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Strategic Analysis of
NESTLE PAKI STAN
For The Subject
BUSINESS SRATEGY


Presented To: Aitzaz Khurshid

Presented By: Muneer Hussain L1s11bbam 2003
Faisal Rasheed L1s11bbam 2093
Jahanzaib Ali L1s11bbam 2016
Ejaz Ahmed L1s11bbam 0146

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Porter Five Forces Model

Porters 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 Nestl 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 Nestl Pakistan, which is a part of
Nestle Global, 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, Nestl is constantly a
target, and so the threat of new entrants is moderate.
Threats from Substitutes
Due to the nature of the industry, Nestl is beset with the threat of substitute goods. From
bottled water to lean pockets, there are arrays of similar products that compete directly with
Nestl. It is vital for Nestl to continuously find new ways to improve its products because
competition is so fierce. In recent years, Nestl has focused on the health and wellness aspects
of its products to maintain its competitive edge in the market
Bargaining Power of Suppliers
Nestl prides itself on creating and maintaining positive relationships with its suppliers. Due to
the large purchasing power of Nestl, and because the suppliers of agricultural commodities offer
a product that is far from unique, Nestl holds more bargaining power than its suppliers. Aside
from this, Nestl prefers 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, Nestl also offers
useful advice to its suppliers on how to perform more efficiently to minimize unnecessary costs.
Bargaining Power of Buyers
Customers have a large amount of bargaining power regarding their consumption of Nestl
products. As stated previously, there are close substitutes for Nestl products which allow for
the preferences of the customer to be very influential. Nestl understands the power of the
customer and has taken specific steps to meet the needs of its products consumers. Specifically,
Nestl is incorporating health and wellness into the creation of its products as society has started
becoming more health conscious.
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Competitive Rivalry
Nestl is a powerhouse in the food processing industry but so are Engro Foods and Haleeb Foods
etc. 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 competition. 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 another, consumers will continue to enjoy ever- improving product lines.

When applied to Nestl, Porters Five Forces Model depicts a competitive, but profitable
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 Nestl tends to
maintain the upper hand over its suppliers as commodities have exact substitutes in the market.
Also, customers have a considerable amount of bargaining power, as Nestl must adhere to
consumer wants and needs because there are so many close substitutes. For the final force, the
model depicts a large amount of rivalry within the food processing industry.


SWOT Analysis of Nestle
Strengths
Brand Image
Nestls strong brand image serves as a strength for the company. Nestls products are known
for their quality among all segments of the customers which creates unparalleled advantage for
the company and it leverages that strong brand name to generate heavy sales.

Strong Research & Development
Nestls products are the outcome of its strong Research and development activities. Nestle
spends a huge amount on research and development which is estimated to be around 35% of their
total budget. These R&D activities help Nestle to gain sustainable competitive advantage over
others in the market.

Unmatched Product Portfolio
Nestl has an unmatched product portfolio which includes a wide range of products to serve the
needs of the various segments of the customers in the market. The portfolio ranges from
beverages, bottled water, culinary & food items to confectionary, ambient and chilled dairy
products. This extensive portfolio of products helps Nestle to broad its consumer base.

Financial Position of Nestle
Nestle is a giant of FMCG industry with a very strong financial position. It is the strong financial
position of the company that has made it a strong brand in Pakistani markets. Over the last six
years from 2008-2013 there has been significant stability in the financial position of Nestle. Its
operating assets increased form 9177 million rupees to 31,468 million rupees. Similarly its
current ratio in 2013 is 1:1 which means for each one rupee of debt, Nestle has 1 rupee to pay
back it.
Strong Distribution Channel
One of the strength of Nestle Pakistan is the network of distribution channel which creates both
time and place utility for the products of the company. It means through it wide distribution
channel Nestle ensures that products are available to the place where they are needed and at the
time when it is needed by consumers.

Skilled and Educated Employees
At Nestl, they firmly believe that it is their people who make them different from their
competitors. Their people are their main assets and therefore they should put everything needed
in place to win with their people. As they continue to evolve in the New Reality, they are
committed to attract the best and retain the best, maximize the potential of their people and
constantly develop them. In this regard, the key achievements of their Human Resource Division
in 2013 are:
Rollout of training & development initiatives such as mentoring, e-learning, learning
management system, etc., to build capabilities of our people.
Employee Volunteer Program was launched to involve Nestl employees in community
welfare activities.

Use of Technology
Another factors that stands Nestle out from the row of its competitors is the use of latest
technology for all its production and other processes. It is due to this technology Islamabad
factory improved its record of No Loss Time. Similarly the production capacity of Port Qasim
Pure Life plant has been increased in 2013. New state of the art Water Treatment Plant, new PET
bottling line, new 5 Gallon line, new pre-form manufacturing machine and a complete new setup
of industrial utilities are all operational now in Port Qasim.

Weaknesses
Production Shortages
One of the main weakness of Nestle is the shortage of its high demanding products such as Nido
and Everyday etc. due to which it fails to meet the demands of the its consumers timely.

Mature Markets Reliance
Nestle Pakistan continues to rely heavily on mature markets. The emerging markets will
outperform mature markets with the passage of time putting Nestle in a vulnerable position.

