Nestle ice cream in cuba case study

Marketing Case Study (Nestle Ice Cream In Cuba)

Each course participant will hand in one independently written case analysis report. Each write-up should be restricted to 6 pages- double-spaced, normal 12 font (includes the executive summary but excludes tables, exhibits, etc.). . Make sure you address all the assigned case questions (already posted as a Bb Learn announcement and sent out as an email) as part of your analysis and include an executive summary (1 page) at the beginning of the case analysis that briefly summarizes the case’s main issues and the marketing decisions you have made and the rationale behind those decisions. All individual case write-ups are due to be submitted by 6 pm (EST), Thursday, July 21, in the Bb Learn Assignments Dropbox. Late submissions will not be accepted.

Case discussion questions:

1. How would you characterize the operating environment for foreign firms in Cuba?

2. Has Nestle's ice cream business in Cuba been a success? Use available data from the case to estimate Nestle-Coralac profits to support your answer?

3. How can Nestle position itself for future success, given current market position and potential changes on the horizon?

4. What are the prospects for future investment and economic growth in Cuba?

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cuba.pdf©2015 by the Kellogg School of Management at Northwestern University. This case was prepared by Kyle Bell ’15 under the supervision of Professor Russell Walker. Cases are developed solely as the basis for class discussion. Cases are not intended to serve as endorsements, sources of primary data, or illustrations of effective or ineffective management. To order copies or request permission to reproduce materials, call 800-545-7685 (or 617-783-7600 outside the United States or Canada) or e-mail custserv@hbsp.harvard.edu. No part of this publication may be reproduced, stored in a retrieval system, used in a spreadsheet, or transmitted in any form or by any means—electronic, mechanical, photocopying, recording, or otherwise—without the permission of Kellogg Case Publishing.

RUSSELL WALKER AND KYLE BELL ’15 KEL919

Nestlé Ice Cream in Cuba

Elsewhere in ice cream, we inaugurated a new factory in Cuba in April.

With those thirteen words buried deep in the company’s 2003 annual report, Nestlé announced to the global investor community that it was officially open for business in Cuba. The announcement had been a long time coming. In 1996, as the Castro regime began welcoming limited international investment back to the island, Nestlé signed a letter of intent with the Cuban government to build an ice cream factory in Havana’s El Cotorro neighborhood. The plant, a joint venture between the Cuban government and Nestlé, was to produce high-quality helados for tourists and affluent Cubans.1

Nearly twenty years after this initial decision to enter the Cuban market, it was not clear how successful the investment had been and what the future might hold for Nestlé on the island. The 2014 announcement of intentions to normalize diplomatic relations between Washington and Havana made answering these questions increasingly urgent, as U.S. companies began to eye the Cuban market and existing foreign investors in Cuba prepared for new competitive threats and expanded market opportunities.

Stakeholders inside and outside Nestlé needed to evaluate the firm’s investment in Cuba as well as its strategy for future growth.

Nestlé

Tracing its roots to the establishment of the Anglo-Swiss Condensed Milk Company in 1866, Nestlé grew to become one of the world’s leading consumer products companies. By 2014, the company had grown to over 300,000 employees and reached approximately $100 billion in annual sales; its market capitalization eclipsed $250 billion in early 2015 and the company reported a return on equity of 23 percent globally.2 Many analysts labeled the Swiss firm the world’s largest food and beverage company (see Exhibit 1).3

1 “Nestlé, Coralsa Make Ice Cream Together,” CubaNews, June 1, 2003. 2 Nestlé, “Key Figures,” http://www.nestle.com/aboutus/keyfigures (accessed May 1, 2015); “Nestlé SA,” Financial Times, http://markets.ft.com/ research/Markets/Tearsheets/Financials?s=NESN:VTX (accessed September 14, 2015); “Nestlé: Food Giant with Compelling Dividend,” Seeking Alpha, http://seekingalpha.com/article/2469755-nestle-swiss-food-giant-with-compelling- dividend (accessed September 14, 2015). 3 For example, “World’s Most Admired Companies 2015,” Fortune, http://fortune.com/worlds-most-admired-companies/nestle-33 (accessed May 27, 2015); Alexander Hess, “Companies that Control the World’s Food,” USA Today, August 16, 2014.

