Economic Analysis Of

Nestle Purina Pet Care Company

Yelyzaveta Zaitseva
36637

Academic Year 2017/2018

© Kozminski University 2018

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Nestle is a Swiss transnational food and beverage company headquartered in Vevey, Switzerland. It
is one of the largest food company in the world. Nestle’s products include baby food, bottled water,
breakfast cereals, coffee and tea, confectionery, dairy products, ice cream, frozen food, pet food and
shacks. Nestle’s largest competitors are PepsiCo, KraftFood, Unilever and Mars Incorporated.

For this economic analysis I decided to concentrate in Nestle Purina Pet Care Company, production
of pet food.

Headquarters: St Louis, Missouri

Founded: 1894

Ralston Purina Company was acquired by Nestle and formed Nestle Purina Pet Care Company in
2001. Nestle’s rich history in pet care, with brands such as Friskies, Fancy Feast, Mighty Dog and
Alpo, combined with Purina’s strong heritage in per care, has created a leading globally competitive
business. The company is headquartered in St Louis, Missouri. It operates in North America, Asia
Pacific, Europe, Central Africa, and South America.

The target market is consumer. The industry produces a staple product for individuals who have cats
and dogs; however, wet pet food is more expensive and can be easily substituted for cheaper dry
pet food. 

Its portfolio of some 30 brands includes Alpo, Beneful, Cat Chow, Dog Chow, Fancy Feast, Friskies,
Mighty Dog, Pro Plan, and Purina ONE. It also makes cat and dog litter products under the Tidy Cats,
Yesterday's News, and second nature names. Purina products are sold internationally by mass
merchandisers, supermarkets, pet supply stores, and online retailers, including Wal-Mart, Target,
PetSmart, Hy-Vee, and Amazon.com. Besides pet supplies, the company offers health insurance for
dogs and cats through its Purina Care Insurance Services subsidiary. Food isn’t the only area where
Nestle aims to tap demand from pet owners. In June 2011, Purina began selling insurance policies
for pet health, which sell for about $30 to $45 for dogs and $10 to $20 for cats. About 1 percent of
the 150 million cats and dogs in the U.S. are insured, and David Goodnight, the unit’s president and
chief operating officer. He said the percentage of insured pets in the U.S. may quintuple in coming
years.

Nestle Purina Pet Care has the local and the international market share at the same time. They are
managing their coffee, petcare, infant nutrition and bottled water categories with an emphasis on
growth. Nestlé has a signi cant global market share in these categories. They have some of the
world’s leading brands, including Nescafé, Purina, Gerber and Nestlé Pure Life. Furthermore, have
science and technology‐based competitive advantages across these categories. Nestlé is also
pursuing growth opportunities in consumer healthcare to complement focus on these key food and
beverages categories. As a result, they are expanding their presence across the pharmacy channels

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in both emerging and developed markets. Nestlé Purina continues to bring to market new
innovations for pets and their owners that strengthen both their brands and commitment to the
best nutrition for pets. Responding to the trend of natural products, they continue to update
portfolio through including more recognisable ingredients and simpler ingredient lists. The most
recent example of this includes the global expansion of the Beyond range of dog and cat foods. In
Asia, Oceania and Africa, the reposition and expansion of the Supercoat brand continued to show
strong regional results in both dog and cat ranges. Merrick is driving growth as Nestlé Purina’s lead
exclusive natural brand of dog and cat foods in the U.S. This year, Merrick launched the Castor &
Pollux Pristine dog and cat subranges – the rest complete line of pet food positioned around
providing responsibly‐sourced ingredients, animal welfare and responsible farming assurances. In
dog snacks, the successful global expansion of Dentalife continued in 2017. They also introduced two
premium offerings in the U.S from Beggin’ that feature real meat as the number one ingredient.
Their Felix cat food brand continues its successful expansion globally in both wet and dry product
lines, with Felix ‘As Good as it Looks’ as the primary offering. Production of cat food has also
expanded globally with capacity investments in Poland, Russia, Hungary, Brazil, Mexico and the U.S.
The main competitors in the market are Mars (with brands such as Chappi, Pedigree, Whiskas,
KiteKat), Royal Canin, Hill’s, Procter & Gamble, Colgate-Palmolive. The Pet Food Production industry
is dominated by brands like Purina and Cesar, which are produced by Nestle and Mars, respectively.

