1.

INTRODUCTION

“Nestlé” is a Swiss multinational food and beverage company whose business

started in 1866. It is one of the largest food companies in the world, with
presence in 191 countries, and more than 2,000 brands. Some of these are
globally iconic while others are just regional, presenting a great variety of
products, such as tea, coffee, bottled water, medical and baby food, breakfast
cereals, and lots more. It is a well-known company world-wide, specially
because of Nestlé milk chocolate bar, which is one of the most famous products.

The company focuses on the production and supply of great quality and healthy
food products. Nestle has a huge portfolio and is seen as an enormous competitor
across the food industries.
Nevertheless, although nowadays their revenues keep increasing, its growth rate is
decreasing.

In this case study, we will focus on the food industry where the majority of
Nestlé products are present. The following information about the history and
context of this company will be based on the data from Nestlé’s web page (“The
Nestlé Company History, Nestlé”).

2. HISTORY

It all started in 1867 when a German pharmacist named Henri Nestlé launched
his “farine lactée”, a breakthrough infant food to deal with high mortality rates
among the infants who cannot be breastfed. In 1875, he sold the firm to 3
businessmen who helped expand production and sales. Later on, the firm
merged (1905) with their rival, the Anglo-Swiss Milk company, with whom
they competed by selling rival versions of the other’s original products. Once
these two big companies became one, they lived a period of prosperity (1905-
1913), and just before the World War I, they became a global dairy company,
with more than 20 factories around all continents. Once the WW1 broke, the
industry was able to survive thanks to their condensed milk, which became
really popular in the armed force, as it lasted for long and it was easy to
transport. Moreover, this demand prevailed after the war from warring nations.
At the end of the decade, they already had 40 factories

The company was rocked by the Wall Street Crash in 1929 after being
recovered of a declined demand for canned milk which led to falling prices.
During this period and after all the difficulties, the power was centralized, and
they consolidated their research only at one laboratory.

World War II affected every market. To protect the company, Nestlé & Anglo-
Swiss relocated some managers to a new office in Stamford (USA). To fight the
war, the firm started supplying and expanding to Africa, Asia, Australia and
Latin America. Later on, due to the entering of the US into the war, Nestlé
rapidly gained popularity among the American population, and
even though the war slowed down Nescafé sales, when the war ended the
product was included in aid supplies in Japan and Europe.

In 1947, they merged with Alimentana (Maggi Soups) and they renamed the
company to Nestlé Alimentana. The merger meant the growth of new segments
for the company, such as the launch of more canned and prepared foods.

The post-war was marked by a diversification in the production. Firstly, as

people started spending money on machines such as freezers, Nestlé started
launching new products like ready meals, canned foods and also, they acquired
firms related to coffee and milk.

In 1977, the firm was renamed Nestlé S.A. They continued with their strategy of
diversification. However, during that period the company was criticized because
of the declining breastfeeding rate, so people started boycotting its products
believing that their baby food was one of the causes.

The 80s and 90s decade were of growth. They had a new ambition they named
“Nutrition, Health and Wellness” and for achieving it they disposed of
unprofitable brands just to satisfy the health-conscious consumers. They
targeted a global leadership in water, ice cream and animal food. Moreover,
Nestlé was one of the first companies to develop breast-milk substitutes.

Finally, during these last years, Nestlé articulated its Creating Shared Value
approach to business and launches different plans to further develop sustainable
supply chains such as in coffee. Its position in traditional segments gets stronger
and they also focus on medical nutrition in order to make this segment stronger
too.

In the following table it can be appreciated the most important launches and
acquisition of Nestlé since 1866, ordered chronologically.

MOST IMPORTANT LAUNCHES AND ACQUISITIONS

Nescafé was launched (powder extract of pure coffee that could be

1937
prepared with hot water).
1947 Merged with Alimentana (firm that created the Maggi Soups).
1948 Nestea (a soluble tea) was launched. Nesquik was launched this year
 too and it was a top seller in the United States. Moreover, canned
raviolis were launched under Maggi brand.
1977 Minority shareholder with L’Oréal.
1985 Carnation and Coffee-Mate are acquired by Nestlé.
1986 Nespresso story started.
1998 Nestlé bought mineral waters business Sanpellegrino group.
2001 Nestlé buys US pet food business Ralston Purina, and merges it with
Nestlé Friskies Petcare to establish the new market leader in pet care,
Nestlé Purina Petcare.
Nestlé acquires the licensing rights to premium producer Häagen-Dazs
2002
in the US and Canada.
2006 Nestléacquires weight management business Jenny Craig and
Australian breakfast cereals company Uncle Toby’s.
2007 Nestlé acquires Novartis Medical Nutrition since they started focusing
on medical nutrition. They also bought the baby food company Gerber
and Swiss mineral water.
2009 Creation of a foodservice business division.
2010 Acquisition of Kraft Foods’ frozen pizza business.
Acquisition of Wyeth Nutrition to strengthen its position in infant
2012
nutrition.
2013 Purchase of Pamlab specialized in medical nutrition for patients with
conditions including mild cognitive impairment and depression.
2014 Full control of the Galderma dermatology (it was created with L’Oréal)
with the creation of Nestlé Skin Health.