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As Nestlé grew, the firm’s product portfolio dramatically expanded. For nearly seventy years, the company specialized in condensed milk and infant cereal. It was not until the 1930s that Nestlé launched successful businesses in powdered beverages and instant coffee (Milo in 1934 and Nescafé in 1938).4 Rapid innovation and numerous acquisitions accelerated the growth of Nestlé’s portfolio over the ensuing decades. By 2015, the company sold over 3,000 brands in thirteen distinct product categories ranging from bottled water to pet care (see Exhibit 2).

In addition to product diversification, international expansion helped fuel Nestlé’s corporate growth in the twentieth century. As of early 2015, Nestlé operated in 197 countries, giving the firm global scale and extensive experience navigating new markets. The firm divided the world into three main operating regions: Europe, Americas, and Asia/Oceania/Africa. Nestlé Americas accounted for 43 percent of corporate sales and employed 33 percent of Nestlé workers; the region also earned a trade operating profit margin of 18.8 percent in 2014, compared with a corporate trade operating profit of 15.5 percent over the same period (see Exhibit 3).5 While a significant portion of Nestlé’s sales came from developed economies such as the United States and the EU, the company also built strong businesses in China, Mexico, Brazil, and the Philippines (see Exhibit 4) and was a pioneer in formerly closed markets such as Myanmar.6

Nestlé’s stated corporate strategy focused on transforming the company into a global leader in nutrition, health, and wellness. The firm planned to use its brand portfolio, research and development capabilities, global reach, and talent to deliver healthy results for both consumers and investors. In particular, Nestlé’s leadership identified four potential growth areas for the firm: nutrition, emerging markets, out-of-home consumption, and “premiumization”7 (see Exhibit 5). The firm planned to apply this roadmap to all business units and markets.8

Despite this nutritional focus, ice cream was an important part of the company portfolio. Nestlé sold ice cream and ice cream–based products under the Nestlé brand and other well-known brands such as Häagen-Dazs, Edy’s, Dreyer’s, and Skinny Cow. “Milk products and ice cream” was the firm’s second-highest selling category after powdered beverages, accounting for 18 percent of global revenue and 28 percent of regional sales in the Americas (see Exhibit 6). Ice cream products alone made up 4.5 percent of 2014 corporate sales and earned a trade operating profit of 16.4 percent that year.9

Surprisingly, Nestlé ice cream may have succeeded in part because of the firm’s new health and wellness goals. In 2010 the company began selling a new line of smaller-scale ice cream cups under the Dreyer’s, Häagen-Dazs, and Skinny Cow brands in the United States as a way of translating key elements of its strategic roadmap to the U.S. ice cream business. The cups provided portion control (wellness), were portable (on-the-go consumption), and allowed consumers to buy a range of interesting flavors (customization, premiumization). Following a concerted retailing campaign, the new cup line became a successful part of Nestlé’s U.S. ice

4 Nestlé, “About Us: Key Dates,” http://www.nestle.com/aboutus/keydates (accessed May 27, 2015). 5 Nestlé 2014 Annual Report. 6 Peter Vanham, “Nestlé: Nescafé for Myanmar,” beyondbrics (blog), Financial Times, October 5, 2012. 7 Nestlé defines “premiumization” as a strategy for “enhancing consumers’ lives, whilst creating additional value per consumption moment: many consumers are not looking to eat and drink more; they are looking to eat and drink better.” Nestlé, “The Nestlé Roadmap to Good Food, Good Life,” http://www.nestle.com/asset-library/Documents/About_Us/Nestle_Roadmap.pdf (accessed September 25, 2015). 8 Nestlé, “About Us: Strategy,” http://www.nestle.com/aboutus/strategy (accessed June 1, 2015). 9 Ibid.

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cream business, increasing cup category sales by 35 percent in the first six months after the launch.10

Foreign Investment in Cuba

In the nearly six decades since the Cuban Revolution, the Cuban government’s positions on foreign investment—and economic policy in general—had shifted dramatically, bringing important changes for multinational companies operating in or evaluating opportunities on the island (see Exhibit 7).11

The early years of the regime were characterized by Soviet-style central planning and expropriations of foreign assets. Foreign investment was largely discouraged, as the regime sought to assert national economic sovereignty. Nevertheless, in the 1990s, after the fall of the Soviet Union, Cuba suffered an economic crisis and the Castro regime was forced to change the country’s policies to prevent economic collapse and maintain power. The government liberalized regulations on foreign investment and Fidel Castro made personal appeals to attract multinational companies. The change was short-lived. As the economy began to recover by the early 2000s, the Castro regime reversed its position towards foreign investment, canceled joint venture contracts, allowed input prices to spike, and halted other market-oriented policies. Between 2002 and 2008 the number of foreign joint ventures in Cuba fell by half (see Exhibit 8).12 After taking power in 2008, Raúl Castro passed a number of economic reforms, including a new foreign investment law that reinforced—and perhaps even advanced—policies of the 1990s.