As we can see Nestle and Mars both have 18 % .

Privet Label - 11%
Colgate-Palmolive - 4%
Proocter & Gamble - 4%
Del Monte Foods - 3%

The Pet Food Production industry faces moderate barriers to entry. While there are no specific
legislations or regulations barring the entry of new firms, high competition, capital costs and

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concentration makes it difficult for new firms to succeed. In general, small new firms in this industry
have difficulty abiding by government regulations and finding a niche market where they can be
competitive.

Nestle Purina Pet Care actives in over 70 countries.

Nestle Purina Pet Care currently employs approximately 14.500 people in the US, Latin America and
Canada combined, with 24 manufacturing facilities in the US and Canada In Europe, Nestlé Purina
Pet Care is present in 35 countries, operates 14 factories and employs around 5,300 people.

Underlying trading operating profit increased by 2.9% to CHF 14.7 billion. The underlying trading
operating margin was up 50 basis points in constant currency, and up 40 basis points on a reported
basis to 16.4%.

Margin expansion was supported by operating efficiencies and successful execution of ongoing
restructuring initiatives. These cost savings largely offset the increase in commodity costs of around
CHF 900 million.

Restructuring expenditure and net other trading items increased by CHF 900 million to CHF 1.5
billion due to the acceleration of restructuring projects. As a consequence, trading operating profit
decreased by 3.4% to CHF 13.2 billion. The trading operating profit margin decreased by 60 basis
points on a reported basis to 14.7%, in line with our guidance.

Nestlé is committed to margin expansion. They have set an underlying trading operating profit
margin target of 17.5% to 18.5% by 2020, up from 16% in 2016.

Their primary driver is to reduce structural costs in non‐consumer facing areas. Well‐identified
projects in manufacturing, procurement and general administration are expected to deliver total
savings of CHF 2.0 to 2.5 billion by 2020.

They are optimizing their manufacturing footprint and increasing efficiency throughout their
operations. This will both increase their capacity utilization and reduce conversion costs. Through
global procurement, they leverage Nestlé’s purchasing power worldwide. They are supporting their
centralized purchasing activities by establishing global procurement hubs.

According to this data we can say where pet market gains biggest sales.

According to Netle’s annual report of 2017 (in millions):

Year 2016 2017

Revenue 10 810 11 239

Profit 2 206 2 163

Margin profit 20,4% 19,3%

(Nestle Annual Report 2013)

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Therefore, profit margin=profit/revenue

Profit margin(2016)= 2,206/10,810=20,4%

Profit margin(2017)-2,163/11,239-19,3%

Nestle’s forecast

As we see the company’s sales are predicted to growth till 2018 for 9 %/ and will exceed the
previous results.

As of Jun 15, 2018, the consensus forecast amongst 28 polled investment analysts covering Nestle SA
advises that the company will outperform the market. This has been the consensus forecast since
the sentiment of investment analysts improved on Sep 05, 2016. The previous consensus forecast
advised investors to hold their position in Nestle SA.

Bibliography

1. “Nestle SA.” Hong Leong Finance Ltd, S41:SES Summary - FT.com,

markets.ft.com/data/equities/tearsheet/forecasts?s=NESN%3AVTX.

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2. “Nutritious Dog and Cat Food for Your Pet.” Purina, www.purina.com/#/hero.
3. “Nestlé Purina PetCare.” Wikipedia, Wikimedia Foundation, 15 June 2018,
en.wikipedia.org/wiki/Nestl%C3%A9_Purina_PetCare.
4. “Feed Greatness.” Urinary Calculi in Goats | Purina Animal Nutrition, www.purinamills.com/.
5. Nestle.com, www.nestle.com/media/mediaeventscalendar/allevents/2017-full-year-results.

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