Nestlé industry

Executive Summary

Nestlé is the largest food and beverage industry in the world. Its revenue in million in 2008 were 89,630.00, they employ over 276000 people around the world. (Global 500) Their goals are to produce good, healthy, and tasty foods which are consisted of important nutrients. (Nestlé South Africa) These features make Nestlé a unique business which profits by offering products which gives satisfactions to all customers.

After we skimmed through the Fortune 500 list of the companies, there were a lot of choices of well known companies, however, we picked up Nestlé Corporation. Since we grow up with Nestlé’s products which are nutritional and healthy products, and at the same time very tasty, it seemed interesting for us to do the project about this well known Corporation.

The most important issue facing our company today is to maintain the quality of our products and continue to maintain our strong brand name known for its healthy products.

Business Mission & Vision

According to the founder of Nestlé, Henri Nestlé, Nestlé’s mission is to: “…positively influence the social environment in which we operate as responsible corporate citizens, with due regard for those environmental standards and societal aspirations which improve quality of life.” Furthermore, the vision and values of Nestlé are to make Nestlé “a leading, competitive, Nutrition, Health and Wellness Company delivering improved shareholder value by being a preferred corporate citizen, preferred employer, preferred supplier selling preferred products.” (Nestlé South Africa)

Description of the Business

The address of corporate headquarters is: Ave, Nestle 55 Vevey 1800, Switzerland.

Nestlé operates in 83 countries, in five continents. It has more than 509 factories out of which 220 are located in Europe, 153 in America, 136 in Africa & Oceania (MARKETING PROCESS OF NESTLE CORPORATION)

According to the official website of the Company, Nestlé was formed by Henry Nestlé in 1867. He was a pharmacist. In the beginning he started to produce milk food for newborn babies, which was the first milk cereal for children. The company was located in Switzerland, where the actual largest headquarter is located even today. Then, in short period the company started to grow and expand, and also offering a large variety of products. Nowadays, the company is a corporation which has multiple stockholders. Throughout its existence, Nestlé has merged with some international companies. For example, in 1905 merged with a Anglo-Swiss milk company. (MARKETING PROCESS OF NESTLE CORPORATION) In 1998 Nestlé purchased the UK largest chocolate factory, then it made some other agreements with some other companies. In 2002, Nestlé made a partnership with Coca-Cola, then with General Mills, L’Oreal. These mergers helped Nestlé expand their market shares on the global – international market. (Nestlé.)

The brand name of Nestlé comes from Henries surname. It is a short name which can be easily remembered. It is a well known and everyone can identify its logo. The quality of Nestlé’s products made the brand easily identified, including the slogan of the brand, “Good Food, Good Life”. Since Nestlé is a company which operates in the global market, it means that its products are spread worldwide and they are available whenever consumers need them.

Nestlé over the time has developed and continues to maintain a strong reputation on the Food Industry. We consider that Nestlé is on the stage of brand insistency. This means that costumers insist on getting Nestlé’s products, and this is considered to be a big advantage for the company. (Nestlé)

The legal status of Nestlé is a corporation, which is a business that includes stockholders. The main headquarter of Nestlé is in Switzerland; Peter Brabeck-Letmathe is the CEO. According to the Global 500, the stockholders equity is 46,006.2 million dollars. (Global 500) The board of directors represents the stockholder on managing the corporation.

Nestlé deals with manufacturing of products, thus, its type of business is manufacturing. Nestlé produces a fairly similar group of individual products. Its products are produced on similar ways, they have fairly similar prices, which make up a great product line. They produce milk and chocolate products, water, baby food, coffee, and so on. Since Nestlé is a huge corporate, they produce on large amounts. We know that when a product is being produced in large amount, its production costs are lower, comparing to products produced on small amounts, thus these lower production costs leads Nestlé to bring its products on the market with reasonable prices, from which the consumers benefit directly. Furthermore, they use a production program which includes green technology (environmental friendly technology) that saves electricity, does not pollute the air which leads to consumers benefits.

They sell different types of chocolates, ice creams, coffees, natural water, baby food, flavored milks, etc. Some of the products offered from Nestlé are NESCAFÉ, NESQUIK, Hot Chocolate, Cocoa, Chocolates, AERO

BAR ONE

Chocolate Assortments

CHOCOLATE LOG

CLASSIC Slabs

CRISP

CRUNCH

Baking Chocolate

KIT KAT

TEX

MILKY BAR

MILO

Nestlé GOLD

ROLO

SMARTIES

SUCROSE FREE

Powdered Milk, Nutren Shakes

Convalescing & Malnourishment

Diabetes Supplements

Critical Care

Nestlé Baby Foods, CERELAC Gold

CERELAC

NESTUM

Infant Formula

Nestlé Waters, Still & Sparkling

Flavoured

Water Dispensers

Imports

Ice Cream, Impulse

Take Home

Out of Home

Nestlé Cereals, and so on.