Under Cuban law, foreign investment could take three forms: joint ventures, international economic associations, and wholly owned foreign ventures. Joint ventures between the government and a foreign multinational were the most common. All business ventures were required to be approved by the Cuban government; approval was granted for a fixed time period (typically ten or fifteen years) after which the government could, and often did, change the investment terms. The limited approval period and threat of renegotiation had important implications for project valuations and financing, lowering the potential net present value of investment opportunities, incentivizing higher levels of debt, and discouraging investment towards the end of the approval period.13

To complicate matters further, foreign companies also had to grapple with Cuba’s dual currency system. Cuba had two forms of legal tender: the convertible peso (CUC) and the Cuban peso (CUP). The CUC, which was pegged to the U.S. dollar, was approximately twenty-five times as valuable as the CUP. Cubans were paid in CUPs and used them for everyday purchases. However, most imported products—often sold through government-run retailers called “dollar stores”—were priced in CUCs, and tourists visiting the island paid for food, hotels, and services with CUCs.14

10 Decision Insight, “Nestlé’s Merchandising Location Strategy Wins with Retailers,” 2010. 11 Carmelo Mesa Lago, Cuba en la Era de Raúl Castro [Cuba in the Era of Raúl Castro] (Madrid: Editorial Colibrí, 2012). 12 Richard Feinberg, “The New Cuban Economy: What Roles for Foreign Investment?” Latin America Initiative at Brookings Institute, December 2012. 13 Ibid. 14 For more information on Cuba’s dual-currency system, please see “Cuba to Ditch Complicated Dual-Currency System,” World Finance, January 21, 2014.

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The currency system had important labor and marketing implications for foreign companies operating in Cuba. First, all employees in Cuba were hired by a government employment agency, which essentially “loaned” employees to firms. Foreign firms paid employee wages to the government agency in CUCs and the agency, in turn, paid the employees in CUPs; Richard Feinberg, a Cuba scholar at the Brookings Institute, called this the “world’s heaviest tax on labor.”15 Second, the currency system affected product pricing and customer segmentation. Foreign firms often sold products only in CUCs, which effectively made the products unaffordable for most ordinary Cubans and led many foreign firms to target tourists. During the first wave of foreign investment in Cuba, annual tourism to the island was modest—only 750,000 international visitors came to Cuba in 1995. By 2014, however, nearly 3 million international travelers came to Cuba, spending a total of 18 million nights on the island (Exhibit 9).16

Given these obstacles, foreign direct investment in Cuba was small and lagged far behind similarly sized emerging markets (see Exhibit 10). Cumulative net investment flowing to the island was estimated to be $2 billion to $3.5 billion by 2009.17 The number of firms operating in Cuba was also relatively small: in 2011, approximately 250 foreign-owned joint ventures operated in Cuba versus 911 in Chile, 754 in Croatia, 2,761 in Malaysia, 5,144 in Portugal, and 2,049 in Taiwan.18

Tourism, energy, and mining made up 55 percent of foreign investment in Cuba, and some of the largest international players on the island were from these sectors (e.g., Sol Melia, a Spanish hotel chain, and Sherritt, a Canadian nickel miner).19 Scholars classified these types of investments as “resource-seeking,” since they entered the market in order to capitalize on location-specific natural resources.20 Investment by “market-seeking” consumer goods companies, on the other hand, was relatively small. For example, only 7 percent of foreign-owned businesses in Cuba operated in the food sector (see Exhibit 11). This dearth of consumer goods companies indicated the operational challenges of producing consumables in Cuba and the limitations of the domestic Cuban consumer market.

