ETIP II – Trends and Business Models

Project Findings – EXECUTIVE SUMMARY

11th April 2019

There are three versions of our report to suit the level of detail required; This version is
the executive summary and contains only a very high level review of our findings
Content by Report Version

Factbook Summary Executive Summary

~300 pages ~100 pages ~15 pages
Project Update & Introduction   
Trends: Approach and Methodology 
Trends: Summary of Findings   
Trends: Introduction to Each Trend  
Trends: Key Findings by Trend  
Trends: Detailed Findings by Trend 
BMs: Approach and Methodology 
BMs: Summary of Findings   
BMs: Introduction to Each BM  
BMs: Key Findings by BM
 
BMs: Detailed Findings by BM 
This Version

EY-Parthenon | Page 2
Project Update
We have completed a thorough 8 week process, identifying and prioritising emerging
trends & business models and drawing out implications for Nestlé

Activity 1 2 3 4 5 6 7 8

Early Trend Identification

• Step 1: Industry Scan

• Expert Interviews, Secondary Research & EY Tools

• Step 2: Filtering and Short-List Creation

• Expert Interviews, EY Tools & Social Media Analysis

• Step 3: Short-List Assessment & Prioritisation

• Expert Interviews, Secondary Research & EY Tools

• Step 4: Implications for Nestlé

• EY-Parthenon analysis, Workshops with Nestlé

Emerging Business Model Identification

• Step 1: Business Model Identification

• Expert Interviews & Secondary Research

• Step 2: Filter BMs to Create Short-List

• Expert Interviews, EY Tools & Social Media Analysis

• Step 3: Short-List Assessment & Prioritisation

• Expert Interviews, Secondary Research & EY Tools

• Step 4: Implications for Nestlé

• EY-Parthenon analysis, Workshops with Nestlé

Interim Update Final

Key: Completed Deliverable

EY-Parthenon | Page 3
Project Update
We have spoken to ~50 industry experts across trends and BMs, including
entrepreneurs, investors, researchers and CPG executives in all relevant geographies…

Primary Research

Trend ID Expert Interviews (n=24) General Expert Interviews (n=10)

► CEO and Founder, DouxMatok ► Executive Director, Packaging Innovation ► Future of F&B Expert ► Former VP Global Strategy and
► CEO and Founder, Natural Ketosis & Sustainability, YFY Jupiter ► Future of F&B Expert Business Development Foods, Unilever
► CEO and Founder, Purely Drinks ► Founder and Former CEO, Halal Eat ► Future of F&B Expert ► Former VP Global Strategy and
► CEO and Founder, ZBiotics ► Former VP Sales, Marketing & ► Managing Director, Venture Capital Business Development Foods, Unilever
► CEO, Zukara Operations (N. America), Huel ► Director, Innovation Commercialization, ► President, SCAssist, LLC
► Co-founder and Co-CEO, TemperPack ► Chief Sales Officer, KOR Shots Pepsico Inc., Asia ► ‘Futurist’ (contacted through EY FCN)
► Director of Business Development, ► Founding Member, Yappah Foods ► Former Director, Portfolio Innovation,
Pairwise ► Director, EY Coca-Cola
► Director of Marketing, RXBAR ► Former Commercial Strategies and
► Former Brand Manager, Beam Suntory Capabilities (Mexico), Coca-Cola
Business Model ID Expert Interviews (n=15)
► Former Marketing Manager, Beam
Suntory
► CEO & Founder, MobyMart ► Doctor of Philosophy (Ph.D.) focused in
► Former Marketing Manager, Picnik
► CEO and Founder, OriginFood Industrial Engineering and Management
► Founder, On the Menu
► COO, Renewal Mill Science, Illinois Institute of Technology
► Researcher, Oxford University
► Director, R&D Global Packaging ► Partner, Agribusiness, EY
► Senior Product Development Scientist,
Development, Mondelez ► Principal Industrial Fellow, Cambridge
Bulletproof
► Director, EY University
► Sr. Marketing Manager, Quaker Oats
► Blockchain Expert, EY ► Worldwide Leader, IBM Food Trust, IBM
Mexico
► Vice President Corporate Strategy, ► Former Director of Retail Operations,
► Strategic Sourcing Manager, GEC
Unilever HelloFresh
Packaging Technologies
► Global Director eCommerce, Molson ► Former Marketing Strategist, Uber
► Executive Chairman, TemperPack
Coors Brewing Company ► Director of Business Development,
► Head of Product Development, BioGaia
Pairwise
EY-Parthenon | Page 4
Project Update
…and we have used a range of other sources including EY’s proprietary tools:
Embryonics & Future Consumer Now