Consumers may benefit in different ways from buying Nestlé’s products. From the consumer’s point of view, when we decide to buy something to eat or drink, we want to get the most satisfaction from it. Thus, we look at its price first, then its ingredients, if it is nutritious, if it is tasty, and healthy. Since Nestlé’s company objective is to produce healthy, tasty, nutritious food, and they offer them at reasonable prices, we conclude that consumers benefit by buying Nestlé products.

Nestlé’s products are considered as high quality products. Furthermore the raw material for example for chocolate, milk is purchased only from the milk producers who grow and give food to their cows in natural ways.

All Nestlé products are demanded, because Nestlé first makes research and market analysis then starts to produce its products. But still chocolate products are the most demanded products from Nestlé.

In order for Nestlé to grow and expand its market share is to follow up and to adapt to the current trends that are affecting the food industry. For example, the trend of customers demanding low and no fat products is increasing, and if Nestlé develops a strategy to adapt and expand production of low and no fat products, this would be a growth opportunity. Franchising is perceived as a way for companies to expand on other markets. In our case, this also would be a growth opportunity, however, they should supervise and control and see if the franchisee is maintaining the quality standards that the Nestlé Company sets to them. Also Nestlé officials should make sure that the franchisees are maintaining the prestige and the reputation of the brand.

The corporate goals and objectives are to maximize their profits. They tend to achieve this by meeting consumers’ demand, by offering nutritional products which taste good, coping up with trends.

There are many resources for producing products related to food industry. Nestlé’s success is reliant on fresh milk, cocoa, sugar, water, power supply, materials related packaging, technology, transportation modes.

Suppliers define success when there is a huge demand for their products, while the stakeholders define success if they achieve to increase the market shares, having enough resources to meet the demand, and maximizing profits by increasing sales.

Market Analysis

Nestlé’s primary target is considered to be people of all ages. In this range there are included infants, children, teenagers, adults, and elderly people. If we take age into consideration, we conclude that it is a factor that distinguishes the consumers, since Nestlé’s has products made especially for infants, while on the other hand we have other products which are targeted to athletes, or to adults, such as coffee. Despite of the age, gender, income, and education level are not factors to be included in targeting Nestlé consumers. There is not a special product of Nestlé which is dedicated to males or females, or to people with different levels of education, while when it comes to income, since our products are not expensive, we don’t consider income a factor to target Nestlé’s products.

From the consumers’ point of view, we define Nestlé as a successful company if they meet our demands, they always supply us with new products, we find Nestlé’s products easily and with a fair price. Also, a factor of Nestlé’s success would be seen if they are aware of social responsibility meaning that they should care more for the benefits of the society as a whole and not only for companies profits.

In general, the food industry is in the level of steady market that does not necessarily grow since people always use food products because they are necessity goods which no one can substitute them with something else. Furthermore, even if Nestlé is always bringing new products on the market, since the population is still growing, we cannot say that it is being placed on the growing level.

SWOT analysis

Strengths – Nestlé has a very organized structure, it manages to lead in an effective way more than 276 000 employees and that requires great organizational skills. Thus, one of the strengths of the company is considered to be the organizational structure, Nestlé is divided in sectors and each sector has their CEO’s, then it has the executive board and in the top is the CEO. The hierarchy on Nestlé works perfectly. Efficient chain of supply, it delivers its products in a good condition in a fast way. Furthermore, it is a Socially Responsibility and innovative company. It has skilled and educated employees.

Weaknesses – Since Nestlé develops many products, it is impossible to promote each of them. Another weakness is that Nestlé’s products are dependable on milk, any global disease on cows may impact directly on Nestlé’s production.

Opportunities – Nestlé has many growth opportunities which are considered to be current trends that allow the company to extend its market. If Nestlé catches up with some of the trends that are affecting food industry then it may be an opportunity to increase their profits.

Threats – As a threat that intimidates the company may be the current global economic crises. Nestlé has to react fast with a strategy in order to pass the world recession without many losses. It may overturn into a disaster for the company if they ignore what is happening in the global economy. Another threat is competitions operations.

PEST analysis

Political – The government plays a role on Nestle in terms of the rules that the government makes related to the food industry in general. For example failing to meet any standard of quality, hygiene or other set by the government may result in some sanction or fee for the company.

