Rebecca Kent
Chris O'Donnell, General Manager of confectionery at Nestle. Hello and welcome to this podcast.
Chris O’Donnell
Hi, Rebecca. Thanks for having me.
Rebecca Kent
So you're opening up a Kit Kat boutique store in Sydney this week. What the store is actually doing is premiumising the humble KitKat. Just explain that concept to me.
Chris O’Donnell
You're right, we opened actually on Saturday, in MidCity in Sydney, our second KitKat chocolatory, which is a concept which brings to life KitKat in a way that you will have never experienced before.
And it's all about bringing an element of discovery and creativity to consumers who either love KitKat or love chocolate.
And what you refer to around premiumisation could be interchanged with a word that we also use, which is which is ‘value-up’, which is all about adding additional value to consumers. It's providing something unique that you can't get anywhere else. And in the current landscape, which we're all operating in, consumers are looking for a more immersive experience and KitKat’s a very well-known proposition. It's over 85 years-old here in Australia. And to create a concept that consumers can come and experience something that they know is very familiar, but at the same time is very different, offers a lot of value to consumers. The KitKat chocolatory is all about that adventure. It's about giving people the opportunity to come and just immerse themselves in chocolate. So, if you love chocolate, if you love KitKat, then this type of concept is going to appeal to you.
Rebecca Kent
So have you done it with other chocolates, other Nestle chocolates and confectionery? Just give me an example of how you know this works.
Chris O’Donnell
No, we haven't done any other chocolates, but we've certainly done it on KitKat. We actually tested this concept back in 2014, in Sydney, under a concept called KitKat studio. It was our first step into retail - so a direct to consumer business model. But it was also our first step into offering consumers customisation and personalisation - a really different proposition for us as a business and certainly for the brand.
From that, we used that first pop up, which was only six weeks in the lead-up to Christmas, as a way of learning about this idea. It has evolved since that first pop-up that was six, seven years ago.
We opened our first permanent store in Melbourne, back in 2015, under KitKat chocolatory. And we then were able to likewise use that as a way of learning about how we can adapt and optimise our concepts that we then took into the KitKat chocolatory in Sydney that we opened this week.
And we've brought new concepts, new ideas, new ways that consumers can experience our brand that you can't get anywhere else in the world. KitKat chocolatories actually started in Japan. There are a number of them around the world, about 15. But in Sydney, are experiences that you can't get anywhere else in the world, including things like chocolate trains. We've got an entirely new product offering an assortment. There's variety that you can't get anywhere else in the world.
So we've learnt as much as we can from our own experience from the very start of a six-week pop-up through to our permanent store, plus what's happened globally, to bring something truly unique to Sydney.
We know Sydneysiders have been in lockdown for three months. So they're looking for a really immersive experience and they won't be disappointed when they go to the KitKat chocolate store in Sydney.
Rebecca Kent
So what are some of the success metrics that you have seen and measured, say from the Sydney pop-up back in 2014 to the Melbourne boutique store?
Chris O’Donnell
Yeah, so I guess our order of success, our KPIs, might be slightly different to other retailers. First and foremost, for us, it's about brand impact. So it's about utilising this concept as a way of elevating the brand in the consumer’s mind. And there's two dimensions to that: One is their direct reaction to KitKat chocolatory. But also what it means for the brand in the broader retail - so, in your typical Coles, Woolworths, IGA, your petrol and convenience.
We track and measure consumers who are new into KitKat chocolatory, whether they've tried KitKat before or maybe they haven't consumed it recently. And then we can see what kind of impact that has on our brand more broadly across our retail footprint, and see that it's having a positive impact on perception and sales of our standard KitKat ‘four finger’ as an example. So for us, that's the most important metric that we test. We validate this and we track it ongoing.
We look at this also as an innovation incubator. So as you said, we were able to use the KitKat chocolatory as a way of testing your concept. So, a critical KPI for us is to put new concepts, to validate them, get direct consumer feedback. And that then informs the pipeline that we develop for our retail presence across general retail. So for us, this creates a fantastic platform to have a direct connection with consumers to get them to try new KitKat creations. That not only helps us optimise the boutiques, but also helps us develop our pipeline. And then lastly - stuff that you'll be very familiar with – there’s our sales and our profit contribution. The direct revenue stream we measure obviously very closely. But for us the order of that's quite interesting: brand impact, the role it plays as an innovation incubator, and then obviously, as a direct revenue stream, measuring for ourselves and our profit contribution.
