Case Analysis Nestle

Group 3 11 February 2010

David Chol, Whitney Drost, Raynard Geason, Sarah Laborde, Casey Landers, Darren McNeely, Vanessa Robicheaux, Nicholas Knight, Taylor Mendel, Jonathan Bush, John Priola, William Ratcliff

Table of Contents
Introduction .......................................................................................................................... 3 Goals ......................................................................................................................... 3 Constraints ................................................................................................................ 3

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Through the years, Nestle has emerged as a multi-national company that serves as a brand in itself as well as an umbrella company for many well recognized processed food commodity brands. Nestle was established in 1867, with the distribution of its first product, a dehydrated baby food; this product quickly made the company profitable. Through a series of well-coordinated mergers and the growth of a vast selection of innovative food products, Nestle became the global giant it is today. Nestles success can be attributed to its deep agricultural supply chain, strong local market teams, hiring from within, and long tenured CEOs. Nestle has become the epitome of innovation and success in the retail food product industry. In 1996 Nestle established the Nestle Environmental Management System (NEMS) in an attempt to produce more environmentally friendly products. NEMS required innovative ecodesign in the companys products and activities, and gave preference to suppliers who worked to improve their levels of efficiency and sustainability regarding their use of resources. Aside from this, NEMS also requires independent environmental auditing regarding the practices of the company. In addition, environmental awareness training for the employees and business partners is required. Nestle launched Sustainable Agriculture Initiative Nestle (SAIN) in 2000 in order to optimize the transparency from farm to table and to increase efficiency and productivity. Nestle took a big risk as they were the first to implement this type of program. The program was effective and other companies such as Unilever and Group Danone adopted the idea. In 2006 they further expanded the program to make water a central area of concentration. Nestle has established many goals throughout the life of their company. Being a highly innovative company, they are always looking for new ways to grow and develop higher quality products. Our primary goal is to maintain a competitive edge over top competitors in the

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industry. We want to create shared value for shareholders and society. Another goal is to maintain growth by continuing to create value for consumers by implementing an effective risk management policy. Lastly, we want to continue to uphold and expand environmental policies (i.e. SAIN, NEMS). There are a few pertinent constraints that will affect the implementation of our goals. First, is the loss of brand loyalty due to the current economic recession. With a strain on household incomes consumers are more likely to choose generic brands over higher quality and more costly alternatives. We must make sure the quality of raw materials is up to Nestle standards. Also, maintaining an accurate trail of product quality information through the various levels of management is key to the overall quality of Nestle products. Our last constraint is increasing costs for all levels of inputs, production, and distribution. Nestle is a company on the move and expanding its horizons. Nestle has taken on the ambitious task of setting goals such as doubling sales and expanding its buyer market. As stated above Nestle continues to strive for new goals and seeks opportunities to expand its profitability inside and outside the company. Although Nestle seems to be working its way to the top like every global company they will always face problems. With the ever-changing price of commodities, supplies, and consumer tastes Nestle will continue to struggle with market position. Nestle has stayed strong and adjusted well through many obstacles over it's lifetime and they are confident they can accomplish just about any goal and are developing new strategies to make this happen.

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Five Forces Model

Porters Five Forces Model was created to act as a framework for industry analysis and business strategy development. Porter singled out five different forces that impact competitive intensity which portrays an image of the overall attractiveness and profitability of a market. To aid in our evaluation of Nestle and its status in the industry, we will apply Porters Five Forces Model to the company. Threat of New Entrants The food processing industry is very large and competitive; it is not uncommon for firms within the industry to do quite well. As a result, many companies enter into the market every year in an

attempt to gain a portion of the profitable market. Luckily for Nestle, the company has been around for over a century and boasts a long history of quality products and consumer satisfaction which has allowed the company to obtain a considerable share of the market. As a result, new entrants into the industry must attempt to seize a portion of Nestls market share in order to survive. Essentially, Nestle is constantly a target and so the threat of new entrants is moderate. Threat of Substitute Goods Due to the nature of the industry, Nestle is beset with the threat of substitute goods. From bottled water to lean pockets, there are arrays of similar products that compete directly with Nestle. It is vital for Nestle to continuously find new ways to improve its products as the competition is so fierce. In recent years, Nestle has focused on the health and wellness aspects of its products to maintain its competitive edge in the market. Bargaining Power of Suppliers

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Nestle prides itself on creating and maintaining positive relationships with its suppliers all over the world. Due to the large purchasing power of Nestle and the fact that the suppliers of agricultural commodities offer a product that is far from unique, Nestle holds more bargaining power than its suppliers. Aside from this, Nestle does prefer to create and preserve long term relationships with its suppliers as this helps to ensure the quality of the raw materials being purchased. In addition, Nestle also offers useful advice to its suppliers on how to perform more efficiently to minimize unnecessary costs. Bargaining Power of Customers Customers have a large amount of bargaining power regarding their consumption of Nestle products. As stated previously, there are close substitutes for Nestle products which allows for the preferences of the customer to be very powerful. Nestle understands the power of the customer and has taken specific steps to meet the needs of its products consumers. Specifically, Nestle is

incorporating health and wellness into the creation of its products as society has begun to grown more health conscious. Competitive Rivalry within the Industry Nestle is a powerhouse is the food processing industry but so are Kraft Foods and Groupe Danone. These companies, among others, are in a constant and continuous battle to outperform one another. Regarding advertising alone, these companies spend hundreds of millions of dollars in an attempt to appear more desirable than the other companies. Rivalry is fierce in the food processing industry and this is a good thing for consumers. As long as these companies continue striving to one up one other, consumers will continue to enjoy ever improving product lines.

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When applied to Nestle, Porters Five Forces Model depicts a competitive but profitbale market for the food processing industry. Furthermore, the model places Nestl in a somewhat comfortable position within the food processing industry, while acknowledging the threats to its market share. Specifically, the model notes a moderate threat of new entrants into the market and a substantial threat of substitute goods. In addition, the model shows that Nestle tends to maintain the upper hand over its suppliers as commodities have exact substitutes in the market. Also according to the model, Customers have a considerable amount of bargaining power, as Nestle must adhere to consumer wants and needs as there are so many close substitutes. For the final force, the model depicts a large amount of rivalry within the food processing industry.

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