3. INDUSTRY ANALYSIS AND COMPETITORS

The food and beverage industry is one of the most rapidly growing industries.
People cannot live without food. It is a complex industry and a global collective
of diverse businesses that supplies most of the food consumed by the world’s
population. This industry is defined by a powerful competition forcing them into
a mode of endless improvement in most of the areas of the business as well as
continuous new product introductions. It is also a really diverse industry but
most companies in it are trying to find ways to drive down costs, streamline
operations and monitor food safety.

The global food and beverage industry represents more than 10% of the world’s
GDP according to a report from Plunkett Research; it is worth over US$ 8
trillion. Despite the sluggish economy and plunging food and beverage prices
experienced by some of the major markets over recent years, the overall of the
industry is still growing at a steady pace, led by some of the world’s largest
companies inside this area.

Nestlé is the second largest food and beverage company in the world according
to the Forbes Global 2000 list, as it was displaced from the first place by
Anheuser-Busch InBev company, who is now taking the lead. Another important
company in the sector is PepsiCo which did not make its best, but still came in
third in the food and beverage category.

3.1. CHALLENGES OF THE FOOD AND BEVERAGE

INDUSTRY

The industry has experienced massive changes over the last decade owing to
increasing consumer demand and industry innovation. Driven by the changing
in global trends, this industry has some challenges to face.

People nowadays are more nutrition-friendly, they prefer fat-free products, and
are generally more inclined towards maintaining robust health. This means that
products are not only judged based on quality, but also by the nutritional
content. Some of the other challenges are the raw material quality or product
traceability.

Regarding these challenges, Nestlé is also concerned on how to develop new

eye-catching products, and improving the quality of their goods, and
consequently building a better and stronger reputation. Concerning of what was
previously mentioned, the final business model of Nestlé will focus on how to
reblossom the firm again.

3.3. QUALITATIVE ANALYSIS: SWOT OF THE INDUSTRY

The different weaknesses, strengths, opportunities and threats of the industry are
analyzed in the following figure.
Helpful for achieving Harmful for achieving
objectives objectives
STRENGTHS WEAKNESSES
INTERNAL ● Consumer staples → no ● Overly reliant on
ORIGIN matter the financial commodity products
(attributes of situation of the with limited progress
the individuals, food and on the value-added
organization) drinks will always be chain.
demanded ● It has to respond to
● Unmatched research market trends through
and development product replenishment,
capability new product
● Ability of innovation. introductions and
● Strong geographic ● consumer targeting.
presence ● Many similar products
● Environmental in the market, make
sustainability them compete in price
efforts ● Ultra-Processed food is
● Ownership of some of really criticized
the most recognizable nowadays
brands in the world. ● Contaminated food
● Clear and accurate recalls
labelling
● Transparency in
material
sourcing.
 OPPORTUNITIES THREATS

3.4 MAIN COMPETITORS

Nestlé operates in a lot of different markets and therefore it has several

important competitors. There are companies with a very diversified portfolio
that represent an important competition for Nestlé, but there are also more
specialized companies that compete with it.

We have chosen five of these companies basing our decision on several ratings
and reports. We will study, as we have stated before, the food and beverage
industry, basically the chocolate market. The five companies we will base our
analysis on since they are the main five competitors of Nestlé are: Danone,
Mondelez, Unilever, Mars and Pladis.

The production of Danone focuses on the production and sale of healthy and
delicious food that is custom-made for the requirements of people of all ages.
Mondelez produces various products like chocolate, cookies, and confectionary.
Unilever is a consumer goods producer company and their products include
food and beverage. It has an extensive distribution channel. Mars is a famous
food industry and is the topmost producer of confectionary products. Pladis Ltd
is a global biscuit, chocolate and confectionery company.

In each specific market Nestle operates, it has also to face the presence of very
specialized companies which are more focused and therefore experienced on
that market. If we take the Coffee market as an example, we can see that
Starbucks, Keurig and Maxwell House appear as the main competitors.
However, we have focus our analysis oN the big competitors on a general level.

