STM ASSIGNMENT

INDUSTRY CONFECTIONERY
COMPANY NESTLE

Q1. Compare and Contrast the business model of your organization (ex: Air
Deccan) with:
a. An International Organization with a similar Business Model (ex: South West
Airlines)
b. A Domestic Organization with a similar Business Model (ex: Indigo)
c. A Government Organization within the same industry (ex: Air India).

Business Model of Nestle

-

Key Partners/Suppliers
The key suppliers of raw materials of Nestle are the farmers in the locality
where the plants are present. Nestle provides these farmers with necessary
facilities to produce good crops and milk so as to get supplies at cheaper rate
and also help improve living standards of the rural people.

Key Activities
Nestles objective is to be leader in Nutrition Health and Wellness, and the
industry reference for financial performance, trusted by all stakeholders. All
the products of Nestle are aimed at satisfying both taste and health needs of
the consumers. The principal activities include a variety of food items like
beverages, milk products, nutrition and ice cream; prepared dishes and
cooking aids; chocolate, confectionery and biscuits; water; and pet care.

Value proposition
Nestls basic consumer value proposition is that people can trust the quality
and safety of the food or drink when they open the wrapper or package. It has
one unbending standard of food safety, and the Nestl Seal of guarantee
cannot go on the package of food produced until newly built or acquired
factories meet a standardised, detailed and very rigorous set of requirements.
These are laid out in extensive, formalised procedures and standards that
must be verified, and they typically exceed the legal requirements, as well as
the prevailing practices, in the countries where Nestle operate.

Customer Relationship
Nestle lists a telephone number (mostly toll-free) as well as local addresses
on each product package, giving phone access to Nestl Consumer Services

in 80 markets. Their role is to deal with consumer requests, to answer

questions and to engage in dialogue. The Nestl Consumer Services
Worldwide Survey in 1998/1999 showed a trend of increasing dialogue, with
some 5 million contacts from customers. Of these, 18% were asking for
assistance with problems but the vast majority of requests (82%) were for
information, such as nutritional advice or recipes.
-

Customer Segments
Nestle has products which caters to the needs of people from any gender,
income, demography and age. The wide portfolio of brands and the product
lines are boon to nestle to remain competitive in the market. Clinutren, for
example, is a line of products that includes milk-based flavoured drinks,
soups, and prepared meals that are nutritiously balanced to suit the needs of
senior citizens. Nestl also develops and manufactures liquid-based foods for
bed-ridden and terminally ill patients.

Key Resources
Nestl does not own farms but encourages sustainable agricultural practices
amongst its suppliers. The company invests over 45 million per year in
environmental protection, amounting to 3% of total capital expenditure on top
of regular capital-investment projects that incorporate environmental
components and factory environmental operating costs. Also, in certain parts
of the world, Nestl has invested in water education programmes and
community initiatives to develop sustainable and safe water supplies.

Channels

The following are some of the strategies used by Nestle for market expansion:
Availability of NESCAFE enhanced through an expansion of the vending
machine network, New consumption opportunities for chocolates and
confectionery were identified and developed in areas like railway platforms,
college canteens and major events, Nestle set up Caf Nescafe and Coffee
Corners across metros and mini-metros.
2. Prepare an Activity System Map for both a Low Cost Organization (ex:
South West Airline or Air Deccan) as well a Diversified (ex: Full Service
Airlines) Organization operating in the Industry/ Sector selected by you.

Q3. Identify the leading Organizations Low Cost Providers (ex: Low Cost Air
Carriers) as well as the leading Organizations with Diversified Product/ Service
Providers (ex: Premium Air Carriers or Business class airlines) for India and
for the 5 Continents (Asia, Europe, Africa, North America and South America).
Document the Vision, Mission, and Objectives of these companies (ex: airline
companies) and identify the key attributes of success for each of these
organizations/ industries (ex: International Carriers). Is it in line with the
various readings shared with you? Evaluate the Mission statement as per the
suggestions given in the website.

Indi

Company

Mission

Vision

Objectives of the
companies

Key success
Factors

Low
cost
Provid
ers

Divers
e
Servic
e
Provid
ers

Parle
Products

We will be
leaders in our
business by
maintaining
high quality,
introducing
new and
innovative
products,
reaching every
part of India,
remaining
customer
centric,
constantly
upgrading our
knowledge and
skills

To be the leaders in
our business. We will
stand apart from the
competition by
being the first in the
market to innovate

To be the largest
manufacturer of
biscuits and
confectionery.
Parle name
symbolizes quality,
nutrition and great
taste

ITC

To enhance the
wealth
generating
capability of
the enterprise
in a globalising
environment,
delivering
superior and
sustainable
stakeholder
value

Sustain ITC's
position as one of
India's most
valuable
corporations
through world class
performance,
creating growing
value for the Indian
economy and the
Company's
stakeholders

Developing a
customer-focused,
high-performance
organisation which
creates value for all its
stakeholders,
constantly pursue
newer and better
processes, products,
services and
management
practices, generate
economic value for the
Nation

Evaluation of Mission Statements: Parle Products

Does it include?
Products/
Customers
Services
Yes

Yes

Does it mention values like?