Economic – When it is about economics, companies always fear any recession that may occur. So if any recession occurs Nestle will be affected, and result in possible losses. Another way of economic involvement is the tax rises which also interrelated to the Political (government regulations). However if the economy is doing well it means that also Nestle expectations are to do well on the market too, because it has the necessary conditions.

Social – Change of life styles, income level, place of residence, education level are some social factors, which might have an influence in a company. But when it comes to food industry they doesn’t make a huge difference, because food is a necessity and whether you live in urban or rural areas, or whether you are educated or not, you need to eat unless it is a luxury, and most of the Nestle products are for everyday use or necessity.

Technological – Technological advancements always shape the industries; change the way they are produced, and makes industries much more productive, but also the need for employees is lower. With the new technologies productivity has increased, the delivery of products is easier; products are being safer with the new packaging. Another segment related to technology is that the advertisement of Nestle products is much easier with internet, other media channels.

Nestlé uses market segmentation in order to develop a suitable market mixes for different consumers. For example, they segment market for only water consumers or products which are dedicated only for athletes. First step of market segmentation is to name broad product markets, for example, in the case of Nestlé would be beverage and then as stated earlier segment this market on only a relatively homogeneous group of consumers, such as athletes.

According to Fortune 500 the five most influential competitors of Nestlé are considered to be Unilever, PepsiCo, Sara Lee, Groupe Danone, ConAgra Foods. However, Nestlé has advantages over these particular competitors since it is a larger company and can produce with lower cost, thus the products can be offered with lower price, this can be seen as a weakness of these companies over Nestlé. They, offer fairly similar products as Nestlé does. They also use many advertisement tools such as, TV, radio, news paper and so forth, some of them also use direct advertisement against Nestlé, for example PepsiCo. According to the research that we have done Nestlé maintains to be ahead of these companies, so they are not taking market shares from Nestlé.

In order to increase its market shares, Nestlé Corporation must continue to develop new products, to spread even more on the countries that do not have factories. It must cope up with trends and forces that are affecting food industry today.

The promotional budget of Nestlé is set every year. Nestlé for its products uses all known promotional tools. Nestlé’s logo placed in a product makes Nestlé responsible for the quality of the product. Advertising plan has an important role on promoting Nestlé’s products therefore, advertising a product in an effective way increases chances for that product to be successful. They use many advertisement techniques to promote their products such as TV, Radio, Internet, Newspapers, and Magazines. (MARKETING PROCESS OF NESTLE CORPORATION) Beside advertisement, Nestlé pays a lot of attention on the Public Relations field. They have a 24 hours media helpline so that journalists can contact them and inquire information whenever they want. Also, Nestlé has developed a reputation and maintains that reputation through a variety of public relations strategy. The department of PR in Nestlé tends to maintain a good relationship among employees and develop goodwill. They have developed or branded their CEO in a very professional matter and made him well known also developed its reputation worldwide. Because of their reputation when they can easily contact media to make announcements or Press Releases.

According to Nestlé pricing strategy, “Nestlé has its own set of techniques for setting the prices of the product. It does not primarily focus on the competitor’s pricing strategies. It emphasizes on the market demand of the product. Nowadays market is going through tough recession, so they set their prices keeping in view the purchasing power of the customers. Moreover the prices of the products are also subjected to the type of consumer product. If the product is a daily use then it can have a minimum price to attract the customer towards your product. Thus the company cannot influence much on the prices.” (MARKETING PROCESS OF NESTLE CORPORATION)

Trend 1:

Step 1: State the focal issue or decision facing the enterprise.

When a customer want to buy a product he goes through a decision process in order to choose between so many offers from different producers for the same product. Now when it comes to the food industry products, there are so many indicators that affect a person’s decision. If it is farm friendly than it is an important factor that affects the decision of the buyers. Buyers will always choose the products that are consistent of organic and natural ingredients. In our case Nestlé’s most important materials that purchases are milk and cocoa. And it is very important that Nestlé purchases organic and natural milk and cocoa for the production of its products.

Step 2: List the key factors that influence this decision.

Certainly success will be considered that all of our raw materials (milk and cocoa) to be purchased from the farm-friendly sources. When we sell our products we also put the ‘farm-friendly’ sign on it than customers will differentiate our products not only with our brand name, Nestlé, but also with its farm-friendly sign. Whereas failure would be considered if we fail to purchase organic and natural milk and cocoa. Whether it is because we cannot afford to buy them or nobody produces organic and natural milk, it still would be considered failure to us.