Other Tools/Sources Used

Description of Tool/Source Use of Tool/Source

► Proprietary tool dedicated to identifying ► Extensive consultation on trends and business models with food
EY Future future trends and business models and beverage experts
Consumer Now ► Engaged in all stages of the process, from concept, through
development and into implications

► Proprietary tool providing data on ► Deep dive of investment/patent activity on individual trends,
EY Embryonics levels of investment and patent filings across geographies and time
Tool ► Assisted in creating comprehensive list of relevant start-ups

► Detailed analysis of consumer ► Used to gauge developing consumer engagement with trend
Social Media sentiment and interest themes or specific buzzwords, across geographies and time
Analytics

► Extensive use of market reports, ► Trend/business model ideation

Desk-based conference proceedings, company ► Discovery of startups/FMCG involvement
Secondary websites and press releases ► Commentary on short/long-term barriers
Research ► Country specific research
► Survey data and consumer attitudes insight

EY-Parthenon | Page 5
 Trends: Summary of Findings
After an extensive review of primary and secondary materials, we have identified 8
trends for our short-list and defined their status and our recommendations

EY-P
Trends Trend Status Definition
Recommendation

The “Sweet” A range of new sugar reduction technologies promise to surpass sweeteners and
Tipping Point High Priority
Technology Revolution revolutionise “low sugar” foods

Convenience Without New product formats and technologies promise consumers ultra-convenience
New Trend High Priority
Compromise without compromise on taste, health or sustainability

Reclaiming “Lost As sustainability becomes non-negotiable, products based on discarded and

Tipping Point Attractive Opportunity
Food” rejected food are entering the mainstream

CBD Edibles New Trend Regulatory shifts are moving CBD edibles from the grey market to the grocery store Stay Close & Monitor

Functional Foods: A new wave of functional food brands are promising to support beauty and
New Trend Stay Close & Monitor
Beyond the Physical emotional wellbeing

New technologies promise to create a paradigm shift and challenge the idea that
Purposeful Packaging Evolving Trend Stay Close & Monitor
packaging is necessarily environmentally harmful

As consumers develop more nuanced views of fats, F&B players are being forced to
Fat: Reborn Evolving Trend Stay Close & Monitor
rethink product formulations and marketing

Augmented Food Advances in “the psychology of taste” and Virtual Reality promise to create
Evolving Trend Lower Priority
Experiences engaging culinary experiences

EY-Parthenon | Page 6
Source: EY-Parthenon analysis
 Trends: Summary of Findings
We have assessed these trends based on their Relevance to Nestlé and Time to Maturity
and categorised them into clusters based on these findings

Initial Assessment of 8 Short-Listed Trends

The Sweet Tech Revolution Convenience Without Compromise

High

Purposeful Packaging
Functional Wellbeing: Beyond the Physical
Relevance to Nestlé

Key: Clusters

High Priority

Attractive Opps.

Fats Reborn Stay Close &

Reclaiming Lost Foods Monitor

Lower Priority
CBD Edibles
Augmented Food Experiences
Low

Long-Term Near-Term
Time to Maturity

EY-Parthenon | Page 7
Source: EY-Parthenon Analysis
 Trends: Summary of Findings
The EY-P assessment has been considered and summarised below

Time to Relevance to EY-P

Trends Rationale
Maturity Nestlé Recommendation

The “Sweet” Technology ► Trend has fundamental impact on several key categories; Nestlé risks being “left
High Priority
Revolution behind” if it does not continue engaging

Convenience Without ► The underlying fundamentals are strong; the trend has a clear impact on core
High Priority
Compromise categories and may create new product forms

Attractive ► Trend is fast entering mainstream and creates opportunities for premium, purpose-
Reclaiming “Lost Food”
Opportunity led brands

Stay Close & ► Trend has generated significant interest in the US; however it has limited traction
CBD Edibles
Monitor elsewhere and there are PR risks to engaging

Functional Foods: Beyond Stay Close & ► The trend is nascent but could present a huge opportunity; at present Nestlé should
the Physical Monitor proceed with caution given the PR risks created by unproven scientific claims

Stay Close & ► Trend is clearly aligned with broad sustainability agenda; however there are
Purposeful Packaging
Monitor significant barriers to maturity which will be hard to overcome

Stay Close & ► Many manifestations of this trend appear faddish; however as consumer views
Fat: Reborn
Monitor evolve, Nestlé may need to make subtle shifts to product formulation and marketing

Augmented Food ► Trend is a long way from full maturity and appears to have limited traction outside
Lower Priority
Experiences premium/luxury brands

EY-Parthenon | Page 8
Source: EY-Parthenon analysis
 Trends: Summary of Findings
The trends are fast emerging in the US and China; in several cases the products are
commercially available and becoming mainstream

Current Status of Trends Current Status of Trends

USA China

Expansion Expansion
(Products Becoming Well-Established) (Products Becoming Well-Established)
7