Nestlé Joint Venture

In this challenging environment, Nestlé saw an opportunity to manufacture and market premium ice cream. The firm formally agreed to enter the Cuban market during the brief reform period of the 1990s, signing a letter of intent with the Castro regime to build an ice cream factory on the island. The agreement established a new joint venture called Coralac, which would be owned 60 percent by Nestlé and 40 percent by Coralsa, a government ministry that invested in

15 Feinberg, “The New Cuban Economy: What Roles for Foreign Investment?” 16 Oficina Nacional de Estadisticas de Cuba, Turismo 2014, http://www.one.cu/aec2013/esp/15_tabla_cuadro.htm (accessed June 1, 2015). 17 Feinberg, “The New Cuban Economy: What Roles for Foreign Investment?” 18 Ibid. 19 Ministerio del Comercio Exterior y la Inversión Extranjera (MINCEX), “Cartera de Oportunidades de Inversión Extranjera” [Portfolio of Foreign Investment Opportunities], 2014. 20 For a theoretical summary of FDI, please see Chiara Franco et. al. “Why Do Firms Invest Abroad? An Analysis of the Motivations Underlying FDI,” University of Bologna, August 2008.

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food projects.21 It is likely that this arrangement followed the government’s typical investment approval process, including a fixed initial time horizon of ten or fifteen years.

Seven years after signing the initial agreement, the Nestlé-Coralac factory opened in the El Cotorro district of Havana. The $7.9 million factory had a maximum capacity of 12 million liters (approximately 3.17 million gallons) of ice cream per year and was designed to produce over twenty flavors, ranging from ice cream classics, such as chocolate and vanilla, to tropical varieties, such as mango and coconut.22 In 2015, the plant was producing about 800,000 liters per month, which was approximately 80 percent of capacity.23

Operations

Like many businesses operating in Cuba, Nestlé-Coralac had difficulties finding reliable local suppliers for its inputs. Cuba’s agricultural production had declined substantially since the late 1980s. Annual output of Cuban sugar and milk fell by 85 percent and 55 percent, respectively, between 1989 and 2011.24 Producing one gallon of ice cream required three gallons of milk and approximately one pound of sugar; if Nestlé-Coralac’s factory operated at full capacity it would have required 4,000 cows to produce enough milk, about 7 percent of Cuba’s entire domestic output (see Exhibit 12). This apparent supply shortage was compounded by heavy government regulations in the dairy industry that prevented Nestlé-Coralac from partnering with farmers. In other emerging markets, Nestlé shared equipment and agricultural knowledge with suppliers to ensure a consistent, high-quality supply.25 In Cuba, however, Nestlé-Coralac could only audit its suppliers for quality control purposes, rather than provide technical assistance and training support. As a result, Nestlé-Coralac likely had to import some of the milk and perhaps other inputs.

Marketing Strategy

Nestlé-Coralac also faced three substantial marketing challenges. First, the Cuban ice cream market was dominated by a popular domestic brand, Coppelia. Coppelia had a strong cultural legacy in Cuba—it was the brainchild of Fidel Castro and was symbolically priced at 1 CUP (or the equivalent of just 4 cents) per scoop so anyone could afford it. It also was a staple in popular culture, even appearing in the famous 1993 Cuban movie, Fresas y Chocolate. The main shop, located in the heart of Havana’s Vedado neighborhood, was famous for its long lines (see Exhibit 13) and wide variety of flavors. Yet quality concerns and supply chain issues made it challenging for Coppelia to consistently stock its full range of flavors.

Second, Cuban consumers had limited purchasing power and the country’s dual currency system made CUC-denominated goods, such as Nestlé-Coralac products, too expensive for many Cubans. Finally, Nestlé-Coralac was forced to overcome these obstacles—lack of brand recognition and a higher price than the market leader—without access to traditional forms of

21 “Nestlé, Coralsa Make Ice Cream Together.” 22 Ibid. 23 Aleaga Pesant, “Nestlé No Tiene Cucharitas” [Nestlé Doesn’t Have Little Spoons], Cubanet, February 2010. 24 Mesa Lago, Cuba en la Era de Raúl Castro. 25 Feinberg, “The New Cuban Economy: What Roles for Foreign Investment?”