Markets

Citizenship

Teamwork

Yes

No

Yes

Concern
for
Technology

survival

Philosophy

Excellence

Integrity

Yes

No

Yes

No

Selfconcept

Yes
Concern
for
public
image

Employees

No

No

No

Customer or product-oriented?
Combined

Widespread
distribution
network,
continuous
product
innovation, large
product portfolio

Portfolio of world
class businesses,
benchmarking
health standards,
competitive
advantage,
nurturing good
talents and
building strong top
management

Evaluation of Mission Statements:ITC Foods

Does it include?
Products/
Customers
Services
Yes

Does it mention values like?

Markets

Citizenship

Teamwork

No

Yes

No

No
Concern
for

Technology

survival

Philosophy

Excellence

Integrity

Yes

Yes

Yes

Yes

No

Concern
for
Selfconcept

public
image

Employees

No

Yes

Yes

Customer or product-oriented?
Customer oriented

Asia
Low
cost
Provid
ers

Divers
e
Servic
e
Provid
ers

Company

Meiji Co. Ltd

Lotte

Mission
Widen the world
of tastiness and
enjoyment and
meet all
expectations
regarding Health
and Reassurance

Enriching
peoples lives by
providing superior
products and
services that our
customers love
and trust

Vision
Continue finding
innovative ways to
meet our customer
needs today and
tomorrow
To spring as a
global business
group as well as
one of the top 10
global business
group in Asia,
which leads the
Asian region,
Lotte proclaimed
Vision 2018 and
has been exerting
multidimensional
efforts through the
core business
reinforcement and
expanded
overseas business
weight, aiming at
its realization until
2018.

Evaluation of Mission Statements: Meiji Co Ltd

Does it mention values
Does it include?
like?
Customers Products/
Markets
Citizenship
Teamwork

Objectives of the
companies
Commit to customer
based ideas, high
quality, produce new
value, be a
transparent
wholesome company
trusted by society

Strengthening core
competencies,
developing talent,
on-site management,
enhancing brand
value

Key success Factors

Customer centric,
trend follower, work
ethics, strong belief in
teams potential

Customer focus,
originality,
partnerships,
responsibility, passion

Yes

Technology
No

Selfconcept
No

Services
Yes
Concern
for
survival
No
Concern
for
public
image
No

No

No

Yes

Philosophy
No

Excellence
No

Integrity
No

Employees
Yes

Customer or product-oriented?
Both

Evaluation of Mission Statements :Lotte

Does it include?
Products/
Customers
Services
Yes

Does it mention values

like?
Markets

Citizenship

Teamwork

Yes

No

No

Excellence
Yes

Integrity

Yes
Concern
for

Technology

survival

Philosophy

No

No

Selfconcept

No
Concern
for
public
image

Employees

No

No

No

No

Customer or product-oriented?
Customer oriented

Euro
pe
Low
cost
Provid
ers

Company
Disney
chocolates

Mission
one of the world's
leading producers
and providers of
entertainment
and information.
Using our
portfolio of
brands to
differentiate our
content, services
and consumer
products, we seek
to develop the
most creative,
innovative and
profitable
entertainment

Vision
Continue finding
innovative ways to
meet our customer
needs today and
tomorrow

Objectives of the
companies
Commit to customer
based ideas, high
quality, produce new
value, be a
transparent
wholesome company
trusted by society

Key success Factors

Customer centric,
trend follower, work
ethics, strong belief in
teams potential

experiences and
related products
in the world

Diverse
Service
Provide
rs

Ferrero

Enriching
peoples lives by
providing superior
products and
services that our
customers love
and trust

To spring as a
global business
group as well as
one of the top 10
global business
group

passion for
excellence and
reliability of our
products

High quality, crafted

precision, product
freshness, careful
selection of the finest
raw materials, respect
and consideration for
our customers

