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Research Paper on Nestle

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Abstract

In the following research paper, the discussions are focused on evaluating the businesses of the

company, Nestlé. The internal and external factors surrounding the business operations of the

firm have been analyzed, using SWOT analysis framework. Furthermore, the corporate and

business level strategies applied by Nestlé have also been evaluated in the following research.
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Table of Contents
Nestle .............................................................................................................................................. 4

SWOT Analysis & Impact of External Environment ..................................................................... 5

Evaluation of SWOT Analysis........................................................................................................ 8

Corporate Level Strategy .............................................................................................................. 10

Business Level Strategy ................................................................................................................ 12

Structure and Control Systems...................................................................................................... 13

Recommendation .......................................................................................................................... 14

Works Cited .................................................................................................................................. 15

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Nestle

Nestle is renowned Swiss multinational consumer goods and nutritional food company. The

company was founded by Henri Nestlé in the year 1866. Nestle is headquartered at Vevey,

Switzerland. The company maintains a diversified product portfolio of Nespresso, Nescafe,

Vittel, Maggi, KitKat, Nesquik etc. The company has achieved sales revenue of CHF 83.7 bn in

the year 2011 (Nestle, “Annual report 2011”). Next section of the study will discuss the major

milestones for the company.

Time Period Milestones

1905 Nestle took over Anglo-Swiss Condensed Milk

Company.

1920-1944 Nestle shut down operation in many plants and

invested capital in launching Nescafe.

1945-1974 In this era, Nestle took the strategic decision to

diversify its product portfolio. They took over

Alimentana in order to launch Maggi. Nestle

invested money for becoming one of the largest

shareholder in L'Oréal.

1975-1979 Nestle took initiative to enter in pharmaceutical

industry with the help of buyouts and strategic

acquisition decisions. The company acquired Alcon

Laboratories in order to enter American

pharmaceutical industry.
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1980-1994 Nestle used the acquisition strategy in order to

increase height, breadth and depth of its food

product portfolio. The Vevey based organization

acquired food giant Carnation in order increase

depth of the product line. Nestle enhanced the

strength of the Nescafe brand by launching

Nespresso which was a form of espresso coffee.

1996-2005 Nestle diversified its business into nutritional and

health division. The Swiss company entered into of

health, nutrition and wellness business segment

with the help of series of merger and acquisition

activities.

2006-2009 Nestle took few major steps like acquiring

nutritional division of Novartis, establishing shared

value forum in different countries, trimming down

the value chain for bottled water segment in order

to increase sustainability and profitability of

business.

2010-2012 Nestle launched Cocoa Plan for supplying disease

defiant plantlets to their value chain partners.

(Source: Nestle, “History”)

SWOT Analysis & Impact of External Environment

Strengths
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Strong Brand equity is the major strength for Nestle. The company has established strong brand

presence with the help of its diversified product portfolio. The Swiss giant offers more than 4000

brands to customers which show the product diversification capacity of the company. The

company is the market leader in more than twenty five product categories like confectionery, pet

care, coffee, bottled water, frozen meal, nutritional division and dairy products. Nestle has

achieved leadership position in non-alcoholic beverage market with the help of products like

Milo (energy drink), Nestle Pure Life (bottled water), Nescafe (coffee) etc. Nestle Pure Life is

the highest selling bottle water brand in the world. Top brands of the company are growing at a

rate of 10-20% annually which proves the strong brand equity of Nestle (Market Line, “Nestle

S.A”).

Research and development capability is the major strength for Nestle. The company has

established more than thirty two research and development centers across five continents in order

to incorporate high degree of diversification in product offering. The Vevey based company

operates business with the help of three hundred application groups in order to develop products

in accordance to local market preference.

Weaknesses

Major weakness for Nestle is its inability to generate revenue from all the market in equal

proportion. For example, 58% of Nestlé’s revenue comes from its operation in developed

countries like USA, UK and other European countries (Market Line, “Nestle S.A”). The

company is facing problem to maintain it’s bottom-line in European countries after the economic

recession and ongoing sovereign debt crisis. Fluctuation in the value of Euro caused by

sovereign debt crisis has impacted negatively to the revenue growth rate of Nestle. Market Line

(2012) has reported that more than 60% of the product portfolio of the company is in the
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declining stage. Total revenue earned by the company from European market and North

American market has declined by more than 7% in last two years (Market Line, “Nestle S.A”).

Market penetration of Nestle in developing country is very low in comparison to other consumer

companies like P&G, Unilever etc.

