Nestle - the Global Giant and Global Food

Published: 2021-06-17 08:14:56
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Nestle is the largest food company in the world, in terms of revenue. It is a Swiss Company established in 1866 by its founder Henri Nestle. While its main foray is foods and drinks, it has hundreds of products, nearly 2000. Some of its most famous products and brands include Maggi, Kit Kat, Nespresso, Nescafe, etc. The overall turnover for Nestle was approx 90 billion Swiss Franc in 2016. It operates 418 factories in 86 countries, employing nearly 339,000 people worldwide. Its products are available in 191 countries of the world. Nestle also is a leading researcher in the field of nutritional sciences. It invests nearly 1.5 billion Francs yearly on research and development. Currently, Nestle has 17 R&D and Testing centers worldwide.
Vision
Nestlé’s vision of making good food central to enjoying a good healthy life for consumers everywhere. This implies gaining a deeper understanding in many areas of nutrition and food research and transforming the scientific advances into applications for the company.Having a broad vision the company is doing its best for their consumers to show the great sense of responsibility.
“Nestlé’s aim is to meet the various needs of the consumer every day by marketing and selling food of a consistently high quality”.
The confidences that consumers have in our brands is a years of knowledge in marketing, research and development, as continuity consumers relate to this and feel they can trust our products
Mission
Make better food so that people live a better life
Objectives & Goals

Nestle does not favor short-term profit at the expense of successful long-term business development.
Nestle recognizes that its consumers have a sincere and legitimate interest in the behavior, beliefs and actions of the Company behind brands in which they place their trust and that without its consumers the Company would not exist. So the needs & wants of consumers should be considered.
Nestlé believes that, as a general rule, legislation is the most effective safeguard of responsible conduct, although in certain areas, additional guidance to staff in the form of voluntary business principles is beneficial in order to ensure that the highest standards are met throughout the organization.
Nestlé is conscious of the fact that the success of a corporation is a reflection of the professionalism, conduct and the responsible attitude of its management and employees. Therefore recruitment of the right people and ongoing training and development are crucial.
Nestlé continues to maintain its commitment to follow and respect all applicable local laws in each of its markets