4
2 2
Emergence Emergence
(Clear Products Emerging) 3 (Clear Products Emerging)

3
5 5

6
Development Development 1
(Products In Development) 1 (Products In Development)
7
8
6
8
Inception Inception
(Early Stage Products) (Early Stage Products)
4

Trends
Attractive
High Priority Stay Close and Monitor L. Priotity
Opportunity
1 2 3 4 5 6 7 8
The “Sweet”
Convenience Without Reclaiming “Lost Functional Foods: Purposeful Augmented Food
Technology CBD Edibles Fat: Reborn
Compromise Food” Beyond the Physical Packaging Experiences
Revolution

EY-Parthenon | Page 9
Source: EY-Parthenon Analysis
 Trends: Summary of Findings
The trends are not emerging as quickly in Germany and Mexico, with few manifest in
products

Current Status of Trends Current Status of Trends

Germany Mexico

Expansion Expansion
(Products Becoming Well-Established) (Products Becoming Well-Established)

Emergence Emergence
(Clear Products Emerging) (Clear Products Emerging)

3
7 1
Development Development 6
(Products In Development) (Products In Development)
1
7
5
2
6
3
8
Inception 4 Inception
(Early Stage Products) (Early Stage Products) 5

4
8

Trends
Attractive
High Priority Stay Close and Monitor L. Priotity
Opportunity
1 2 3 4 5 6 7 8
The “Sweet”
Convenience Without Reclaiming “Lost Functional Foods: Purposeful Augmented Food
Technology CBD Edibles Fat: Reborn
Compromise Food” Beyond the Physical Packaging Experiences
Revolution

EY-Parthenon | Page 10
Source: EY-Parthenon Analysis
 Business Models: Summary of Findings
In addition to the trends, we have identified 9 Business Models for our short-list and
defined their status and our recommendations

Business Model
Business Models Definition EY-P Recommendation
Status

Companies are taking ambitious approaches to sustainability and starting to view waste
The Circular Company Tipping Point Invest Strategically
as an economic opportunity

New agricultural techniques will offer Nestlé the opportunity to adapt its sourcing
E-farming New Business Model Invest Strategically
strategy

Supply Chain Blockchain technology promises to revolutionise supply chains, creating traceability
New Business Model Invest Strategically
Transparency from farm to fork

Technological developments in drone and robotics technology will facilitate real-time

Real-Time Fulfilment Evolving Invest Strategically
fulfilment at scale

Next Generation A new generation of offline venues will disrupt the retail sector and reshape Nestlé’s
New Business Model Engage as a Priority
Physical Retail routes to market

Algorithms and devices are beginning to make purchasing decisions on behalf of

Things as Buyers Tipping Point Engage as a Priority
consumers, disrupting traditional business models

Brand Fragmentation As FMCG players seek to re-engage consumers, their portfolios and brands will become
New Business Model Engage as a Priority
& Agility ever more agile, localised and dynamic

The Asset-Light F&B brands, both large & small, will outsource large parts of their operation, focusing on
New Business Model Stay Close & Monitor
Company a limited set of core competencies in-house

The coming decade will “make or break” the D2C model as its sustainability and
D2C-Endgame Tipping Point Engage as a Priority
profitability are tested to the limits

EY-Parthenon | Page 11
Source: EY-Parthenon Analysis
 High
Business Models: Summary of Findings Medium
These models have impacts across Nestlé's value chain… Low

Business Models Level of Disruption by Value Chain Element

The Circular Company Develop Source Make Market & Sell

E-farming Develop Source Make Market & Sell

Supply Chain Transparency Develop Source Make Market & Sell

Real-Time Fulfilment Develop Source Make Market & Sell

Next Generation Physical

Develop Source Make Market & Sell
Retail

Things as Buyers Develop Source Make Market & Sell

Brand Fragmentation &

Develop Source Make Market & Sell
Agility

The Asset-Light Company Develop Source Make Market & Sell

D2C-Endgame Develop Source Make Market & Sell

EY-Parthenon | Page 12
Source: EY-Parthenon Expert Interviews, Secondary Research
 Business Models: Summary of Findings
… and collectively, they could transform the traditional FMCG business model creating
significant implications for Nestlé's business

Historic Model Future Model

► Lengthy development cycle ► Open innovation with external collaborators

► In-House R&D and Product ► Consumers involved in product design and development
Develop Development ► Agile innovation with short development cycles

► Ingredients sourced in global supply ► Next-generation procurement combining global and local
chains sourcing
Source ► Reliance on traditional agriculture ► Precision agriculture and urban farming
► Opaque supply chains ► Fully transparent supply chains

► Replicable, standardized mass- ► Personalized products

produced products ► Real-time data informing ongoing reformulation of products
Make
► Factory line, top-down production ► Products created at POS