Q4. Conduct an External as well as Industry Environment Analysis for the

industry in which the company (PESTEL and Porter's 5 Force Analysis) is
operating. Identify the strategy of the company's closest competitor? Who are
the complementors (company's offering complementary products or services)
of the organization?
PESTEL ANALYSIS FOR NESTLE
1. Political Factors
- Nestle is one of the largest wealth creators in India and is a
globally recognised country well known for providing nutritious
and healthy products that include milk products, beverages,
instant food and confectionery.
- Nestle supports the Indian Governments efforts to proliferate a
healthy lifestyle in the society and encourage eating nutritious
food.
- Nestle has created a huge product portfolio to cater to the
governments need of creating a healthier population.
- Increase in taxes will affect the high end nestle products like the
milk products which serve the middle and upper middle class
segment.
2. Economic Factors
- Nestle has always been known for innovation and this has driven
its organic growth in both developed and developing nations.
- Some of the best brands like KIT-KAT, MILKY-BAR, NESCAFE,
MAGGI are a inevitable in every households because of their
value for money and quality.
- Nestle collaborates with local governments to provide help to
farmers in rural areas to assist them in farming. The farmers are
able to produce good quality crops and Nestle in turn gets the
foods and raw materials at a cheaper price.
- The above strategy of Nestle helps consumers enjoy local taste
as well which will come at a very low price.

3.

4.

5.

6.

Also Nestle being in the FMCG sector, the probability of demand

and supply fluctuations are very less
Social Factors
- Ever since the foundation of Nestle, it has been a socially
responsible brand.
- In India, Nestle oversees and finances the provision of clean
water in villages schools benefitting some 20,000 school children
- Nestles knack for achieving competitive advantage is combined
with the motto of CREATING SHARED VALUE and has become
an integral part of its business.
- It aims to create a greater value for all its stakeholders (which
include the society) in nutrition, water and rural development.
These factors have become core factors in the value chain of the
company.
Technological factors
- The company has always implemented the best of technologies
to make its plants more efficient. It has incorporated lean and JIT
in its manufacttle uring processes. This has also allowed
significant reduction to environmental impacts.
- Strength in research and development has been the driving
forces in making nestle an innovative company.
- Nestles brands are part of a closer level engagements between
the consumers which has been possible because of the new
opportunities and new businesses that technology has been able
to create
Legal Factors
- Nestles products are manufactured and distributed under the
strictest conditions of hygiene.
- The product always come with a seal of guarantee and cater to
the international standards of food production
- Nestles mission of achieving nutrition, health and wellness is
corroborated by catering to best quality control techniques.
Environmental Factors
- Nestle produces products specifically suited towards the region
and as per the countrys environmental regulations.
- Nestl defines sustainable development as "the process of
increasing the world's access to higher quality food, while
contributing to long-term social and economic development, and
preserving the environment for future generations.
- Nestl created the Sustainable Agricultural Initiative with other
food manufacturers. The group defines sustainable agriculture as
"a productive, competitive and efficient way to produce
agricultural raw materials, while at the same time protecting and
improving the natural environment and social/economic
conditions of local communities".

PORTERS FIVE FORCES ANALYSIS OF NESTLE

1. Threat of New Entrants
- The food processing industry in vast and competitive. Many new
companies enter into this market targeting to get a share of the
profitable industry.
- Nestle as a food processing industry has been there since a long
time(over a century).
- Nestle has been able to capture a large market share due to its
inimitable quality of products and consumer satisfaction.
- Its very difficult for a new entrant to capture a share of Nestles
market to survive.
2. Threat of Substitute Goods
- There are wide portfolios of similar products that compete with
Nestle which makes competition fierce.
- Nestles focus on Nutrition, Health and Wellness has helped it
stay ahead of other substitutes.
3. Bargaining power of Suppliers
- Creating and maintaining a positive relationship with the
suppliers has been a key aspect of Nestles core business.
- Nestles suppliers are primarily farmers whom Nestle assists in
farming and harvesting the crops. Therefore Nestle is able to get
its raw materials at a cheap price.
4. Bargaining Power of Customers
- There are close substitutes of Nestles products which makes it
easier for customers to switch to other products easily.
- Nestle has been incorporating health and wellness into its
products as society has begun to grow more health conscious.
5. Competitive Rivalry With the Industry
- Rivalry is very in the food processing industry.
- Pricing strategies of Nestle has to be dealt with very carefully as
a slight increase in the prices of the products will reduce the
market share drastically.
- Plethoras of competitors like Mondelez International, Parle, Lotte,
etc are present which makes it more difficult for Nestle.

Closest competitor of Nestle in the Confectionery Business Cadbury India Limited

Business Strategies of Cadbury India

Increase the product range of chocolate consumption through low

price point packs and distribution focus.

