Nestlé CEO talks Nespresso: ‘We wouldn’t have a healthy coffee business if we exploited suppliers’

In a session last Friday at the World Economic Forum 2015 in Davos, Switzerland – which gathers together the great and the good from business, government, international organizations, academia and civil society – Bulcke (pictured above, and below in Davos) took part in a panel discussion called ‘Should Business Lead the Social Agenda?’

This discussed the role of business in addressing global challenges, where Davos flags up ‘complexity, fragility and uncertainty potentially ending an era of economic integration and global partnership began in 1989’.

In a subsequent Q&A session Bulcke was challenged by an audience member over the company’s Nespresso business – with capsules selling at €0.35 in France, for example, (and with the firm’s ‘Creating Shared Value’ vision in mind), how much of that money goes to coffee farmers, and how much is Nestlé’s profit margin here?

“On margin, we don’t give that sort of thing away. My competition uses that against me, and life is already difficult enough,” ​Bulcke replied.

“I can only tell you that Nespresso has quite a lot of competition – we’re part of that, and you don’t have a free lunch. We have a margin that allows us to carry on investing in the system and the quality of the coffee – so it’s a balance. You cannot overdo it…and we have a lot of competition that keeps us in check.”​

Expanding on the Nespresso business, Bulcke described it as a good ‘creating shared value’ example, since the 25-30 year-old brand is now linked to thousands of coffee farmers involved in the company’s AAA Sustainable Quality Nespresso project.

‘Sustainable Quality’ coffee plan progress  ​

This set a 2013 target to source 80% of its coffee through AAA, which involves a web-based farmer database that allows Nestlé to track beans back to individual farms and named farmers – to monitor data in real time and track quality, make progress on sustainable agricultural practices and improve farm management.

In its 2013 Creating Shared Value report (released in April 2014), Nestlé said it had already reached a figure of 84%​, and was now working towards a 100% target.

For quality reasons Nespresso used quite a narrow selection of beans, Bulcke said, which affected capsule price to a certain extent.

“The average price that we pay for our coffee is something like 30-40% above the market price – because it’s quite high quality, selective. And we have a lot of agronomists working with these farmers to help to increase their yield, their quality and their more stable income that goes beyond that,”​ he said.

“I feel that this is shared value. We have Nescafe and we do that for coffee in general. We buy quite a sizable part of the coffee in the world, so we have a little bit of a responsibility there.​

Nestlé boss seeks long-term supplier relations​

“It’s just as we do with milk farmers. Is this philanthropy? No! It makes sense when you see our longer-term relationship with suppliers,”​ Bulcke added.

“We would not have a healthy business if we just exploit and say, ‘Look! Only my part is interesting’. We engage with them, and it makes sense – it allows us to go about a very interesting business like coffee, like Nespresso.”​

Asked by discussion moderator Zia Khan, VP of initiatives and strategy at the Rockefeller Foundation, whether a morally self-regulating business leader was at a competitive disadvantage versus less scrupulous industry rivals, Bulcke insisted it was vital to play by the rules.

“We have two layers to get to shared value. The first one is compliance. You cannot fool around with this – you comply first with yourself, and secondly with the external dimension,”​ he said.

“The second is sustainability. Because we want to be around in 150 years, and you cannot fool around with that either. You cannot cut corners. When you meet these two conditions you can talk about creating shared value.”​

*To watch the WEF session in question, click here​.