► Sophisticated omnichannel/D2C strategy

► Sold through brick & mortar retailers ► Combination of global mega brands with a long-tail of niche,
Market & Sell ► Handful of global mega brands purpose-led brands
► “Real time” project fulfilment and purchase by algorithms

EY-Parthenon | Page 13
Source: EY-Parthenon Expert Interviews, Secondary Research
 Business Models: Summary of Findings
We have assessed these models based on their Relevance to Nestlé and Time to
Maturity and categorised them into clusters based on these findings

Initial Assessment of 9 Short-Listed Trends

Brand Fragmentation & Agility

High

Things as Buyers

D2C: Endgame
Supply Chain Transparency
Relevance to Nestlé

Key: Clusters
The Circular Company Real Time Fulfilment
Engage as
Priority

E-farming Invest
Next Generation Physical Retail Strategically

Stay Close &

Monitor

The Asset Light Company

Low

Long-Term Near-Term
Time to Maturity

EY-Parthenon | Page 14
Source: EY-Parthenon Analysis
Business Models: Summary of Findings
The EY-P assessment has been considered and summarised below
Likelihood Impact on EY-P
Trends Rationale
to Emerge Nestlé Recommendation

► There are significant barriers to enacting this business model at a company-

The Circular Company Invest Strategically level. However it has clear relevance to Nestlé and there may be attractive
short-term investment opportunities

► Model is fast emerging but will primary be driven by Agricultural players.

E-farming Invest Strategically There are likely short-term opportunities for Nestlé to create
partnerships/contribute to research
► Blockchain technology could be truly transformative. However this model is
Supply Chain
Invest Strategically a long way from maturity. Nestlé should continue to make early
Transparency
investments/partnerships
► An impactful model which is fast-emerging. However this will primarily be
Real-Time Fulfilment Invest Strategically driven by tech./logistics players. Near-term opportunities are partnerships

► New physical retail venues are fast-emerging in US and China. They offer
Next Generation
Engage as a Priority Nestlé an opportunity to create closer consumer connections and engage
Physical Retail
with new channels
► The model is fast-emerging, driven by the development of IOT technology. It
Things as Buyers Engage as a Priority has fundamental impact on routes-to-market and branding and will pose
challenges to large CPG players

Brand Fragmentation &

► Creating a more fragmented and localised portfolio would offer Nestlé the
Engage as a Priority opportunity to engage with global food trends. It should engage as a priority
Agility

The Asset-Light ► Model is largely untested and appears to have strongest relevance to small
Stay Close & Monitor
Company players; if model develops it could create opportunities and threats

► DC2 models are well-established but their long-term viability will be tested
D2C-Endgame Engage as a Priority in the next decade; the size of the prize is too large to ignore and Nestlé
should continue engaging
EY-Parthenon | Page 15
 Business Models: Summary of Findings
The business models are fast emerging in the US and China; in several cases they are
entering the mainstream

Current Status of Business Models Current Status of Business Models

USA China

Expansion Expansion
(Model Becoming Well-Established) 4 (Model Becoming Well-Established) 4
3
1

1 5
Emergence Emergence
(Model Emerging) 6 (Model Emerging) 8
5 3
2 2

9 6
7
8
Development Development
(Model In Development) 7 (Model In Development)

Inception Inception
(Early Stage Model ) (Early Stage Model)

Business Models
Stay Close &
Engage as a Priority Invest Strategically
Monitor
1 2 3 4 5 6 7 8 9
Brand
Next Generation The Circular Supply Chain Real-Time The Asset-Light
Things as Buyers Fragmentation & D2C-Endgame E-farming
Physical Retail Company Transparency Fulfilment Company
Agility

EY-Parthenon | Page 16
Source: EY-Parthenon Analysis
 Business Models: Summary of Findings
Most models are more nascent in Germany and, in particular, in Mexico

Current Status of Business Models Current Status of Business Models

Germany Mexico

Expansion Expansion
(Model Becoming Well-Established) (Model Becoming Well-Established)

Emergence 3 Emergence
(Model Emerging) (Model Emerging)
4
5
8
8
3
1
2 1
Development Development
(Model In Development) 7 (Model In Development) 5
9
2
6
6
7
Inception Inception
(Early Stage Model) (Early Stage Model) 9

Business Models
Stay Close &
Engage as a Priority Invest Strategically
Monitor
1 2 3 4 5 6 7 8 9
Brand
Next Generation The Circular Supply Chain Real-Time The Asset-Light
Things as Buyers Fragmentation & D2C-Endgame E-farming
Physical Retail Company Transparency Fulfilment Company
Agility

EY-Parthenon | Page 17
Source: EY-Parthenon Analysis