Name: San Htet Aung ID Number:2013043

Assignment Title : Strategic Analysis of Nestle SA

Student Name : San Htet Aung

Student ID Number : 2013043

Unit Code : SHR016-3

Unit Name : Strategic Management for Business

Unit Coordinator : Dr. Claudette Kika

Assessment Number and Title : 1- Report

Word Count : 2400(excluding cover page, content, table and

references)

Submission Date : 6th November 2020

Location : STI Myanmar University

Contents

1 Summary
Name: San Htet Aung ID Number:2013043

1.1 Introduction

1.2 Value Position

2. Literature Review

3. Core competences

4. Strategic position

5. Current strategy(ansoff matrix)

6. Internal and external analysis

7. Evaluation strategy

8. Conclusion and Recommendation

1 Summary
Name: San Htet Aung ID Number:2013043

Nestle is an international food and beverage company which has operates more than 2,000
branded products in 191 countries (Marketline,2019). In the highly competitive food and
beverage industry, Nestle use the cooperate strategy to compete with their competitors. Nestle
company has abundant resources including tangible resources and intangible resources. Nestle
company has many competitors in the market and may face many new entry competitors. The
company also operates many R&D centers in order to maximize the taste and quality. In any
case, Nestle has been able to stand on the market for more than 150 years. It is enough to prove
that Nestlé’s strategy, analysis and regulations can greatly worked in the market.

1.1 Introduction

Nestle mainly operates nutrition, health and wellness products. Nestle operate their products all
over their products all over the world, which product portfolio includes baby foods, bottle water,
chocolate and confectionery, coffee, chilled and frozen foods, dairy products, drinks, nutritional
products, and ice-cream, etc. Nestle company categorize these many products under seven
categories: Milk products and ice cream, water, powdered and liquid beverage, nutrition and
health science, prepared dishes and cooking Aids, confectionery and pet care. There are many
hot sale products under the Nestle SA such as Nescafe, Nespresso, Coffee Mate, Milo and Kit
Kat. The company distributes more than 2,000 branded products worldwide in 191 countries
with more than 30,000 employees. Nestle establishes 418 factories with in 85 countries including
Asia-Pacific, Europe, the Americas and the Middle East regions. (Marketline,2019)

The aims and purpose to do this assignment is hope to learn more about the strategies behind the
operation and implementation of a large international company like Nestle. Then the literature
review, strategies and evaluations, discussion and analysis, current strategy, core competencies,
and conclusion and recommendation all are described later in this paper.

1.2 Value Proposition

As the mission of Nestle “Good Food, Good Life” you can know the company want to provide to
their consumer with the greatest tasting, most healthy and nutritious foods, plenty of choices in a
wide range of food and beverage categories. Nestle is the world's leading nutrition, health and
wellness company (Nestle-esar.com).

Nestle always try to innovate their products and also operate R&D centers all around the world
(Marketline,2019). So Nestle can produce their products by the best in terms of quality and taste.
Descriptions in above all are the unique value proposition for Nestle.

2. Literature Review
Name: San Htet Aung ID Number:2013043

In this assignment, internal and external analysis, core competencies, current strategies,
evaluation, value proposition, strategic position, conclusion and recommendation will be
discussed under. In analyzing the internal and external analysis of Nestle SWOT analysis will be
used. VRIO analysis was also used when analyzing the core competences. There are two main
types of resource in the resources base view: tangible resources and intangible resources. Nestle
likely used the growth strategy (ansoff matrix) and corporate strategy as their current strategies
in the market support to achieve their goals. SAF criteria will also be used in the evaluation
strategies of Nestle. Recommendations and conclusions will be presented at the end of the paper.

