NESTLE

BY-
TANISHQ KHANDELWAL, YOGRAJ KHATANA, RITIK AMBAWAT, KANISH MEHTA,
YASH YADAV
BBA 1ST YEAR
Nestle is a leading multinational food and beverages company with a large and diverse product
portfolio. The company is headquartered in Vevey, Switzerland and employs around
308,000 people. Nestle is truly a global company whose products sell across 190 countries. In
the recent years, Nestle’s focus on healthy nutrition has grown and the brand is investing in
innovation to bring healthier products for its customers. The company released around 1300
new products meant to address nutritional gaps and targeted mainly at babies and expecting
mothers or new mothers. Despite the rising competition in the food and beverages market, the
company has retained its leadership position through its intense focus on the nutrition needs of
customers globally. While the product portfolio of Nestle has continued to grow, the company
also achieved better financial performance in 2018.
Look at the marketing mix of Nestle highlighting the four P’s – product, place, price and
promotion.

PRODUCTS:

 Nestle has a large and diverse product portfolio which mainly includes products in the
following seven categories. In the recent years, the company has focused on innovating
its product portfolio based upon the changing needs of the consumers worldwide.

 Powdered and liquid beverages: This is the largest and most profitable product segment
of Nestle. This category includes Nestle’s coffee, cocoa and malt beverages and tea
products. It also includes some of the most iconic brands by Nestle: Nescafé, the world’s
favorite coffee brand; Nespresso, premium coffee; and Milo, the world’s most popular
chocolate malt drink. This category accounted for 23.6% of Nestle’s net sales in 2018
and generated CHF 21.6 billion in revenues.

 Nutrition and Health Science: This category of products includes Nestle’s infant formula
and baby food. It accounted for 17.7% of Nestle’s net sales in 2018 and generated CHF
16.2 billion in revenues.

 Milk products and Ice cream: Milk products and specifically the Nido brand is a key
pillar of Nestle’s health and wellness strategy. Nido offers a large range of milk and milk-
based products for various stages in childhood. Its products feature instant dry whole
milk with Vitamin A & D. Nido has been around for at least 70 years. Nestle also offers a
wide range of ice-cream products at various price points including affordable and
premium priced products. This category accounted for 14.5 % of Nestle’s sales in in 2018
and generated around CHF 13.2 billion in revenues.

 Petcare: - Nestle offers a large range of pet care products under its Purina label
including Pro Plan, Purina ONE, Gourmet and Merrick, among others. The company has
 continued to improve its core products with a focus on nutritional value. Pet care
products of Nestle accounted for around 14% of its entire sales in 2018 and generated
CHF 12.8 billion in revenue.

 Prepared dishes and cooking aids: - This category of Nestle products has several iconic
brands, including Maggi, Stouffer’s and Buitoni that cater to regional and local tastes.
The company is focusing on adding more natural and healthy ingredients to products in
this category. In 2018, this segment accounted for 13.2% of the net sales of Nestle and
generated CHF 12.1 billion in revenue.

 Confectionary: - In this category, apart from Nestle’s iconic global brand KitKat, the
company has also brought several more local brands. This category accounted for 8.9%
of Nestle’s net sales in 2018 and generated CHF 8.1 billion in revenues.
 Waters: - Nestle’s Pure Life is the world’s biggest bottled water brand which is sold
across several markets around the world.

PLACE:

Nestle has its headquarters in Switzerland. However, the brand also has regional offices in
locations throughout the world. It has also divided its. business into three key zones based on
geographical markets. These zones are Americas, Europe, Middle East and North Africa
(EMENA) and Asia, Oceania and sub-Saharan Africa (AOA). The Americas are the largest zone
accounting for the highest sales and revenue of the brand. Both North America and Latin
America reported positive organic growth in 2018. Total revenue from the Americas reached
CHF 31.0 billion where United States and Canada together generated CHF 20,540 million.
EMENA generated CHF 18.9 billion in revenue and AOA generated CHF 21.3 billion in
revenues. The company also around 30 product technology and research and development
centers worldwide. The company has managed a large and global distribution network which
helps it maintain its global presence efficiently. from its more than 1600 warehouses the
company transports more than 145,000 tonnes daily.