In order to purchase the organic and natural sources, we need to know our suppliers. Where are their farms located, are there sufficient hygiene sources, check for possible diseases that cows may have and also some other issues that would affect the milk quality.

Step 3: List the driving forces that influence these key factors

Predictable:

People will shift to the products that are farm-friendly (natural & organic).

Nestlé will increase the profit.

Nestlé’s brand name will become stronger.

Increase in the number of farmers who offer farm-friendly products

Less predictable:

Other food industries will use the same strategy.

Higher competition.

Highly uncertain:

Customers will reject the farm-friendly products.

The number of farm-friendly farmers will decrease.

Step 4: Rank the key factors and driving forces by importance and by uncertainty.

Step 5: Compose plots for alternate futures that could impact the decision.

Best Case Scenario:

The best case scenario would be if our customers like the products that produce by the organic and natural ingredients. And if this happens, customers shift their demand to these kinds of products, and certainly we will have to shift all of our sources in the production of these products. Furthermore we will grow our market because our brand name will be stronger and we expect a market growth for Nestlé.

Worst Case Scenario:

The worst case scenario would be if customers reject the farm-friendly products. And all of our production will be a loss for our company. Therefore we will lose our market shares not only for these kinds of products but also for other products produced by Nestlé. And this will lead to the weakening of our brand name.

In-between case Scenario:

The in-between case scenario would be if people will buy the organic and natural products but there wouldn’t be any raise in the market shares or any change in the demand for Nestlé products.

Step 6: Evaluate the decision in each of the postulated scenarios.

Best Case Scenario:

We have to make the decision of producing our products with organic and natural ingredients because customers always tend to buy products that are natural and organic. And also products with natural and organic ingredients are much healthier and tastier too, so we will provide healthier and tastier products. By using this farm-friendly strategy of production we will affect also in the raise of the number of farmers in the rural areas.

Worst Case Scenario:

If the worst case scenario occurs than Nestlé will for sure face losses in the market shares and in other sectors of the company too.

In-between case Scenario:

With the in-between case scenario occurrence Nestlé will probably face some losses in some of its sectors, but it will be easier to rehab in a near future.

Step 7: Select indicators and signposts for each scenario.

Best Case Scenario:

There will a huge demand for the products with organic and natural ingredients.

Increase the market shares.

Increase in profit.

Worst Case Scenario:

Rejection of farm-friendly products by customers.

High production costs.

Loose the market shares.

In-between case Scenario:

Competition.

The market shares status: steady.

Trend 2:

Recently Nestlé has merged with the Kraft’s Food Company so they will start to offer frozen pizzas. Since it is easy for people to prepare frozen products, it is considered that this trend will have positive effects on Nestlé’s profits.

Step 1. State the focal issue or decision facing the enterprise.

A lot of consumers are interested on frozen products because it is easy to prepare them. If a person can prepare a Pizza for 5 minutes by putting it on Microwave, then they will buy it. The focused target for this products will be people who work and do not have enough time for preparing food. Also, the fact that Nestlé’s slogan is Good Food, Good Health, it is obvious that the frozen pizzas will be healthy, nutritious and they tasty, therefore, there will be a demand for them.

Step 2. List the key factors that influence this decision.

In order to achieve this goal, which is to be successful in frozen food industry, we must get information from other food industries which deal with frozen products. We will obtain information which we will analyze, and according to them we will come up with our products. An important factor that influences us to this decision is the name of our company (Nestlé), which is a powerful name on the food and beverage industry. People will buy our products more when they realize that Nestlé is the producer, thus they will increase the demand for the frozen pizzas

o There will be a success if with this trend we increase the production and the profit to Nestlé.

o There will be a failure if the target market will not accept our new products. If they do so, we have to start developing a new trend.

Conditions/Events determining the success/failure:

o Success

§ If the trend increases the profit and bring success of Nestlé

§ If consumers accept our products and get satisfaction from it

§ If the demand of our frozen products will be higher than the demand for our competitors’ products.

o Failure

§ If this trend will bring losses to our company

§ If frozen products will not be demanded by our target market

Critical assumptions defining the logic of these responses

o The competition on the food and drink industries nowadays is very large. In order to keep our clients and gain new ones, we must develop the frozen products on the market. Therefore, Nestlé will be differentiated from other companies and will gain success by this trend.

Step 3. List the driving forces that influence these key factors.

Highly Predetermined/Predictable

o An increase of people who consume frozen products

o Increase companies’ profit

o New production technology

Less Predictable

o A decrease of unemployment rate on rural areas

o Market Size

o Increase of employees’ income

o Competitive advantage of Nestlé

o Higher production costs

Step 4. Rank the key factors and driving forces by importance and by uncertainty.