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mass media communications.26 Newspapers and broadcast media were state-controlled, so there was no free media and no advertising. Only 3 percent of Cubans had access to the Internet and mobile penetration was similarly low.27

In this context, Nestlé-Coralac built a marketing plan focused on providing high-quality ice cream to tourists and Cubans with access to CUCs. The first element of this strategy was simplifying and standardizing the company’s product offering. Despite the ability of the El Cotorro plant to produce a wide range of flavors, Nestlé-Coralac decided to sell only three flavors—typically chocolate, strawberry, and a third seasonal variety—at a given time. The company also chose to sell its ice cream only in uniform, half-liter containers. This simplified approach allowed Nestlé-Coralac to ensure consistent stocking of its products at local retailers.28

The company distributed through hotels, restaurants, and retail outlets in Havana and other popular tourist destinations such as Varadero Beach. Given advertising constraints, Nestlé- Coralac focused on in-store promotion, which was the top driver of brand recognition in Cuba. A key component of this strategy was the distribution of over 1,000 Nestlé-branded ice cream coolers to retail locations. The company ensured that the coolers were clean, well organized, and well stocked, which helped reinforce the brand’s high-quality image.29

The typical retail price of Nestlé-Coralac ice cream was 1.5 to 2 CUCs ($1.50–$2.00),30 equal to about one-tenth of the average monthly state salary in Cuba, making it a minor luxury for most Cubans but relatively affordable for tourists (see Exhibit 14).31 The Cuban government controlled product pricing, preventing Nestlé-Coralac from adjusting these prices to respond to changing market conditions; new products, however, were not subject to the same regulatory restrictions as existing products, so Nestlé-Coralac frequently created new flavors or products to gain pricing flexibility.32

By 2012, Nestlé was the most recognized foreign food brand in Cuba, with 6 percent of surveyed Cubans able to successfully identify the

brand through unassisted recall (see Exhibit 15). Overall, Nestlé was the thirteenth most recognized foreign brand in Cuba, trailing only major apparel, electronics, and soft drink companies. Remarkably, Nestlé was nearly as recognizable as Coppelia in an assisted recall

26 Emilio Morales and Joseph L. Scarpaci, Marketing without Advertising: Consumer Choice and Brand Preference in Cuba (New York: Routledge, 2012). 27 Matthew Creamer, “Rewind: How You’ll Advertise in a Newly Capitalist Cuba,” Advertising Age, December 18, 2014. 28 Ibid. 29 Ibid. 30 Fiona McAuslan, Matthew Norman, and Claire Boobbyer, The Rough Guide to Cuba (London: Rough Guides, 2013). 31 Eric Vilas-Boas, “Infographic: The Cost of an Ice Cream Cone,” Esquire, March 14, 2013. Note that the prices in Exhibit 14 are for ice cream cones, whereas pricing for Nestlé-Coralac ice cream is for the firm’s standard half-liter containers. 32 Feinberg, “The New Cuban Economy: What Roles for Foreign Investment?”

Source: Visit Cuba, “International Trade, Politics and the US Embargo,” http://www.visitcuba.com/travel-guide/ politics-embargo (accessed August 6, 2015).

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survey—60 to 73 percent, respectively—and was the preferred ice cream brand for 27 percent of Cubans.33

Financial Results

Financial information for companies operating in Cuba was limited. Nestlé reported aggregate financial results for the global ice cream business and the Latin American sub-region, but did not report country-specific category results. The Cuban government also did not release financial performance of foreign firms on the island. However, insiders cited by Richard Feinberg at the Brookings Institute indicated that Nestlé-Coralac experienced steady revenue growth and earned profits in line with Nestlé corporate earnings.34 In the company’s 2014 annual report, Nestlé disclosed trading operating profits for Nestlé Corporate (15.5 percent), the global ice cream business (16.4 percent), and the Americas business unit (18.8 percent), providing potential profitability benchmarks for the firm’s Cuban ice cream business.35 These figures also were consistent with Coralsa’s overall profit margin of approximately 15 percent.36

Opportunities for Future Growth

Important changes appeared to be on the horizon for Cuba and companies operating on the island. In 2013 the Cuban government announced plans to unify the country’s two active currencies. As of May 2015 the transition had yet to occur, but foreign firms anticipated that the change could bring short-term economic upheaval as well as long-term market opportunities. In December 2014 the Obama administration announced plans to normalize diplomatic relations between the United States and Cuba, a move many believed could be a precursor to increased economic activity across the Straits of Florida or even a full-scale dismantling of the U.S. embargo against Cuba. The U.S. government had already increased permissible forms of travel to Cuba, liberalized imports of small amounts of Cuban goods, and allowed U.S. telecommunications firms to build infrastructure on the island. American Express, Netflix, and AirBnB had announced plans to open Cuban operations.