VRIO Analysis of Nestle

Resource Valuable Rarity Inimitability Organization Impact of

Competencies Support Competitive
Advantage
Financial Yes No No Yes Temporary
Resources competitive
advantage
Brand Yes Yes Yes Yes Sustainable
Reputation competitive
advantage
R&D Yes Yes Yes Yes Sustainable
competitive
advantage
Technology Yes Yes No Yes Temporary
competitive
advantage
Human Yes No No Yes Temporary
Resource competitive
advantage
Product Yes Yes Yes Yes Sustainable
Portfolio competitive
advantage
Global Yes Yes Yes Yes Sustainable
Presence competitive
advantage
Innovation Yes Yes Yes Yes Sustainable
Product competitive
advantage

3. Core Competencies
Name: San Htet Aung ID Number:2013043

Core competencies can identify the ability and value by looking at the company’s resources. It
can drive to get the competitive advantages in the market. A company can improve it can
compete with their competitors by getting competitive advantages. According to VRIN analysis,
Nestle was obtained the competitive advantages by following:

(1) Brand Reputation

(2) R&D

(3) Global Presence

(4) Product Portfolio

(5) Innovation product

4. Strategic position

Nestle has the wide range of product lines and occupied the worldwide market. In order to
explore the best taste, quality and package, the company has established R&D departments all
around the world. Then Nestle has been stand in the market for more than 150 years, so the brand
image has been particularly good. The above description is sufficient to prove Nestle has the
strong position in the industry’s market.

5. Current strategy

Nestle uses several strategies and methods to gain the market sales and achieve their goal. They
used separately strategies such as market penetration, product development, market development
and diversification in currently. These can also call the growth strategy (ansoff matrix).

Market penetration

In the retail industry, online shopping has formed a new trend of simplicity and convenience. So
in February 2018, Nestle values these trends in cooperation with Alibaba’s Cainiao Network to
simplify its e-commerce supply chain. (Marketline,2019)

Product development

Nestle operates the new products in current market. Nestle announced plans to acquire the coffee
products business from Starbucks for a total company value of $7.1 billion in February 2018.
(Marketline,2019)

Nestle announced that it will launch a series of new coffee products under the Starbucks brand
and will sell them globally. (Nestle.com)

Market development
Name: San Htet Aung ID Number:2013043

Nestle commonly used the market development as the current strategy. Nestle often likely
acquires and joint ventures with other platforms to promote its own things.

Diversification

Nestle is using both related and unrelated diversification strategy. Nestle widely used related
diversification for the example Baby foods, water, coffee and ice-cream, frozen foods, dairy
products, etc. But in the other hand, the company also used the unrelated diversification for
developing Pet care products and Nestle skin care, etc. (Marketline,2019)

Nestle used other strategies to expand its markets like organic growth and inorganic growth,
which involves merger, acquisition and strategic alliance. But Nestle likely used acquisition and
strategic alliance strategic more than merger. For example, Nestle merged five times between
1905 and 2019. However, since 2011, Nestle has adopted an acquisition strategy to expand its
markets.

6. Internal and External Analysis

For analyzing the internal and external analysis, I will use the SWOT analysis in this paper. In
my own opinion, SWOT analysis is a simple, clear and practical analysis of the company’s
status. It can analyze the overall good or bad situation of the company and every officially
established company will also use this analysis method to analyze its own company.

“Nestle SA (Nestle) is a global nutrition, health and wellness product manufacturing company”.
So the major strength of the company includes improvement in financial performance,
diversified territorial presence, R&D and operational network. Product recalls and decreasing
liquidity are still require attention and are therefore listed as weakness. Focus on the coffee
business; product and business expansion and focus on core business categories are may provide
growth opportunities for the company. There are many threat and risks to the company such as
expansion initiatives by competitors, stringent regulations and foreign exchange risks could
affect the nestle operation. (Marketline,2019)

Strength

Financial Performance

Because of the improvement in sales of powders and liquids beverages, prepared dishes and
cooking aids, nutrition and health sciences and pet care product categories: the company’s
revenue raise 2.1% to CHF91,439 million from CHF89,590 million in fiscal year 2017. So in
fiscal year 2018, Nestle Company’s operating profit margin was 11%, which was well above the
average operating profit margin of the food industry’s 5.7%. In the Nestle fiscal year of 2018,
both the company’s return on equity was 11.8% and company’s return on capital employed was
Name: San Htet Aung ID Number:2013043