Opportunities

Life style related health issues such as hypertension, diabetes and obesity have forced consumers

to change their food preference in recent times. Consumers made conscious effort to shift

preference to low calorie nutritional foods. This is the reason why consumer food companies are

trying to increase their penetration in low calorie process food market. Market Line (2012) has

predicted that total health and nutritional market of Europe and USA will touch the value of $150

billion by 2016. Nestle has the opportunity to expand footstep in global nutritional and health

market. Industry analysts have predicted that Nestle needs to increase production capacity for

nutritional and health segment by 80% in order to cater demand of global nutritional market

which is growing at cumulative average growth rate (CAGR) of 3.4% (Market Line, “Nestle

S.A”).

There is opportunity for Nestle to expand its penetration in single serve coffee machine business.

Market Line (2012) has reported that single serve coffee machine business is growing at a rate of

30% and the market value will reach the mark of $10 billion within next four years. The

company should focus on increasing the revenue earned from its beverage portfolio in near

future.

Nestle has the opportunity to expand its business in developing and emerging economies. The

company should use its resource capability to achieve double digit revenue growth potential in
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developing and emerging economies like Africa, East Europe and Asia-Pacific. The company

should try to compensate the financial loss associated with business operation in developed

countries with the help of generating revenue from developing and emerging economies.

Threat

International Monetary Fund (2012) has reported that global commodity price and food price

index would increase at a rate of 9% for the next one year (International Monetary Fund,

“Commodity Prices Rebound on Supply Shortfalls”). This situation is indicating that overall

production cost for companies who produce commodity based food products is going to increase

in next couple of years. Increase in raw material price will increase the value chain cost for

Nestle.

Global financial crisis has decreased the spending capacity of consumers, which is the reason

why they have shifted focus from purchasing high priced renowned brands to low priced private

level brands. Nestle is facing competitive threat from low priced private level brands in not only

in emerging and developing countries but in developed countries also.

Nestle is a food product manufacturing company, hence they are subject to face regulatory threat

from European Food Safety Authority (EFSA) in Europe and Food and Drug Administration

(FDA) in USA.

Evaluation of SWOT Analysis

It is evident from the SWOT analysis that competitive position of Nestle is strong in developed

countries. The Vevey based company needs to work on their international strategies in order to

strengthen its position in developing and emerging market. The study will use a grid framework

in order to analyze evaluate strategic options recommended in SWOT analysis section.

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Although the Nestle has achieved strong Nestle can continue its corporate or business

market position in Europe and North level strategies in order to increase its

America but they are struggling in market penetration and product

developing countries. The company needs to diversification in developed and developing

decrease the size of product portfolio by market. The company should use the

eliminating unprofitable product line, this strategy of gaining resources from synergy

move will help the company decrease with other companies in nutritional and

operation cost. Opportunity section of the health business. It is evident from the

SWOT analysis has clearly mentioned that previous section of the study, that Nestle

Nestle needs to increase the depth of its always use corporate level strategy to enter

nutritional segment in order to achieve into new business segment hence there is no

strong position in health & nutrition doubt that the company should continue its

business of both developed and emerging business diversification strategy in future.

market.

Emerging market for Nestle is growing at a It is evident from the SWOT analysis that

rate of more than 10% which means there is Nestle has the resource capability to develop

opportunity for the company to expand its new business, functional, or corporate

penetration in this market in order to provide strategies in order to increase market share

balance to its global business portfolio. The in both developed and emerging market.

company should introduce low priced

private level brands in order to increase its

penetration in emerging market of private

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level brands.

Corporate Level Strategy

Nestle designs country specific business hence it is difficult to identify a universal goal statement

of the company. The company has designed “Shared Value” model in order to synchronize

mission and goal statement altogether. “Shared Value” concept states that Nestle always try to

achieve leading position in Nutrition segment, Health & Wellness, consumer food and beverage

segment by satisfying the requirement of customers. Achieving high financial growth and

profitability is also an important aspect of the mission statement of Nestle.

Corporate level strategy of the company is to maintain a diversified product portfolio in order to

compensate financial loss incurred by one brand with profit earned by another brand. Product

line of the Swiss giant can be explained in the following manner.

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(Source: Nestle, “Our Brands”)

Depth of the product portfolio has helped Nestle to achieve a cumulative organic growth rate of

7.7% in the year 2011. Nestle use international joint venture and acquisition in order to achieve

both product and business diversification. For example, recently Nestle has acquired Pfizer

Nutrition by investing $ 11.85 billion in order to enhance penetration in infant nutrition business

(Nestle, “Nestlé completes acquisition of Pfizer Nutrition, enhancing its position in global infant

nutrition”). Nestle has gained 4,500 employees of Pfizer Nutrition who have expertise in the

infant nutrition business with the help of this acquisition. Historically, Nestle used both related

and unrelated diversification strategy in order to expand its business in the globe. For example,

Nestle started their operation as Food Company but on the later stage they have diversified their

business into four growth drivers such as food & beverage segment, nutrition segment, health &

wellness segment and infant care segment. Nestle also uses joint venture or corporate synergy as

an effective tool for increasing business strength. For example, Nestle did established joint
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venture with Co-operative Group in order to increase its penetration in chilled and liquid dairy

product market of Latin America (Redruello, “Fonterra/Nestlé joint venture: A change of balance

in Chile”).

