opened, the pulp is separated from the beans. These beans are washed to clean the remaining pulp, but they are not still treated. To treat the bean, it has to be fermented, which is a process that takes several days or weeks. The beans need to be sun-dried, which also kills the germ inside the seed, resulting in a fermented bean. If this fermented bean reaches the factory, it can enter directly into the process of roasting and grinding. Finally, we obtain the cocoa liquor, from where we extract the cocoa butter and the cocoa powder. If the bean is not fermented, the process at the factory does not have the same quality and the cocoa liquor does not have the properties nor the aromas of good chocolate. Through cooperatives, we are seeking to increase the proportion of fermented cocoa. 

Q: What is the most valuable lesson you have learned this year as part of Nestlé and also as an industry leader?

A: At Nestlé, we have all had to react because the behavior of certain product categories has changed overnight. E-commerce and the change in impulse sales have also meant big changes and that has given us the opportunity to redefine the business in many areas. Nonetheless, we have come out stronger and proof of this is that our factories, distribution centers and commercial representatives have not stopped for a day. We have been on the frontline, producing and supplying so consumers can access Nestlé products. 

We are constantly holding virtual meetings and have more work than before the pandemic. This causes leadership to evolve. I remain optimistic and believe that this situation offers us many opportunities and can reinforce leadership skills. 

 

Nestlé is the world's largest food and beverages company. The Swiss company owns more than 2,000 brands sold in close to 190 countries

Andrea Villar Andrea Villar Journalist and Industry Analyst