Rebecca Kent
Data is so important. I’m curious to know how, if someone visits your boutique store, how you know whether they've had a KitKat experience before – you were saying that’s something that you measure.
Chris O’Donnell
Yeah, so we have a number of ways of accessing consumer data. Either those who come into the KitKat chocolatory, they may purchase and choose to sign up, they may sign up for our website, they may call us directly for our consumer engagement services team here, and promotions that we run. If consumers are providing the data to us, then we're able to get a one consumer view of that person so we can see at what point they're interacting with us. Whether they're coming directly in through us, our consumer engagement team, or through our store. That gives us a good guide as to consumers’ penetration of the brand across different touchpoints. So it allows us to see whether they're buying in retail, and they'll tell us, or in the KitKat chocolatory.
So, while obviously data is critical for us. It's a way of helping us optimise our plans. And it allows us a much broader view of the consumer than just one touch point, such as the retail store.
Rebecca Kent
And how has the Coronavirus changed things for you?
Chris O’Donnell
We're noticing a very interesting behavior with consumers, which ultimately is slightly different to what we saw pre COVID. Less foot traffic still. But people who are out there are actively either looking for an experience, something different, something more immersive, which is wha t we can offer in the KitKat chocolatory. But also the conversion is higher. So less people, but people more out there willing to spend. That's providing a greater level of conversion in store, which we can see in our data as well.
Rebecca Kent
Some would still say opening up the store, now, at this time, even though consumers are sort of milling about, is pretty brave considering retailers are having cash flow issues, and you know, struggling to pay rents and whatnot. Have you kind of adjusted your expectations from the store given the past few months?
Chris O’Donnell
Yeah, I think it's pretty early to see how this is going to play out. Longer term, what we know is that there's a broad shift in ecommerce. And what we've ensured is that our ecommerce platform replicates the product offering that you can get our KitKat chocolatory boutiques.
We did that deliberately to ensure that consumers who either don't have access, or are choosing not to shop in retail, are still able to experience almost to the same degree, what you could get inside our boutiques. But obviously, you don't get that personal interaction. That's difficult on an ecommerce platform to replicate.
But ecommerce was a critical step for us as we started to look at how we could evolve our product offering and the current COVID situation has really forced us to move quickly to adapt our model so we could replicate that experience.
But we know consumers are wanting to go in store, and what we've seen is that this concept is creating real delight - people walking past and seeing something totally new and in a category that they love, in chocolate, with a brand that they've known forever, and offer something that they will have never experienced before, is going to help in this current environment.
To provide a concept where consumers can really either experience our creativity, or their own creativity, by creating their own KitKat, means that it's a destination. People are actively seeking out this type of concept and that's certainly something that we believe will help us as we go in the future.
Rebecca Kent
How did the category of confectionery fair over the height of the coronavirus lockdowns?
Chris O’Donnell
Typically, over that period, what you saw in retail was staples like toilet paper, rice, pasta, which was pantry-loaded for the first four weeks of March. And those categories dropped off as it went into April and May.
What you saw in confectionery was a slightly different dynamic. Confectionery is not a category that you would typically go and buy from a shopping list. It's impulsive. It's expandable. So, with more shoppers in store at that time we saw confectionery sales increase. As the lockdown measures came in and the shoppers either shifted to online over that period or shopped less, we saw the sales drop off slightly.
But on balance, I would say the category has been relatively in line with expectations: A slightly stronger March-April and a slightly lower-than-expected April-May. But it has returned to normal as consumers have started to go back to their normal buying behavior. We've seen the confectionery category continue on its path, which is roughly around about 3 to 4 percent growth per annum.
Rebecca Kent
Yeah, wow. And supply Chain challenges were very widely reported. How badly was Nestle affected by this? And also, you were talking about your online channels being extremely important. So I'm interested to know what your fulfillment strategies are for online, because we know a lot of companies are adjusting that as well.