Step 5. Compose plots for alternate futures that could impact the decision.

• Best Case Scenario

If we will be concentrated on frozen products, the demand for our frozen products and the profit of Nestlé will be higher.

• In-Between Outcomes

The trend of frozen products will keep things going almost on the same direction, but with a lower profit and production.

• Worst Case Scenario

If we will not go through the strategy of our trend, our market size would be decreased and we will no more have competitive advantage. No one would buy frozen products with a high price if they find almost the same product with a lower price.

Step 6. Evaluate the decision in each of the postulated scenarios.

• Best Case Scenario

We should make this decision because it is a reasonable decision. First of all, the demand for frozen products is higher. Nowadays, most of the people are working and they need products which they can prepare quickly. By informing people about our trend which is Nestlé’s Frozen Products, we will change the peoples’ behavior so the demand for our frozen products will increase even more.

• In Between

On this case, the things will diverge a little from the best case, but we are sure that they will not get very bad. This is not a decision which brings us high profits, but it will help us to avoid failure.

• Worst Case Scenario

If we take this scenario, we will face loses for sure. This is obvious that by having a high production cost, the price will increase, which would keep us away from clients.

Step 7. Select indicators and signposts for each scenario.

• Best Case Scenario

Demand for our products

Number of clients is high

Profit is high

• In Between

The demand for frozen pizzas only (not necessarily other frozen products)

• Worst Case Scenario

High production costs

Small number of clients

Many competitors

Summary

During the completion of the project we have done a lot of research to find proper information for each sector of the project assigned to us. We tried to work together on each sector in order to make the project more cohesive. We found very interesting information about Nestlé and how a big company should operate. We used the terminology and concepts learned through the quarter in the Global Forces and Trends course. During the completion of the project we found out that Nestlé is a very serious company, each department of Nestlé has its own responsibilities and it is very well organized. It is important for Nestlé to observe forces and trends that are affecting the food industry nowadays. It is essential for the company to maintain its market shares and its position in the global market through following the current trends such as: low and no fat products, use of green technology, farm friendly (use of organic and natural sources), healthy and tasty drinks, frozen products and so on. We could expand our knowledge if continue to do more research and explore the company even in more details.

Bibliography

“Global 500.” CNN Money. CNN, 01 Jan. 2009. Web. 8 Feb. 2010. .

“MARKETING PROCESS OF NESTLE CORPORATION.” Http://www.scribd.com. Nestle Corporation, 29 May 2009. Web. 8 Feb. 2010. .

Nestlé. Nestlé Corporation, n.d. Web. 8 Feb. 2010. .

Nestlé South Africa. Nestlé Corporation, n.d. Web. 8 Feb. 2010. .

Scenarios from Homework

Arianit Bllaca:

Trend: Low and no-fat products

Step1: Trend

The food industry is a very competitive market and companies are trying to adapt to changes of customer tastes, attitudes, beliefs in order to grab as much market shares as they can. Nestle is one of the most important brand on food industry that deals mainly with producing products such as chocolate, ice creams, beverage and so forth. Although, it is a leading company on this industry it has a very strong competitors. Nowadays many people are concentrating on buying products that have very low or no fat at all. Until now Nestle products had on average amount also included fat. The key issue is whether we as a company should shift our production on products with low and no fat? Or, perhaps give no importance to this trend and focus on other potential trends with higher importance?

Step2: Key Factors that influence the decision

• In order to have clearer picture of the problem and construct a strategy on this issue, we need to have more information on the impact and importance of this trend on our company. We should do primary market research in order to create alternatives for solving the problem. If the results show that there is enough evidence that the trend will impact the market in wide range then we should go on with the decision.

o If the company’s decision to increase the production of the products that have low or no fat increases market shares, this would be considered as a success. It is also important that the shift of production in this direction will not impact on the cost of producing these types of products; the cost is lower or approximately the same as previous.

o Failure is, if the decision for making more products with low or no fat essentially depreciates our customer’s base. The customers do not respond positively and do not appreciate the change.

Conditions/Events determining the success/failure:

o Success:

§ The decision increases profit.

§ The changes made by the company lead to more market shares.

§ The actual customers like our new products.

§ We are perceived as shapers of the market.

§ We wider our customers base.

o Failure:

§ If our market shares drop significantly.

§ The products do not taste as delicious as previous ones.

§ The actual customers perceive it as an unnecessary move.

§ We cannot attract new customers.