3.5. MARKET SHARE

Nestlé has a very large business portfolio that include products such as water,
cafe, health, chocolate, among others. A big percentage of Nestlé’s sales are
related to chocolate products, so because of this the analysis of the market share
will be focused on the global chocolate market. However, to analyze how’s the
company doing, and to know its strengths and weaknesses, it will be considered
Nestlé as a whole, in order to have a more general view and understanding.
Regarding the global chocolate market, the Nestle market share from year 2012
to 2016 is shown in the following figure 6. As it can be seen, the market share is
decreasing over the years, even if Nestle still represents a huge part of the
market. This is an important factor for investors and analysts, therefore the
company should try to avoid this decreasing trend in order to achieve a greater
competitiveness.

9
4. BUSINESS MODEL OF NESTLÉ

4.1. MISSION

“Nestlé" is a world-wide company which impacts on the every day’s life of

millions of people by improving their quality of life and contributing for a more
healthy future. It has a great impact on people from the farmers with whom they
work to the families who enjoy its products.
It supports the achievement of the sustainable development goals of the United
Nations by:
- Helping more than 50 million children to have a more healthy lifestyle.
- Improving the living conditions of 30 million people directly related to their
business activities
- Working for achieving a null impact in the environment by their activities.

4.2. DISTINCTIVE FACTORS

The company gives its support to health development, breastfeeding, actions to

stop children exploitations, and environmental issues.

- “Nestlé” Spain does not use genetically modified raw materials:

Although in many countries the safety of genetically modified organisms,
commonly referred to as transgenic, is increasingly accepted, not only by
authorities but also by consumers, in Spain their safety continues to be
questioned, that is why if at any time it uses them it would indicate this in
the labeling of its products.

10
- Palm oil: Nestlé guarantees that these and all its products are totally safe
for health. The use of palm oil is made for sensory reasons such as
texture. Compared to conventional oils (olive, sunflower), it is more
resistant and keeps the product much better.
 - Support to the breastfeeding: It supports the recommendations of the
World Health Organization to feed babies with breast milk the first six
months of life and continue breastfeeding later with complementary
foods.

- Against children exploitation: The company has recruited 18 controls

and correction agents to raise awareness of child labor and inform in
order to determine if interventions are needed.

- Actions in order to stop the climate change.

Nestlé wants to position itself as part of the solution, and strives every day to
reduce its emissions and improve the management of resources.

- They do not test their products with animals.

- The world's largest private research network in nutrition and food:

Nestlé Research has the largest private R & D global network which aims
to investigate the benefits of nutrition for health in order to apply them to
Nestlé products.

4.3. CORPORATE GOVERNANCE

The Board of Directors of Nestlé is highly engaged in the long-term value

creation and the investment for the future development of the company. The
Board is really concerned about the growth and efficiency, thus it stated
commitments to margin expansion, streamlining the portfolio, a prudent capital
allocation and moreover, they approved a share buyback programme of CHF 20
billion for strategic opportunities. All these subjects show how the governance
is involved with the sustainable growth of Nestlé.

Ulf Mark Schneider is the executive member of the Board of Directors of Nestlé
and the CEO of the company since 2017. The financial analyst Paul Bulcke is
the chairman of Nestlé and has certain responsibilities for the direction and
control of the group.

4.4. CORPORATE SOCIAL RESPONSIBILITY

The Nestle Corporate Business Principles have been developing for over 150 years
and they are the basis of the company culture.
These principles try to adapt to the world that keeps changing but the basic
fundamentals have

not change since the company first was created. Moreover, they reflect the idea of
honesty, fairness and concern for people.

All these points are important for all the countries and they take into account each
country and their religion and culture:

1. Nutrition, Health and Wellbeing

Nestle objective is to offer food and drinks that are tasty and healthy and
that promote a healthy lifestyle. (“A gusto con la vida”).

2. Quality assurance and product safety

It assures that their products are safe and that have a high quality.

3. Communication with the consumer

They are committed to maintain reliable and responsible communication.
Consumer privacy is respected.

4. Human rights in their business activity

Nestle supports the United Nations Global Compact on human rights and
they try to offer an example of good human practices in all the activities.

5. Leadership and personal responsibility

For Nestle, the staff are really important, they say they are the key of their
success. Employees are professional and motivated people. They ensure
the employees privacy and they do not tolerate any form of
discrimination.

6. Safety
Nestle protects their employees and tries to prevent accidents and injuries.

7. Relations with suppliers and customers

They ask for agents, suppliers and employees to work and act with honesty,
fairness and integrity. These same aspects apply to the clients.
 8. Agriculture and rural development
From the environmental point of view, Nestle contributes to improve the
production system, the economic level of farmers and the agricultural
production.

9. Environmental sustainability
They aim to use natural resources in the life cycle of the production and their
goal is to have “zero waste”.

10. Water
Nestle wants to improve the administration of water.

4.5. SEGMENTATION OF PRODUCTS

● Bottled water
● Animal feeding
● Infant feeding
● Drinks
● Cereals
● Chocolates
● Out of home
● Healthcare nutrition
● Dairy products
● Ready meals