PRICE:

The food and beverages industry have grown highly competitive. In this era of intense
competition, pricing becomes important both in terms of marketing and sales. Nestle has used
a varied pricing strategy. It has brought products in varying pricing ranges from affordable to
premium and super premium. While the main target market of Nestle is the middle-class
consumer, it has also brought several products to the market targeted at the higher end. Its
Natural Bliss Artisan Café creamer is targeted at the super premium market segment while
several more products are priced affordably for the middle-class consumer. Pricing strategy of
Nestle also varies according to the geographical market as well as packaging and target market.
 PROMOTIONS: -

Nestle is a world-famous brand. However, it also uses several marketing channels for the
promotion of its brands and products. Apart from digital marketing, it also uses social media
and other promotional channels for marketing of its brands. In the recent years, it has
increased its focus on innovative marketing for growing sales and revenue. It has several iconic
brands in its portfolio. However, the company is also focusing on increasing its online presence
and investing in e-commerce. E-commerce has become both a channel of sales and marketing
for Nestle. In 2018 the e-commerce channel accounted for around 7.4% of the net sales of
Nestle. The company is using several more channels including Direct-to-Consumer,
Convenience, Club, Value, Natural, Specialty stores, as well as Out-of-Home to reach
consumers. In the past the company has used several attractive campaigns to increase the
popularity and sales of its products. In 2018, it adapted a single advertising campaign globally
after the relaunch of its Nescafé Gold.

NESTLE SWOT ANALYSIS

Strengths Weaknesses

1. Unmatched research and development 1. Criticism over high water usage, selling
capability contaminated food, anti-unionism, forced child
2. Strong geographic presence, with one of the labor and using other unethical practices
best geographically diversified revenue 2. Contaminated food recalls
sources
3. Unrivaled product and brand portfolio
4. Environmental sustainability efforts
5. Ownership of some of the most recognizable
brands in the world

3.

Opportunities Threats

1. Clear and accurate labelling indicating of any 1. Poor quality water and its scarcity
harmful products 2. Increased competition in the beverage and food
2. Transparency in material sourcing industries
3. Growing number of small Silicon Valley based3. The price of coffee beans could significantly rise
food startups due to major weather disasters
4. Growing ready-to-drink (RTD) tea and RTD
coffee markets

PEST ANALYSIS OF NESTLE

1. POLITICAL FACTORS: THE COMPANY’S ABILITY TO IMPACT THE
GOVERNMENT
Since Nestlé operates in more than 190 countries, any shift in regulatory environments can
massively impact operations. Multinational firms like Nestlé have a greater risk of production
bottlenecks because of governmental policies and changes. Basically, the more countries a
business operation in, the greater the chance of policy changes that may interrupt operations.
For example, the Brexit situation threw a wrench in Nestlé’s plans. The change threatens the
livelihood of production and food workers. Europe is an important market for Nestlé
production and profits. And the instability of Brexit has disrupted the entirety of the UK food
supply chain. The Brexit change has been so catastrophic that Nestlé discussed replacing
production in Newcastle and York to Poland. Since, even now, Brexit is still in the air, the
company doesn’t have faith in the future of the country. For that reasoning, it’s smarter to
move operations out of this volatile landscape.
Although political changes often affect the company, moving operations out of the country
affects the unstable environment for Britain. Losing Nestlé means a loss of over 300 jobs,
impacting the already controversial political British climate. Keep in mind, not many companies
can impact political stability, but Nestlé can.
Nestlé also must abide by the changing of food standards and regulations. Each country has its
own set of regulations. If Nestlé doesn’t abide by them, they’ll be cut off; the products won’t be
purchasable, nor edible, in the eyes of the government.

Many food companies, like Nestlé, are experiencing problems associated with the rising costs of
ingredients. As such, many are decreasing the amount of product they offer. This is a problem
for chocolate. People continue to buy chocolate treats at the same (or even increased) price,
without knowing companies are shrinking the amount of product they get.