Increase depth of consumption, targeting regular chocolate

consumers through generating impulse and a dominant presence
at points of Sale.
Maintain image leadership through superior marketing mix.
Be a significant player in the gifting segment, through occasion
linked gift packs.
Build Critical mass in sugar business by introducing value-added
sugar confectionery products.

Q5. Write within 750 words each of the following:

i. Comment on the History, Evolution, Growth Rate, Profitability Rate & Future
of the Industry in which the Organization is operating. How has it been for
Organization as well?
History and Evolution of the Confectionery Industry and Nestle

Confections date back more than 3000 years to the time of Egyptians;
hieroglyphics have been found depicting the preparations of sweets. It
was once a bitter drink used in Central America for its strengthening and
aphrodisiac effects. It is now a sweet food appreciated in the whole world.
It was once a precious foodstuff reserved for royalty and upper class. Now
people from any horizon or any age can enjoy chocolate. But there is one
point that has never changed throughout history: chocolate has always
been a food that has raised a lot of passions. Nestle was founded in 1876
in Geneva Switzerland. Its first product was fareene Lacte Nestle, an
infant cereal. Nestle setup its first factory in 1961 in Moga district of
Punjab. Nestle has now 511 factories in 86 countries in the world and in
India it has 7 factories. Nestles chocolate and confectionery contribute
15% of its revenues and are targeted at delighting the senses of the
consumers with a range of tastes and textures. The major confectionery
brands of Nestle are Kit-kat, Munch, Milky Bar and Eclairs. Nestle has
become the market leader in Wafers and White confectionery products.
With an employee-strength of over 3000 and turnover of US$ 497 million
in 2003, Nestle India is one of the leading companies in the FMCG space in
India. The company is acknowledged amongst Indias Most Respected
Companies and amongst the Top Wealth Creators of India.
Growth Rate

Revenues from the chocolate industry continue to prove rewarding, with

2011 figures from IBIS World predicting annualized growth of around 2%
over the next five years, after dampened expectations during the dark
days of 2007-09. Revenues have remained resilient despite a recessive
global picture, falling disposable incomes, volatile commodity prices and
increasing competition. Chocolate is often described as recession-proof.
Revenues over the past few years would seem to back this hypothesis,
although year-on-year growth remains relatively sluggish and the spectre

of volatile input prices continues to cast a shadow over future projections.

Although the global market is still dominated by Western Europe and
North America, emerging markets clearly represent the future. The BRIC
countries (Brazil, Russia, India and China) accounted for55% of global
confectionery retail growth in 2011. Other emerging economies with
youthful populations and an acquisitive middle class are likely to develop
a taste for chocolate and, as their disposable incomes grow, they will
represent important target markets.
Profitability Rate

The global gum and cereal bars confectionery industry experienced good
growth during 2007-2012; however, over 2013-2018, growth is expected
to be moderate driven by introduction of new products to boost industry
profitability and impressive marketing strategies. The industry is forecast
to reach $31.9 billion by 2018 at a CAGR of 4.3% through 2018. Industry
competition is high with numerous players in the market. During the first
half 2004, NESTLE registered a total income of US$ 257.8 million and net
profit of US$ 23.73 million. Nestl India is a 61.85 per cent subsidiary of
Nestle S.A. Switzerland and was incorporated as a limited company in
1959. Milk products and nutrition account for around 45 per cent of Nestl
Indias total revenues. The companys beverage products generate 22 per
cent of the companys total revenues, while prepared dishes and cooking
aids generate 18 per cent, and chocolate and confectionery 15 per cent.
Future of Confectionery Industry and Nestle
Taste is diverging, as fast-growing economies and empowered consumers
demand more from their products. For industry stalwarts, the requirement
to offer local, highly tailored and increasingly diverse products represents
a serious threat to market share. Spotting the markets that are likely to
grow quickly will make the difference between the winners and losers of
tomorrows chocolate landscape. According to official government figures,
current hot spots include India (annual growth rate 15%), China (9%),
Russia (6%) and Mexico (3.8%). They all exhibit a number of key factors
that help them stand out from the pack, including a youthful population,
rapid capital inflows and retail consolidation.
Nestle aims to create value for consumers that can be sustained over the
long term by offering a wide variety of high quality, safe food products at
affordable prices.
ii. Size of the Industry across the world and the country where the organization
is operating.
Russia: Russia is one of the most promising emerging economies for
chocolatiers. The market is worth more than US$8bn and is expected to
grow 45% by 2016.Asconsumersmove up the value chain; artisan
manufacturers begin to stake their claim.