These changes brought potential opportunities and challenges for Nestlé in Cuba. Currency unification could allow Nestlé to compete for a larger share of the domestic Cuban ice cream market. Trade liberalization with the United States could help increase access to necessary inputs and allow Nestlé to bring Cuban goods to market in the United States. In fact, there was evidence that Nestlé was taking advantage of the current brand power of Cuban products in the American market, launching a Cuban-inspired line of Nespresso called Cubanía in late 2014.37 On the other hand, however, these economic changes had the potential to disrupt and damage Nestlé’s business in Cuba. Currency unification could bring inflationary pressure, and entry by U.S. firms could bring increased competition to the Cuban consumer goods market. Nestlé’s response to these challenges could determine if the company’s Cuban ice cream venture ended in exit or éxito.

33 Morales and Scarpaci, Marketing without Advertising. 34 Feinberg, “The New Cuban Economy: What Roles for Foreign Investment?” 35 Nestlé 2014 Annual Report. 36 José Carlos de Santiago, “Entrevista a Yolanda Francisca Cáceres Rodríguez, Presidenta de Coralsa” [Interview with Yolanda Francisca Cáceres Rodríguez, President of Coralsa], Caribbean News Digital, April 11, 2014. 37 Nestlé press release, “Nespresso Pays Tribute to the Cuban Coffee Tradition with Limited Edition Cubanía,” September 2, 2014.

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Exhibit 1: Comparison of Nestlé and Competitors (US$) Nestlé PepsiCo Unilever Coca-Cola Mondelēz

Revenue $100 billion $66 billion $52 billion $45 billion $34 billion Market cap $252 billion $141 billion $123 billion $178 billion $63 billion Employees 339,000 271,000 172,000 129,000 104,000

Source: Company websites; Yahoo! Finance.

Exhibit 2: Nestlé Business Units and Sample Brands

Source: Nestlé website.

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Exhibit 3: Sales, Employees, Production, and Profit by Region

Notes: T.O.P.= Trade operating profit

Source: Nestlé 2014 Annual Report.

Exhibit 4: Nestlé Sales in Top Markets Market Sales (in CHF billion) Share of Total (%) United States 23.5 26 China 6.6 7 France 5.5 6 Brazil 5.1 6 Germany 3.3 4 United Kingdom 3 3 Mexico 3 3 Philippines 2.5 3 Italy 2.1 2 Canada 2 2 Switzerland 1.6 2 Other 33.4 36 Total 91.6 100

Source: Nestlé 2014 Annual Report.

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Exhibit 5: Nestlé Strategic Roadmap

Source: Nestlé 2014 Annual Report.

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Exhibit 6: Nestlé Product Sales by Category

Source: Nestlé 2014 Quick Facts, https://www.nestle.com/asset-library/documents/library/documents/about_us/quick-facts-2014-en.pdf (accessed September 25, 2015).

Exhibit 7: Social and Economic Policy Cycles under Castro Regime, 1959– Present

Source: Carmelo Mesa Lago, Cuba en la Era de Raúl Castro [Cuba in the Era of Raúl Castro] (Madrid: Editorial Colibrí, 2012).

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Exhibit 8: Number of Foreign-Owned Joint Ventures in Cuba, 1990–2011

Source: Richard Feinberg, “The New Cuban Economy: What Roles for Foreign Investment?” Latin America Initiative at Brookings Institute, December 2012.

Exhibit 9: Number of International Visitors and International Visitor-Nights in Cuba

Source: World Bank, “International Tourism: Number of Arrivals,” http://data.worldbank.org/indicator/ST.INT.ARVL (accessed June 1, 2015); Oficina Nacional de Estadisticas de Cuba, Turismo 2014, http://www.one.cu/aec2013/esp/15_tabla_cuadro.htm (accessed June 1, 2015).

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Exhibit 10: Country FDI Comparison

Source: Richard Feinberg, “The New Cuban Economy: What Roles for Foreign Investment?” Latin America Initiative at Brookings Institute, December 2012; UN Conference on Trade and Development, “World Investment Report 2014.”