Chris O’Donnell
Let me answer the second question first. If you look at online, we would have seen somewhere between in 40 to 100 percent uplift in our general retail business - that's primarily through the clicks and mortar, your Coles and Woolworths ecommerce platforms. That's restored to a very strong growth rate of around about 40 to 50 percent. So it's still continuing to grow very, very well.
In the ecommerce part of our KitKat chocolatory, we saw growth of around about 300 to 400 percent over that period. That was primarily as we actually had our store in Melbourne close and consumers shifted to ecommerce. We saw significant uplift and that's continuing at a very high rate.
Fulfillment, yes, very challenging. I'd say more broadly, the supply chain challenges over that period were one definitely of sourcing. We're very fortunate in that all of our products are primarily produced here, in Australia. We have our factory in Melbourne for chocolate, and also for our sugar confectionery brand. So our production has continued. Sourcing ingredients meant that we needed to have contingency plans - we needed to put what we call our business continuity plans in place to ensure that we had various sources of supply so that we could keep producing and keep supply in the market. So, challenging, it required a lot of contingency planning. But we have got through the worst of it, at least, for today.
Rebecca Kent
So the store is located in MidCity, Sydney. Most people shopping or milling about that area are office workers and tourists. How do you know where a store like this really belongs? What was your location strategy?
Chris O’Donnell
Yeah, as you said, I think we need I guess three consumer groups to make this successful for us. Tourists are a big part of our platform for our boutique Melbourne. Consumers are coming in whilst on vacation here in Australia, and they're buying products and then taking them back home. That's obviously changed in the current environment. So what we selected, our location in MidCity also provides us with access to people who are there more frequently - office workers. And what you can get the KitKat chocolatory on a more daily basis, frequent basis, is a fantastic cup of coffee or hot chocolate with your KitKat. So for people who work in around the area, it's providing you with a reason to go in there every day.
And also, we know certainly a younger demographic are there, in the city, in Pitt Street, who are shopping. It's those consumers who are coming in potentially on the weekend to shop and they're looking for something that's a little bit different, a little bit more of an experience. Our location we selected on the basis of having high foot traffic, but also very central that allows people to visit our stores as part of a destination route. So they might be going in for shopping, but they'll put on their list that they want to stop into the KitKat chocolatory, so it had to be close to the action. And that's why we picked MidCity.
Rebecca Kent
Yeah, so I'm interested also to know what expectations you have of your landlord there in supporting the success of your store. Collaboration between retailer and landlord is critical. And we've seen that, especially over the past three months. So it'd be great if you could tell me how you're looking to support each other in drawing the right people to your store.
Chris O’Donnell
I think you hit the nail on the head. It's all about working together. What we know as a concept KitKat chocolatory offer landlords is drawcard to bring a different consumer group in. They also spend more time in our store. Our main attraction in the KitKat chocolatory is the concept called ‘create your break’ that allows you to customise your own KitKat from selecting your chocolate, your ingredients, your packaging, and we make it in our kitchen by our chocolatiers, by hand, on the spot. And that takes about 90 minutes. It takes a little bit of time for us to make it, we then have to chill it, and then we have to pack it up. And that obviously means that the consumer who's coming in and bought that concept then needs to spend the next 90 minutes in the shopping center. So not only does this attract a whole bunch of new consumers that may not typically have come in, it creates an opportunity for them to then spend more time in the shopping centre, which then benefits the other retail outlets around.
For us, it's definitely in terms of what we expect, is someone who can help drive consumers into our store. Also some flexibility around how we can bring to life the concept.
What we've done in MidCity is created a much more disruptive experience in that if you happen to be walking from George to Pitt, you can't help but see the KitKat chocolatory, it really stands out. Our landlord has been very good in helping us bring that to life.
Rebecca Kent
All right, Chris O’Donnell, general manager of confectionery at Nestle, thank you so much. It's, it's been fascinating. I love me a KitKat, so I'll be heading down to the store very soon to check it out.
Chris O’Donnell
Alright. Thanks, Rebecca. Thanks for having me.
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