10.6% which was higher than the food industry’s average ROE of 7.7% and average ROCE of
8.04% respectively. (Marketline,2019)

Diversified Territorial Presence

Nestle has many branches all over the world. Nestle could reduce the company’s business risks
and obtain the economic benefits scale and global recognition by wide geographical distribution.
The company operating the business conducts in 191 countries respectively in the America,
Europe, Asia-Pacific, Oceania and Africa. It business conducts could establish 418 factories in
85 countries, included among these 158 factories in the Americas; 151 in Europe, the middle east
and north Africa; and 109 factories was in Asia, Oceania and sub-Saharan Africa. Nestle is the
largest food company in North America, and in most European countries, Japan and Australasia
have a particularly high reputation and status. The company can maintain a balanced
geographical influence in developed and emerging markets. (Marketline,2019)

R&D and Operational Network

Nestle has 30 R&D centers, product technology centers and scientific research centers around the
world because they value that focusing on R&D and operating the network can enhance the
company’s product portfolio. They have 5,000 employees in their R&D departments worldwide
and possess 25 regional testing labs, which are to provide analytical data and quality assurance
support for operation and R&D. (Marketline,2019)

Weakness

Liquidity position

As of the end of the 2018 fiscal year and the end of the 2017 fiscal year, the company’s current
ratio was 0.8 and 0.9, which was relatively 0.1 lower than the previous year. That current ratio is
lower than its main competitor, Hillshire Brands Company (1.6) and Coca-Cola’s (1.3). Current
liabilities was increased (1.8%) from CHF37,517 million in fiscal year 2017 to CHF38,189
million in fiscal year 2018 by the decrease in current ratio, which was due to increase in account
payable and accrued expenses.

Product Recalls

In December 2018, Nestle Company recalled Mass production of 400g cans of Alfamino infant
formula milk powder for amino acids in Germany contains an increased does of minerals.
Consumption of this product may cause symptoms such as vomiting, headaches and nausea in
children. Nestle has also recalled products without English information labels on the packaging
from La Laitiere Clafoutis aux Cerises. So product recalls may affect a company’s brand image.
(Marketline,2019)
Name: San Htet Aung ID Number:2013043

Opportunities

Focus on coffee business

Nestle hopes that by focusing on the coffee business could promote the company become a
leading coffee company in the industry. Nestle has a strong position in Mexico’s coffee business
industry. Nestle values Mexico has raw materials, so the company sourcing 685,000 tons of
green coffee in the country. All advanced coffee facilities are also available in Mexico Branch
Company. In December 2019, Nestle Mexico branch opening a new coffee factory in Veracruz
by invested US$154 million. The plant is expected to process approximately 20,000 tons of
green coffee a year. It new facility will be added to 18 production plants produce a series of
products in Mexico, such as bottle water, dairy products, coffee, cooking aids and pet care.
(Marketline,2019)

Nestle acquired permanent marketing, sales and distribution rights for certain products on
Starbucks consumer and food service products globally in August 2018. This alliance with
Starbucks will allow the group to jointly develop Starbucks’ existing roasted and ground coffee
and aliquots, which will help extend Nestlé’s coffee business in Europe and North America.
(Marketline,2019)

Focus on Core Business Categories

Nestle sold its US confectionery business to Ferroro in January 2011 for $2.8 billion. It accounts
for approximately 3% of Nestle Group’s sales in the US. This plan will enable the company to
invest and innovate in various categories with strong growth, such as bottled water, frozen food,
pet care, coffee, and baby nutrition. (Marketline,2019)

Product and business expansions

Nestlé’s SPECIAL.T and KUSMI TEA signed an agreement its tea products with European
investment portfolio. By this agreement, the company plans to launch a new series of tea
capsules including black tea Anastasia, green tea Imperial Label, white and green tea white
Anastasia. Nestle Purina invested 1.15 million Swiss francs in the production of Tidy Cats brand
cat litter in its expanded care plant for pets in the US, which was increase 18% in the past four
years. (Marketline,2019)