Exhibit 11: Foreign Investments in Cuba, by Sector

Sector Percentage of Foreign

Investments Tourism 42 Energy and mining 13 Industry 10 Food 7 Construction 6 Transportation 4 Agriculture 2 Communications 2 Sugar (and derivatives) 2 Other 12

Source: Ministerio del Comercio Exterior y la Inversión Extranjera (MINCEX), “Cartera de Oportunidades de Inversión Extranjera” [Portfolio of Foreign Investment Opportunities], 2014.

Exhibit 12: Nestlé-Coralac Milk Consumption Analysis Liters of ice cream produced 9,600,000 Gallons of ice cream produced 2,536,051 Gallons of milk required 7,608,154 Weight of milk required (pounds) 65,430,121 Weight of milk required (metric tons) 29,679 Total metric tons of milk in Cuba 507,000 Nestlé share of Cuban milk production 6% Number of cows required 3,207

Note: “Number of cows required” is based on an assumed annual milk production of 2,372 gallons per cow (6.5 gallons*365 days), using data from Purdue. Given that this figure is calculated using milk production statistics from the United States, this number is likely conservative; Cuban cows likely produce less milk per year than American cows, making the true figure higher on the island.

Sources: Purdue University Food Animal Education Network, “Dairy Facts,” http://www.ansc.purdue.edu/faen/dairy%20facts.html (accessed June 1, 2015); Wisconsin Dairy, “Milk Facts,” http://www.eatwisconsincheese.com/dairy/milk/milk-facts (accessed June 1, 2015).

Country Cumulative FDI

($ in billions) Inflows/GDP

(%) Per Capita FDI Inflows Cuba 3.5 <1 ~300 Chile 110.0 5.7 6,532 Costa Rica 14.0 3.9 3,057 Croatia 30.0 4.2 6,863 Dominican Republic 17.0 3.1 1,755 Ireland 113.0 5.8 25,013 Jamaica 10.0 4.9 3,528 Malaysia 90.0 4.4 3,231 Nicaragua 4.0 4.8 710 Vietnam 48.0 6.1 563

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Exhibit 13: Photograph of Lines at Coppelia

Source: Jason Motlagh, “Ice Cream, Socialized: Waiting for Sweet Rapture at Cuba’s Coppelia,” VQR, Spring 2015.

Exhibit 14: Ice Cream Prices around the World

City Average Price of Ice Cream Cone

($) Paris 5.40 Sydney 4.18 Madrid 4.06 Rome 4.00 Montreal 4.00 Rio de Janeiro 3.51 Lisbon 2.68 London 2.36 New York 2.00 Lima 1.94 Los Angeles 1.75 Mexico City 1.49 Bali 1.26 Cape Town 1.12 Bangkok 0.98

Source: Eric Vilas-Boas, “Infographic: The Cost of an Ice Cream Cone,” Esquire, March 14, 2013.

For the exclusive use of Y. Hong, 2016.

This document is authorized for use only by Yinan Hong in Global Marketing Summer 2016 taught by Lawrence K Duke, Drexel University from June 2016 to December 2016.

KEL919 NESTLÉ ICE CREAM IN CUBA

KELLOGG SCHOOL OF MANAGEMENT 15

Exhibit 15: Nestlé Brand Recognition and Preference in Cuba

Brand

Unassisted Recognition

(%) Category 1 Adidas 58 Shoe 2 Nike 39 Shoe 3 Reebok 30 Shoe 4 Sony 22 Electronics 5 Fila 17 Shoe 6 Puma 11 Shoe 7 Phillips 11 Shoe 8 Sanyo 10 Electronics 9 Coca Cola 10 Soft Drinks 10 Panasonic 10 Electronics 11 LG 8 Electronics 12 Chr. Dior 6 Fashion 13 Nestlé 6 Foods

Brand Brand Awareness

(%) Brand Preference

(%) Coppelia 73 NR Nestlé 60 27 Varadero 39 NR Alondra 29 29

Source: Emilio Morales and Joseph L. Scarpaci, Marketing without Advertising: Consumer Choice and Brand Preference in Cuba (New York: Routledge, 2012).

For the exclusive use of Y. Hong, 2016.

This document is authorized for use only by Yinan Hong in Global Marketing Summer 2016 taught by Lawrence K Duke, Drexel University from June 2016 to December 2016.