Business Level Strategy

It is evident from the SWOT analysis and product portfolio analysis of Nestle that the company

uses “differentiation” strategy for achieving business growth. The Vevey based consumer food

company is trying to expand its food step in infant nutrition business in order to compensate the

loss incurred in food segment caused by rise in global commodity price and food price index.

Nestle use “Differentiation” as generic competitive strategy due to two reasons.

 Increase the penetration and achieve sustainable growth rate in all four business segments

such as food & beverage, nutrition, health & wellness and infant care.

 Avoid the financial and non financial risk of maintaining single product portfolio.

It is evident from the SWOT analysis that the company has selected right generic competitive

strategy in order to cater demand for customers. For example, differentiation strategy has helped

the company to maintain cumulative growth rate of more than 5% even during the time of

economic recession. The company can increase the penetration level of its differentiation by

adding one or two product line in portfolio. Nestle can do this with the help of series of

acquisition of related businesses of developed and emerging market. The company can only use

both low cost and differentiation strategy simultaneously for food & beverage and health &

wellness segments but they cannot use the same strategy for nutrition and infant care segment

due to two reasons such as customized nature of baby care products and unequal distribution of

demand for nutrition and infant care products.

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Structure and Control Systems

Organizational structure of Nestle can be explained by the following diagram.

(Source: The Official Board, “Nestlé”)

It is evident from the above figure that Nestle maintains vertical differentiation in organizational

structure. Corporate level strategy of the Swiss giant is backed by decentralized continent based

strategic business units. Basically the company uses a mix of centralized and decentralized

model to control its global business operation. For example, the Nestle has appointed one

independent director for business operation in each continent while each of the directors is

responsible for reporting to CEO of the company. On the other hand business level strategy of

the company is backed by fair degree of synchronization between global operational units,

research & development centers and other strategic units. Nestle uses four components such as
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Pay, benefits, growth and work environment in order to encourage managers to improve their

performance and increase cooperation between business divisions (Nestle, “Rewards,

Recognition and Benefits”). The company has rightly mixed performance with reward by

introducing four components of reward systems. For example, employee turnover rate at top

level management of Nestle is significantly low which shows the efficacy of reward system

designed by the company.

Recommendation

Porter (1985) has stated that companies should analyze the external business environment by

using “Five Force Framework” in order to achieve competitive advantage over business rivals.

Five force analysis for baby food market in USA states that overall external threat is moderate

for Nestle. The study will recommend three strategies for Nestle.

 Nestle should decrease marketing cost such as cost related to distribution, promotion for

unprofitable product lines in order to increase overall profitability of the product

portfolio (functional level strategy).

 The Swiss giant should use international joint ventures with market leader of particular

business segment and acquisitions of small firms in order to achieve both business and

product diversification in developed and emerging market (corporate level strategy).

 The Vevey based organization should use both low cost and differentiation strategy in

food & beverage and health & wellness segments in order to cater demand of global

customers. Nestle should add more products in infant care segment in order to achieve

high degree of product differentiation. Nestle should focus on achieving economies of

scale in production in order to implement low cost strategy (business level strategy).
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Works Cited

International Monetary Fund. “Commodity Prices Rebound on Supply Shortfalls.” International

Monetary Fund. IMF, 12 October 2012. Web. 9 Jan. 2013.

Market Line. “Nestle S.A.” MarketLine. MarketLine, 23 December 2012. Web. 9 Jan. 2013.

Nestle. “Annual report 2011.” Nestle. Nestlé S.A, 2012. PDF file.

Nestle. “History.” Nestle. Nestle, 2012. Web. 9 Jan. 2013.

Nestle. “Nestlé completes acquisition of Pfizer Nutrition, enhancing its position in global infant
nutrition.” Nestle. Nestlé, 2012. Web. 10 Jan. 2013.

Nestle. “Our Brands.” Nestle. Nestlé, 2012. Web. 10 Jan. 2013.

Nestle. “Rewards, Recognition and Benefits.” Careers.Nestle. Nestlé, 2012. Web. 10 Jan. 2013.

Porter, Michael E. Competitive Advantage. New York: Free Press, 1985. Print.

Redruello, Francisco. “Fonterra/Nestlé joint venture: A change of balance in Chile.”

Euromonitor. Euromonitor, 21 January 2011. Web. 10 Jan. 2013.

The Official Board, “Nestlé.” The Official Board. The Official Board, 10 December 2012. Web.
10 Jan. 2013.