Focus maybe too narrow
Nestle Company focus is to make daily products, and that is all. We know beside food and drink,
Nestle did not produce any other product. The focus is too narrow. If Nestle has more products
beside food and drink, Nestle may get more profits and has more products that can be bought by
more consumer.
Opportunities
Changing Social Trends
Social Trends in Pakistan are changing rapidly. Consumers in the urban areas have now adopted
western lifestyle especially the younger generation which is highly influenced by the western
culture therefore, Nestle has the opportunity to get benefit from these social trends by targeting
the upcoming generation and youth of Pakistan.

Increasing Population Needs
Nestle in Pakistan has a great opportunity for expanding itself because in Pakistan the population
is increasing at a high rate and hence creating opportunity for Nestle to increase its market share
by capturing the needs of that increasing population.

Health Consciousness
The trend of buying and consuming only healthy food products is a major shift in consumer
tastes and opens up an immense market for Nestle. In Pakistan people are becoming more health
conscious which creates an opportunity for Nestle to offer its quality and healthy products to
those people to get benefit from the awareness of the people.


Rural Markets of Pakistan
Rural markets of Pakistan still have plethora of opportunities for Nestls Products. By creating
awareness among the people living in those rural areas and expanding its operations Nestle can
get huge sales from there.

Nestl Caf
Nestle Pakistan has the opportunity to open various cafes of Nestle. The main reason behind this
opportunity is that people in Pakistan now prefer coffee to a great extent over tea but there is a
lack of comfortable places where they can enjoy their coffee in a pleasant and tranquil
atmosphere and Nestle can take advantage of that opportunity.

Threats
Trends toward Healthy Habits
Nestl is a major supplier of chocolate and chocolate drinks that have high level of calories and
due to changing customer habits, is expected to experience decline in demand.

Political Instability
Pakistan is a politically instable country which is currently dealing with poor law and order
situations. Therefore that instability can create a decline in the demand of the products of Nestle
as well.

Poor Economic Conditions
Economy of Pakistan is another important risk for the demand of Nestls Products. Due to
increase in inflation the products of Nestle are also becoming expensive whereas the purchasing
power of the people is declining.

Growth of Private Labels
The growing number of supermarkets and other retailers are introducing their own label products
that cost less and can easily compete with Nestls product portfolio. E.g. there are various local
brands of bottled water are now available in the market which are reducing the share of Nestle.

Local Brands
Nestle is facing strong competition from various local brands of Pakistan e.g. Gourmet which is
providing same products as of Nestle but at a much lesser price than it which is attracting a large
number of customers and creating threat for Nestl.
E x t e r n a l F a c t o r E v a l u a t i o n ( E F E ) Ma t r i x


Key External Factors
(Opportunities)

Weight

Rating

Weighted
Score

Pakistan is the Seventh Largest Producer of Milk in the
world.

.08

4

.32

Social Trends in Pakistan are changing rapidly.

.06

3

.18

Population of Pakistan is increasing at a very high rate.

.08

2

.16

New and improved technology to increase productivity.

.09

4

.36

People in Pakistan have become more health conscious.

.07

4

.28

Nestls cold dairy products can be attractive for
Pakistani people

.09

4

.36

Rural Markets of Pakistan have great Potential for
Nestls Products.

.05

2

.10



Key External Factors
(Threats)

Weight

Rating

Weighted
Score

Price fluctuations in Pakistan due to uncertain economic
conditions


.06

3

.18

The trends of healthy eating habits among consumers

.05

2

.10

Local Brands can give tough time to Nestls products

.05

4

.20

Competition of Nestl with other smuggled brands

.06

2

.12

Market segment growth could attract new entrants

.07

3
.
.21

Decrease in purchasing power of the people

.06

2

.12

Political Instability in the country


.05

1

.05

No Entry Barriers in FMCGs

.08

3

.24

Total 1.00

2.98
Note that the total weighted score of 2.98 is above the average of 2.5, so Nestle is doing pretty
well, taking advantage of the external opportunities and avoiding the threats facing the firms.
There is always room for improvement, though, because the highest total weighted score would
be 4.0.


I n t e r n a l F a c t o r E v a l u a t i o n ( I F E ) Ma t r i x




Key Internal Factors
(Strengths)

Weight


Rating

Weighted
Score

Strong brand image of Nestle is an asset for company

.09

4

.36

Nestle has unmatched portfolio of products

.08

3

.24

Distribution networks throughout the country

.06

3

.18

Financial Position of Nestle is very Strong

.09

4

.36

Nestle has very competitive prices so can reach to a
large number of consumers.

.06

3

.18

Skilled and educated employees of Nestle

.08

3

.24

Nestls reliance on latest available technology

.09

4

.36

Nestle has strong research and development
department.

.08

4

.32

Effective CSR activities to gain market share

.07

3

.21

Note that the total weighted score of 3.07 is above the average of 2.5, so Nestle is doing pretty
well and internally it is strong. Nestle is using its resources well and tried to decrease
weaknesses. There is always room for improvement, though, because the highest total weighted
score would be 4.0.


Key Internal Factors
(Weaknesses)

Weight

Rating

Weighted
Score

Production shortages of certain Nestls Products e.g.
Everyday etc. in Market

.09

3

.27

Nestl is only Manufacturing Daily Products which
Narrows down its Focus.

.06

2

.12

Nestle mainly Relies on already Mature\Saturated
Markets.

.07

1

.07

Low Profit Margins due to Highly Value Added Products

.08

2

.16

Total 1.00

3.07