Threat

Expansion Initiatives by Competitors

Nestle is facing fierce industry competition in terms of product quality, innovation, service,
brand, loyalty and marketing plans and prices, etc. Nestlé’s main competitors such as coca cola,
Pepsi Co, etc. which has adopted an expansion plan rate commensurate with growth, market
cooperate merger and acquisition. (Marketline,2019)
Name: San Htet Aung ID Number:2013043

Stringent Regulation

Nestlé’s domestic and export markets will be regulated by the U.S. Food and Drug
Administration (FDA) and the United State Department of Agriculture (USDA). The company
must abide by the strict regulations and specifications regarding its products. These agencies are
responsible for monitoring compliance with regulations. (Marketline,2019)

Foreign Exchange Risks

The main factors that bear exchange rate risk include the company’s investment in overseas
subsidiaries and branches and the currency assets and liabilities generated foreign currency
business transactions. In the 2018 fiscal year, the company lost 54 Swiss francs Millions of
dollars were attributed to exchange rate differences, and the 2017 fiscal year lost 94 million
Swiss francs. (Marketline,2019)

7.Evaluation strategies of Nestle

Now, we will use the SAF criteria evaluation the Nestlé’s strategies. These are suitability,
acceptability and feasibility.

Suitability

Nestle can greatly catch the opportunities which is from the environment. Nestle has
demonstrated greatly mature strategies to win the market sales in its company history of more
than 150years. And its strategies are acceptable to the environment. So the Nestle always gain
the leading industry position.

Acceptability

Nestle has been investing in recent years and it has paid off. The most significant of these was in
2019 years, the company’s annual revenue and various shares increased significantly. So
stakeholders are very acceptable to invest in Nestle.

Feasibility

For a large international company like Nestle, their strategy has already worked globally. Their
strategy has been listed as a model for many companies to learn from. So their strategy had
obtained a lot of sales and shares in the market business.

8.Conclusion and Recommendation

Name: San Htet Aung ID Number:2013043

During the COVID-19 period like now, people will not spend their spare money on unimportant
products. People are more willing to spend money on daily necessities. Therefore, I would to
suggest that to the company reduce the production of non-commodity products and improve the
efficiency of online shopping services.

Nestle implements an effective acquisition strategy to expand its investment portfolio, thereby
applying a diversified growth strategy. Nestle invests in green practices and tries to produce
recycled packaging to show a positive brand image in the market and maintain green
environment protection.(Bulter,2018)

In the unprecedented period of COVID-19, Nestle has been doing a lot of relief work in the local
area where it operates. The company also worked with the International Federation of Red Cross
and Red Crescent Societies and supported the Coalition for Epidemic Preparedness Innovations
(CEPI) to find a COVID-19 vaccine. End the pandemic and save lives and livelihoods. Because
of Nestle believes that people are the core of their business, the company attaches great
importance to the personal safety of employees and partners. (Nestle.com)

So, I totally give the respect from my mind to the Nestle Company it can not only be a leader in
the international market, but also care for and help the environment. Just like Jack Ma said, the
company has achieved “the greater the ability, the greater the responsibility”. Finally, I hope that
Nestlé can always maintain positive energy to pay attention to the social environment and
produce the healthiest and high-quality foods.

Reference Lists
Name: San Htet Aung ID Number:2013043

Butler, A., (2018). Nestle Generic and Intensive Growth Strategies. [online]. Available at:

http://www.esay48.com/13633-Nestle-Porters-Generic-Strategies [Accessed: 5/November/2020]

Nestle-esar.com (2020) ‘aboutus’[online]. Available at:

https://www.nestle-esar.com/aboutus/missionvision [Accessed: 5/November/2020]

Nestle.com (2020) ‘media’ [online]. Available at:

https://www.nestle.com/media/pressreleases/allpressreleases/global-launch-new-starbucks-
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Marketline (2019). Company profile of Nestle S.A [online]. Available at:

http://www.coursehero.com/file/14098308/Nestle-SA/ [Accessed:5/ November/ 2020]

Name: San Htet Aung ID Number:2013043