China: Widespread lactose intolerance has made for a slow start in China,
but chocolate sales have risen 40% since 2009. Lindt claims in its annual
report that the market is growing 30% a year. Premium products are
popular, with over half of all sales bought as gifts.
Japan: At US$11.4bn, Japan is the largest Asian market. Domestic artisan
companies are flourishing but foreigners can find it hard to gain a
foothold. Nestls Kit-Kat brand is the exception, appealing to consumers
with 200unusual flavours and special editions.
Middle East and North Africa: The Middle East/North Africa market is
expected to reach US$5.8bn by 2016, up 61% on today. Almost every part
of Africa is growing: South Africa is the biggest market, but sugar
confectionery is still 22% more popular there than chocolate, says
Leatherhead Food Research.
Nestle is the market leader in Middle East and Africa in the confectionery
business thanks to its solid foundations set by its manufacturing
footprints, strong brands and talented people. It has a presence of over
100 years in the continent and 6% of Nestles revenues come from Africa
only.
India: India has always had a sweet tooth, and chocolate is fast becoming
its favourite treat, ahead of sugar candy, with an annual market growth
rate of 15%. Cadburys now owns 70% of the market, introducing
innovative products that can survive in the extreme heat.
Nestle has a 21% market share in India and 15% of its revenue comes
from confectionery.
Global Market share by Region
Western Europe - 32%
North America 20%
Asia 17%
Latin America 13%
Eastern Europe 12%
Middle East and Africa 4%
Australasia 2%
Source: Euromonitor.com
iii. Key success factors for any organization operating within the Industry and
how is your organization performing on those criteria.
Key Success factors
1. Sustainability: Food origin is an increasingly important driver for
consumer purchasing decisions in more developed markets,
particularly at high-end retailers. Mary Nanfelt, Analyst at IBIS
World, says: Americans in particular are becoming more socially
conscious in their choices, buying chocolate from sustainable and

organic sources. Globally, use of Fairtrade cocoa has risen

dramatically over the last few years, and smart phone users can
even download ethical shopping apps. Nestl defines sustainable
development as "the process of increasing the world's access to
higher quality food, while contributing to long-term social and
economic development, and preserving the environment for future
generations". Nestl tries to be a genuine partner in sustainable
development. Nestl created the Sustainable Agricultural Initiative
with other food manufacturers. The group defines sustainable
agriculture as "a productive, competitive and efficient way to
produce agricultural raw materials, while at the same time
protecting and improving the natural environment and
social/economic conditions of local communities".
2. INNOVATION: As consumers become ever more demanding,
innovation is crucial to market share. And personalization is likely to
be the next consumer-driven revolution in the industry. The next
logical step is for consumers to design chocolate bars that cater to
their unique palate. Nestl is leading the pack in this area. The
culture of innovation and renovation, continuous improvement and
the thrust on value-for-money and affordability have helped the
company to focus on adding value for the consumer. Nestl Groups
Proprietary technology/brands, expertise and the extensive
centralised research and development facilities have helped the
company be a leader in research and development.. The culture of
innovation and renovation and benchmarking of consumers tastes
and products is facilitated in the company by the unique
Experimental Kitchen and Sensory Laboratory at the Head
Office.
3. Thrust on Supply Chain: During the past few years, Nestle India has
continuously focused on improving the supply chain to reduce wastage,
improve efficiencies and provide consumers with fresh stocks all the
time.
Reduction in the finished goods inventory pipeline to improve
freshness of stocks and reduce working capital
Control on distribution costs through innovative measures
Sustained improvement in customer service levels to improve
product availability across all geographies and channels
Reduction in obsolescence of materials.
The company has continuously focused on operational efficiency;
improving product availability and visibility and initiated efforts to
make its products more relevant to the consumers. This has been
supported by the distribution of smaller stock-keeping units (SKUs).
4. Health: Although many consumers view chocolate as an occasional
treat and dont obsess over its effect on health, fat is becoming a

major issue for manufacturers. So-called fat taxes are threatened

in a number of major economies, including the US and the UK, while
European countries such as Denmark and Hungary have already
introduced surplus taxes on unhealthy food. An increased emphasis
on healthy lifestyles is an imperative for governments facing rising
healthcare costs, particularly in developed economies that are
battling childhood obesity. With the worlds largest private nutrition
and food research capability, Nestle is continuously creating
nutritional value and health benefits across our product range.
Nestl's science-based solutions are helping to address global
nutrition challenges such as vitamin deficiency and obesity. Through
partnerships and programmes such as Nestl Healthy Kids, it seeks
to generate greater awareness and understanding.