2. ECONOMIC FACTORS: A SURPRISING INCREASE OF PROFITS AFTER A

SLOW YEAR
Foreign exchange swings are an economic issue for Nestlé. As a multinational firm, the
company is easily impacted by the sway of foreign-exchange rates and prices. If the currency
weakens, it may lead to profit loss, depending on the location. It could also result in the reverse
— a profit increase. Or cheaper options for the importing or exporting of goods.
Within the last couple of years, Nestlé has been in an upswing for profit. In fact, in 2018, the
company’s profits increased by more than 40 percent. According to the company, profits
changed from $7.6 billion to $10 billion. Much of this success is thanks to three things: The
United States market, the Chinese market, and selling off its confectionery business.
This is a big difference, considering the company reported less than stellar results from 2017.
The company blamed a decrease in consumer demand in the US and Brazil. But at that time,
Nestlé’s CEO Mark Schneider held faith that company profits would increase in 2018… and boy,
was he right!

3. SOCIAL FACTORS: THE FOOD IS ADORED, THE COMPANY… NOT SO

MUCH
The social environment, including the attitudes, buying behaviors, and changing demographics,
all affect a business. What’s truly affected food and beverage companies like Nestlé is the
public’s obsession with healthy eating. People want to consume less sugar and lower calorie
foods.
Nestlé knows this. If it didn’t, the company would be in a world of trouble. Nestlé is focusing on
reducing sugar, salt, and saturated fat in some of its products. This requires reformulating
existing products, but it also opens the door for new versions of classic foods and drinks Nestlé
consumers love.

Although the food is still adored, the company is held less favorably.

Over the last couple of years, Nestlé ran into controversy regarding the extraction and usage of
drinking water. Nestlé takes spring water from the land, leaving nothing or polluted water
behind in its wake. This has affected indigenous Canadian land, and locations like Flint, Mich.

When the company does pay to take this water, the price is next to nothing. Combine this with
what previous Nestlé CEO Peter Brabeck-Letmathe said about the rights to water being
“extreme”, people have become weary of Nestlé. Some are even boycotting the company,
although this can be difficult since Nestlé owns so many food products.

4. TECHNOLOGICAL FACTORS: MORE WAYS TO INCREASE PRODUCTION

AND QUANTITY
Nestlé needs to spend more money on research and development. It has more technology at its
disposal to achieve greater feats in the R&D department; social media, digital surveys, email
marketing, discounts… the list goes on.
It’s much easier to connect with audiences all over the world thanks to evolving technology. It
also means Nestlé has more options to increase production, food quality, and food availability
to consumers.
Some companies are adopting blockchain technology to have full informational access to
products — from development to delivery. This is also an option for Nestlé, as it can decrease
production time. Now, it’s still a costly venture, and would need to be introduced slowly to
each of Nestlé’s production lines.

5. PEST ANALYSIS OF NESTLE: CONCLUSION

Nestlé is a massive company with ties to 194 countries. It has the funds and presence to impact
governments. It’s also on a profit upswing, despite the major controversies about Nestlé’s
ownership and views about water rights. The company is in the position to adopt new
technology to learn more about what their consumers want, but if they don’t clean up their
public image, it might be for nothing.

I’ve more examples of products, companies, and countries affected by PEST (as well as legal and
environmental issues – included in a PESTLE analysis) too.

PORTER’S VALUE CHAIN ANALYSIS OF NESTLE

Porter's value chain model is highly popular in the business world. However, nestle must not
take it as a rigid, standalone framework by assigning the equal importance to all activities. The
effective Value Chain Analysis requires Nestle to realize that all activities or functions do not
require same scrutiny level. Hence, the first step of adapting the Porter Value Chain framework
is to identify the importance of activities according to their role in product/service delivery
process.
Here is the list of primary value chain activities as proposed by Porter:

1. Primary Activities
The primary value chain activities of Nestle are directly involved in producing and selling the
product to targeted customers. Analysis of primary value chain activities can improve the
performance of Nestle as explained below.

1.1. Inbound Logistics

It is important to develop strong relationships with suppliers as their support is necessary to
receive, store and distribute the product. Without analyzing the in-bound logistics, Nestle can
face various challenges in product development phases. Analysis of in-bound logistics requires a
company to focus on every aspect of transformation from raw material to finished product.
Some examples of inbound logistics are retrieving raw material, storing the inputs and
internally distributing the raw material and components to start production.