Macro-Environmental Analysis
The recent global political scenario has been one of unrest. There have been extensive problems in the North African countries of Syria and Libya. Nestle Syria has its business negatively affected due to the existing political issues and may take even further beating in the near future. Nestle Libya has been shut down already and there are very slim chances of it opening up. Political problems in Ivory Coast, exporter of 40% of the world’s cocoa, caused a serious rise in the price of cocoa, used for manufacturing chocolate. The incident also resulted in a scanty supply of the cocoa beans, which affected Nestle’s chocolate production. Wildfires in Russia devastated crops, especially wheat, causing a governmental ban on wheat exports. The breakfast cereal segment, where Nestle has a presence was affected by this scarcity in supply and rise in prices. Frost in Brazil destroyed a huge magnitude of coffee beans, causing exports being limited by the government. This took the price of beans to their recent highest mark, which in turn directly affected the business of Nescafe – one of the highest profit earners in Nestle, incurring lesser profits than usual. Nestle should strategize to source their basic ingredients from other locations if and when required. On the other hand, Nestle is increasing its product portfolio in the developing nations, especially the BRIC countries, with the fullest co-operations from their political systems. Kenyan government is presenting special business privileges to Nescafe Kenya, Nestle products of 16 separate African countries are manufactured and exported from there. Many other African countries are opening up their doors to Nestle, which believes in the huge market potential of Africa
Economic
The recent global economic turmoil has weakened the world economy by quite an extent. The effects of the recession are gradually subsiding as the economy is making a slow but steady comeback. The global market is yet to recover from the sustained shock, as there are anticipations of another recession. But the disastrous conditions have not been able to dampen the Nestle brands, evident from the recorded net profit of CHF9.5 billion in 2010-2011, a leap of 7.5% over the previous year. The developing markets are starting to take center places in the world economy, with consistent double-figure annual GDP growth. These would be the new pastures for companies like Nestle.
Social
The urban middle class is shifting to the consuming of organic and healthier food. According to the experts, the food industry will go through a paradigm change in the near future where oily, spicy or food with high levels of fat/cholesterol will experience a nose-dip, affecting all the FMCG companies. This would hasten these companies to the move towards the healthy food market, which is still relatively less competitive. This presents an opportunity to Nestle which it should capitalize upon (it already has healthy food in portfolio and these should be increased in numbers).
Technological
In this age, technology plays a vital part in every organization’s strategic plans. Technology aids an organization to attain competitive advantage and sustainable organic growth. Nestle has always been at the forefront of technology usage, innovating new and improved ways of creating better products through a separate dedicated wing called Systems Technology. Besides these, the internet has enabled to streamline the company’s operations. Nestle also uses social networking to reach out to its customers successfully.
Environmental
The world population has become very environment-conscious in the recent years and it is mandatory for the company to show their concern through their products and environmental-friendly activities. Else, the governments might impose ban on them or might penalize them heavily. A failure in environmental laws compliance might see them being blacklisted by environmental organizations, which would affect business severely. Nestle is at the top of a list of multinationals cutting down carbon emissions. Its environmental sustainability policy declares that it wants to create better life for its customers along with creating better food, not to mention its own value equity. It also promises to adopt environmentally sustainable business practices and create environment-oriented programs. Nestle donates generously to AmeriCares, Project WET, The Nature Convervancy etc. and has its own water conservation project.
Legal
Nestle had been accused and severely criticized for promoting the Infant formula to the mothers of the third world countries, depriving the children of their mothers’ milk. This was against the International Code of marketing breast milk substitutes, which had created a mandate against ‘breast milk substitute’ advertisement. This resulted in legal hassles and boycott of Nestle in many parts of the US and Europe and legal action by many groups of activists, which runs till today. Nestle has been accused of using child labor in its third world country cocoa farms and manufacturing units, breaking the Child labor laws. In fact, they have been accused of signing an agreement allowing the usage of child labor in cocoa farms in Ivory Coast. International Rights Advocates filed a suit against Nestle on this issue. Buying of milk from illegal Zimbabwe farms resulted in legal suits and caused turmoil in Nestle’s business in the country. Nestle Pure Milk dairy products in China were found to be contaminated with melamine, causing the death of 6 infants and sickness in over 300,000 children. Legal case was filed against Nestle and more than 5 types of Nestle Dairy products were banned from china and Taiwan. Misleading advertising claiming Nestle bottled waters to be the most environmentally responsible product. ‘Greenwashing’, as this campaign came to be known as, tarnished Nestle’s image in North America and affected its business. Nestle has been recently accused of testing untested nanotechnology on 40 South African women causing serious harm to their skins.
Porter’s 5 forces – Nestle

Bargaining power of suppliers:

Nestle has over 10,000 products in its portfolio and their productions demand a sustainable, healthy and fresh supply of raw materials from its supplier, who areclose to 200,000 in number. Therefore, only the best and most reputable ones are chosen for the job. Nestle generally maintains good terms & long relationships with its suppliers, which ensures the quality of raw-materials. Besides these, Nestle also advises them on how to streamline their own businesses. The suppliers, however, enjoy very little bargaining power with Nestle because of the company’s stature and power to replace the supplier with a better one.

Bargaining power of buyers:

The bargaining power of the buyers of Nestle products is high. The numbers of substitute products in every FMCG product category are very high. For example, Nesquik, a milk beverage product with choices in different flavors, have substitutes like Blue diamond, Horizon, Lactaid, McArthur, Rice Dream, Robinson, Westroy etc., with all coming in varied flavors with very little price difference. Therefore, brand switching cost is very low and that makes FMCG such volatile waters. So, the stress of Nestle is to create quality products backed up branding communications, in order to differentiate its brands from that of its rivals. Despite all its exercises, customer reigns supreme in FMCG sector, even when they grow loyal to a brand.

Threats of new entrants:

The entry barriers to this sector are little, making it accessible to any new competitor coming up with its own brands. His ability to provide satisfying products would turn him into an industry rival, as switching costs are very low. However, companies like Nestle enjoy economies of scale in production, along with a huge capital backup, big promo costs and has access to the distribution channels. So, life can be a bit difficult for a new entrant unless they come in with huge capital investments or breakthrough products.

Threats of substitute products:

Each FMCG company has products that can substitute that of their rivals in that particular segment, getting the market completely saturated. Therefore, product differentiation via branding along with augmented quality is the only way to gain and retain customers.

Competitive rivalry within the industry

As said earlier, the FMCG sector bears witness to cutthroat competition. Nestle’s direct competitors in the market are Mars Tyson foods, Unilever, Hershey Foods, Mars, Tyson foods, PepsiCo, Coca Cola, Schweppes, Groupe Danone and Kraft foods, each of them giants of the industry. The recent economic recession, resulting in lesser customer disposable income and more competitors, has intensified the competition.
Nestle stakeholder groups
Nestle identifies the following groups as fundamental to our continuing business success

Academia
Communities
Consumers and the general public
Customers
Employees and their representatives
Governments
Industry and trade associations
Intergovernmental organizations
Nongovernmental organizations
Reporting agencies
Shareholders and the financial community
Suppliers (including farmers and smallholders)

Strategies

Brand development through innovation
Fewer, stronger core brands
Stress on online sales
Growth via business development and acquisition
Divestiture of lesser profit businesses
A solid corporate team
Distributing brands globally, maintaining local relevance
Affordable products meeting consumer requirements
Using local supply chain and go-to-market capabilities
Encouraging consumer to a healthy life

Resources of Nestle

Human Resources.
Nestlé Company has employed approximately 330,000 people.
Innovation Resources
Nestle R&D generates the innovative science and technology needed to build nutritional and health benefits into products offerings Nestlé legendary sensory excellence.
Reputational Resources Nestlé scientists play their part in communicating the health and wellness benefits of products to consumers.
From consumer need into research priorities.
From emerging science into consumer benefits and services.

VRIO Analysis of Nestle
Value Resources are valuable if they help organizations to increase the perceived customer value. In 2006 Nestle became the first company to introduce the shared value approach. Nestle has focused on shared value by focusing on sectors like rural development, water and nutrition. This also builds a strong base of performance in environment sustainability and compliance.
Rareness
Nestle has been world leader in larger number of nutritional technologies like fermentation and probiotics, extrusion, healthy fats, foam booster technology, malt extraction, portion distribution. The company has a dedicated group of food scientists who have successfully patented a lot of their offerings, hence ensuring a competitive advantage for Nestle.
Inimitability
Nestle has been the market leader in snack with their most popular offering, Magi. Although the inimitability is significantly low, Nestle has been able to sustain the market share with continuous and rigorous R&D and marketing.
Organization
Nestlé’s strategy has always been guided by its fundamental and core principles, which stresses on growth through innovation and renovation while maintaining a balance between geographic activities and product lines. The company’s priority has always been to bring the best and most relevant products to people, which make a difference in their lives.
SWOT Analysis
Strength

World’s largest company in terms of food manufacturing and sales
Enjoys consumer reliability
Many world famous brands. Billion dollar brands
29 research centers throughout the world
Huge man power. 280,000 employees
Global presence
Solid strategic leadership team
Both internal and external growth
Environmental activities have boomed brand image
Shared Value model has replaced conventional value chain, adding value to all stakeholders
Core competencies strengthened by the new future road map
Global presence. Remarkable presence in the growing markets
Very strong brand equity
Attachments with other renowned organizations through varied alliances
Strength to create winning brands at any segments.

Weakness

Huge product portfolio, sometimes hard to control
Resources wasted unnecessarily for brand renovation exercises, few of which had to be divested, e.g. meats, frozen foods, canned foods, confectionary products etc.
One fifth of the product needs to be renovated annually. A possible hint of failure at product management
Huge R & D expenses
Some weakness in manufacturing abilities, e.g. product recall, melamine in food product etc.
The diversified portfolio doesn’t allow proper time allocation to all brands
Unstable Russian market

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