Nestlé recently announced the launch of a Fairtrade-certified coffee, called Partners’ Blend. This development follows a surge in sales of Fairtrade products, which consumers buy in the knowledge that a fair trade price has been paid to farmers in the developing world. A recent Mintel survey of consumer awareness stated that one in two adults can now correctly identify the Fairtrade logo, and four out of five people say the independent guarantee is important to them.
Nestlé has aimed Partners’ Blend at consumers who are interested in development issues but who do not yet buy products branded as ‘fair trade’. It could be inferred from this that the company is not planning to take market share from established Fairtrade brands, nor that this coffee brand is intended to solve any reputation issues Nestlé has had in the past.
What are the investor relations ramifications of Nestlé’s move? In terms of shareholder value, the jury is still out, and sales of the coffee are yet to be proven. ‘But it’s a great start,’ says Emma Howard-Boyd of Jupiter Asset Management. ‘It’s important that these steps are acknowledged.’ She does add, however, that unless fair trade becomes part of Nestlé’s growth strategy and is reflected in other product offerings, long-term shareholder value benefits will remain to be seen.
Kirsty Jenkinson and Sagarika Chatterjee at F&C Asset Management similarly believe it is doubtful whether Nestlé’s move into fair trade will have a discernable financial impact in the near term but also point out that the company is showing it is receptive to an evolving issue and is trying to keep track of what is happening in its marketplace.
So how can the investment community calculate the effects of Nestlé’s decision? Nestlé will report sales figures for Partners’ Blend to the Fairtrade Foundation, which certifies the coffee. However, Hilary Parsons, head of corporate affairs at Nestlé, says the issue of whether those figures will be more widely reported remains to be addressed. Without such transparency the effects of this decision in shareholder value terms will be hard to determine. Parsons adds that although the expansion of fair trade across product categories has not been ruled out, Nestlé is concentrating on coffee for now.
The long-term effects on Nestlé’s shareholder value depend on how this decision impacts the company’s reputation and whether its fair trade products are commercially successful. Ruth Rosselson, spokesperson for Ethical Consumer magazine, warns, ‘Nestlé will continue to be criticized until it changes its practices wholesale.’ She does, however, agree that ‘small steps are better than no steps.’
The investment community seems to believe the short-term effects will be negligible. The longer term may well depend on whether the fair trade movement, which has long believed the adoption of fair trade principles by multinationals will drive the agenda into the mainstream, is correct. Partners’ Blend is certainly a step in that direction.