1.2. Operations
The importance of analyzing operational activities raises when raw material arrives, and Nestle
is ready to process the raw material into the end product and launch it in the market. Some
examples of operational activities are machining, packing, assembling and testing. Equipment
repair and maintenance also falls into this category.
It includes both- manufacturing and service operations. Analysis of operational activities is
important for improving productivity, maximizing the efficiency and ensuring the competitive
success of Nestle. The increased productivity can help Nestle to achieve consistent economic
growth, increase profitability and set a powerful basis for competitive advantage.

1.3. Outbound Logistics

Outbound logistics include the activities that deliver the product to the customer by passing
through different intermediaries. Some outbound logistics activities are material handling,
warehousing, scheduling, order processing, transporting and delivering to the destination.
Nestle can analyze and optimize the outbound logistics to explore competitive advantage
sources and achieve its business growth objectives.
Because, when outbound activities are timely managed with optimal costs and product delivery
processes put a minimum negative effect on the quality, it maximizes the customer satisfaction
and increases growth opportunities for the firm. Nestle should pay specific importance to its
outbound value chain activities when its offered products are perishable and require quick
delivery to the end customer.

1.4. Marketing and Sales

At this stage, nestle will highlight the benefits and differentiation points of offered products to
persuade the customers that its offering is better than competitors. Only producing a high-
quality product at affordable costs and distinctive features cannot create value until Nestle
invests on the marketing and sales activities. The sales agents and marketers play an important
role here.
Some examples of Nestle's marketing and sales activities are- sales force, advertising,
promotional activities, pricing, channel selection, quoting and building relations with channel
members. The company can use the marketing funnel approach to structure its marketing and
sales activities. The marketing strategies can either be push or pull in nature, depending on the
Nestle’s business objectives, brand image, competitive dynamics and current standing in the
market.
Effective and wisely integrated marketing activities can develop the brand equity of Nestle and
help it stand out from the competition. However, nestle must avoid making false commitments
about product features that cannot be fulfilled by the production department. It indicates the
need to ensure coordination between different value chain activities.

1.5. Services
The pre-sale and post-sale services offered by the Nestle will play an important role in
developing customer loyalty. The modern customers consider post-sale services as important as
marketing and promotional activities. The power of negative e-WOM due to poor support
service cannot be undermined in the current technologically advanced era. The company must
analyze its support activities to avoid damaging brand reputation, and instead use it as a tool to
spread positive word of mouth due to quick, timely and efficient support services.

2. Secondary Activities
The support activities play an important role in coordinating and facilitating the primary value
chain activities. Nestle can also benefit from analysis of its support activities as explained
below.
2.1. Firm infrastructure
The firm infrastructure denotes a range of activities, such as- quality management, legal
matters handling, accounting, financing, planning and strategic management. Effective
infrastructure management can allow Nestle to optimize the value of the whole value chain.
Nestle can control the infrastructure activities (or commonly called overhead costs) to
strengthen the competitive positioning in the market.

2.2. Human resource management

Nestle can analyses human resource management by evaluating different HR aspects, including-
recruiting, selecting, training, rewarding, performance management and other personnel
management activities. The effective HR management can allow Nestle to reduce competitive
pressure based on motivation, commitment and skills of its workforce. The company can also
achieve its cost minimization objectives by analyzing hiring and training costs with their relative
return. The heavy dependence of Nestle on employees' talent will increase the importance of
this value chain support activity.

2.3. Technology development

In a modern, technological advanced era, almost all value chain activities depend on
technological support. The technological integration in production, distribution, marketing and
human resource activities requires Nestle to realize the importance of technology
development. It can be divided into product and process technological development activities.
Some examples are- automation software, technology-supported customer service, product
design research and data analytics. The research and development department of Nestle is
classified in this category.

2.4. Procurement
The procurement in value chain denotes the processes involved in purchasing the inputs that
may range from equipment, machinery, raw material, supplies, raw material and other items
necessary for producing the finished product. Due to its linkage with multiple value chain
activities, nestle should carefully consider its procurement activities to optimize the inbound,
operational and outbound value chain.
As mentioned above, the application of Porter Value Chain model depends on understanding
the importance of all activities. After understanding the relative importance of identified value
chain activities, nestle should highlight areas where value can be added, cost efficiency can be
achieved, differentiation basis can be set, or processes can be optimized.
Here is a pictorial presentation of Porter Value Chain model: