Business Policy and strategy

Analysis of

Profile:
Nestl S.A. is a Swiss multinational food and beverage
company headquartered in Vevey, Switzerland. It is the largest
food company in the world measured by revenues. Nestls
products include baby food, bottled water, breakfast cereals,
coffee and tea, confectionery, dairy products, ice cream, frozen
food, pet foods, and snacks. Twenty-nine of Nestls brands
have
annual
sales
of
over CHF1
billion
(including Nespresso, Nescaf, Kit
Kat, Smarties, Nesquik, Stouffers, Vittel, and Maggi. Nestl has
447 factories, operates in 194 countries, and employs around
333,000 people. It is one of the main shareholders of LOreal,
the worlds largest cosmetics company.

Nestl was formed in 1905 by the merger of the Anglo-Swiss

Milk Company, established in 1866 by brothers George Page
and Charles Page, and Farine Lacte Henri Nestl, founded in
1866 by Henri Nestl. The company grew significantly during
the First World War and again following the Second World War,
expanding its offerings beyond its early condensed milk and
infant formula products. The company has made a number of
corporate
acquisitions,
including Crosse
&
Blackwell in
1950, Findus in 1963, Libbys in 1971, Rowntree Mackintosh in
1988, and Gerber in 2007.

Nestl has a primary listing on the SIX Swiss Exchange and is a

constituent of the Swiss Market Index. It has a secondary listing
on Euronext. In 2011, Nestl was listed No. 1 in the Fortune
Global 500 as the worlds most profitable corporation. With a

market capitalization of US$233 billion, Nestl ranked No. 9 in

the FT Global 500 2013

Nestle History
Nestls origins date back to 1866, when two separate Swiss
enterprises were founded that would later form the core of
Nestl. In the succeeding decades, the two competing
enterprises aggressively expanded their businesses throughout
Europe and the United States.

In August 1867, Charles (US consul in Switzerland) and George

Page, two brothers from Lee County, Illinois, USA, established
the
Anglo-Swiss
Condensed
Milk
Company
in Cham,
Switzerland. Their first British operation was opened
at Chippenham, Wiltshire, in 1873.

In September 1866, in Vevey, Henri Nestl developed a milkbased baby food, and soon began marketing it. The following
year saw Daniel Peter begin seven years of work perfecting his
invention, the milk chocolate manufacturing process. Nestls
was the crucial cooperation that Peter needed to solve the
problem of removing all the water from the milk added to his
chocolate and thus preventing the product from developing
mildew. Henri Nestl retired in 1875 but the company, under
new ownership, retained his name as Socit Farine Lacte
Henri Nestl.

In 1877, Anglo-Swiss added milk-based baby foods to their

products; in the following year, the Nestl Company
added condensed milk, such that the firms became direct and
fierce rivals.

In 1905, the companies merged to become the Nestl and

Anglo-Swiss Condensed Milk Company, retaining that name
until 1947, when the name Nestl Alimentana SA was taken as

a result of the acquisition of Fabrique de Produits Maggi SA

(founded 1884) and its holding company, Alimentana SA, of
Kempttal, Switzerland. Maggi was a major manufacturer of soup
mixes and related foodstuffs. The companys current name was
adopted in 1977. By the early 1900s, the company was
operating factories in the United States, the United Kingdom,
Germany, and Spain. The First World War created demand for
dairy products in the form of government contracts, and, by the
end of the war, Nestls production had more than doubled.
Nestl felt the effects of the Second World War immediately.
Profits dropped from US$20 million in 1938, to US$6 million in
1939. Factories were established in developing countries,
particularly in Latin America. Ironically, the war helped with the
introduction
of
the
companys
newest
product, Nescaf (Nestls Coffee), which became a staple
drink of the US military. Nestls production and sales rose in
the wartime economy.
After the war, government contracts dried up, and consumers
switched back to fresh milk. However, Nestls management
responded quickly, streamlining operations and reducing debt.
The 1920s saw Nestls first expansion into new products, with
chocolate-manufacture becoming the companys second most
important activity. Louis Dapples was CEO till 1937, when
succeeded by douard Muller till his death in 1948.
The end of World War II was the beginning of a dynamic phase
for Nestl. Growth accelerated and numerous companies were
acquired. In 1947 Nestl merged with Maggi, a manufacturer of
seasonings and soups. Crosse & Blackwell followed in 1950, as
did Findus (1963), Libbys (1971)
and Stouffers (1973).
Diversification came with a shareholding in LOreal in 1974. In
1977, Nestl made its second venture outside the food
industry, by acquiringAlcon Laboratories Inc.
In the 1980s, Nestls improved bottom line allowed the
company to launch a new round of acquisitions. Carnation was
acquired for $3 billion in 1984 and brought the evaporated

milk brand, as well as Coffee-Mate and Friskiesto Nestl. The

confectionery company Rowntree Mackintosh was acquired in
1988 for $4.5 billion, which brought brands such as Kit
Kat, Smarties and Aero.
The first half of the 1990s proved to be favourable for Nestl.
Trade barriers crumbled, and world markets developed into
more or less integrated trading areas. Since 1996, there have
been
various
acquisitions,
including San
Pellegrino (1997), Spillers
Petfoods (1998),
and Ralston
Purina (2002). There were two major acquisitions in North
America, both in 2002 in June, Nestl merged its U.S. ice
cream business into Dreyers, and in August a US$2.6 billion
acquisition was announced of Chef America, the creator of Hot
Pockets. In the same time-frame, Nestl came close to
purchasing the iconic American company Hersheys, one of its
fiercest confectionery competitors, although the deal
eventually fell through. Another recent purchase included
the Jenny Craig weight-loss program, for US$600 million.
In December 2005, Nestl bought the Greek company Delta Ice
Cream for 240 million. In January 2006, it took full ownership
of Dreyers, thus becoming the worlds largest ice cream maker,
with a 17.5% market share.
In November 2006, Nestl purchased the Medical Nutrition
division of Novartis Pharmaceutical for US$2.5 billion, also
acquiring, in 2007, the milk-flavouring product known
as Ovaltine.
In April 2007, returning to its roots, Nestl bought US baby-food
manufacturer Gerber for $5.5 billion. In December 2007, Nestl
entered into a strategic partnership with a Belgian chocolate
maker, Pierre Marcolini. Nestl agreed to sell its controlling
stake in Alcon to Novartis on 4 January 2010. The sale was to
form part of a broader US$39.3 billion offer, by Novartis, for full
acquisition of the worlds largest eye-care company. On 1 March
2010, Nestl concluded the purchase of Kraft Foods's North
American frozen pizza business for $3.7 billion.

In July 2011, Nestl SA agreed to buy 60 percent of Hsu Fu Chi

International Ltd. for about $1.7 billion. On 23 April 2012,
Nestl agreed to acquire Pfizer Inc.'s infant-nutrition unit for
$11.9 billion. Before the acquisition, there was a 'bidding war'
between the three shareholders Nestl, Mead Johnson
Nutrition and Danone. Each of the companies held a share, with
Nestl holding the biggest share (17%) (Johnson held 15%,
Danone 13%).
As of 28 May 2013, Nestl has announced that it will expand
R&D in its research center in Singapore. With a primary focus
on health and nutrition, Nestl is investing $4.3 million in its
Singapore center, creating 20 jobs for experts in related R&D
fields. In 2013 Nestl Nigeria successfully pioneered and
implemented the use of compressed natural gas as a fuel
source to power their Flowergate factory.
Mission, Vision, And Values

Nestles Vision: At Nestl, we believe that research can help us

make better food so that people live a better life. Good Food is
the primary source of Good Health throughout life. We strive to
bring consumers foods that are safe, of high quality and
provide optimal nutrition to meet physiological needs. In
addition to Nutrition, Health and Wellness, Nestl products
bring consumers the vital ingredients of taste and pleasure. As
consumers continue to make choices regarding foods
and beverages they consume, Nestl helps provide selections
for all individual taste and lifestyle preferences. Research is a
key part of our heritage at Nestl and an essential element of
our future. We know there is still much to discover about
health, wellness and the role of food in our lives, and we
continue to search for answers to bring consumers Good Food
for Good Life

The Mission of Nestle: Nestl strives to be a leader in

nutrition, health andwellness, with the belief that good food is
central to health and wellness. At the Nestl Research Center,
nutrition research meets food innovation to bring consumers
of all ages and stages of life, foods and beverages that
contribute to health and wellness, while offering remarkable
taste and convenience

Values:
People: People from all diverse backgrounds are our most
important asset and the source of our competitive advantage.
We operate in teams where we expect and reward responsible
risk taking.
Quality: We are dedicated to continuous improvement in the
food safety and quality of every product we make and in every
activity we perform.
Brands: Our strong brands ensure the continuity of our growth
and profitability. Their support is every associate's
responsibility.
Consumers: Our reason for being is to understand, anticipate
and best fulfill our consumers' needs.
Customers: We appreciate and support the critical role our
customers play in getting our brands to the consumer while
working closely together to achieve mutual value.
Performance: Exceed total Company High
Performance Targets (HPT's) for RIG, Organic Growth and EBITA.

Strengths and Weaknesses

Nestl's Commitment to a green environment is essential to

sustain their growth as the leading nutrition health and
wellness brand. They aim to be the most efficient water and
energy user among food manufacturers by being a leader and
reducing greenhouse gas emissions from its own operations. No
other food company comes close to reducing energy costs.

They have reduced total energy consumption by 3 percent,

total green house gasses by 15 percent, and total water
withdrawal by 32 percent, while increasing its total food and
beverage volume by 73 percent during the last 10 years. In its
manufacturing facility, energy use has been cut by 12.4
percent per ton of product over that last five years by installing
new energy efficient methods including a solar-photovoltaic
root top system, to help with energy efficiency.

They also use a system of cogenerations, which uses electricity

and useful heat to optimize the use of natural resources, for
example, they burn coffee sediments to generate necessary
energy to make Nescaf. They have also teamed up with local
governments to facilitate a program to create clean water, this
partnership is what enables Nestle to sustain its growth in its
field.

Nestl also has created many staple products like Nescafe,

Nesquick, Maggi, etc; and they continue to create new
products. Since they are a global corporation, they understand
that every culture is different and because of that they have
introduced many new custom products that will be favored in
different regions; one thing that many rival companies like
General Mills have not done.

However with a great global company, there come weaknesses.

Although Nestl is
a
huge
global
corporations,
one
of Nestl weaknesses is that in certain markets, such as France,
their manufacturing and bargaining power with their customers
is low. This is because Dannon, another major food company,
had already established their market earlier than Nestl and
their product of nutritious, healthy and cheap yogurt had
claimed many loyal Dannon branded customers.

Another weakness is that they have been boycotted against.

They were accused of manufacturing and using "aggressive
marketing" of breast milk substitutes in less developed
countries. This caused many product recalls in countries.

External Environments

Nestl has many opportunities and threats within the

company's external environment. Nestl is a main dairy product
producer, it has many yogurt competitors in the US like
Dannon, Stonyfield Farm, and Yoplait. General Mills is their
strongest competitor, which owns Yoplait. They own thirtyseven percent of all market shares through their different
brands. They are good competitors because they have tried to
get a competitive advantage through their customer
relationships creating a brand loyalty and through their
innovative products. One of their most successful strategy is
using a joint venture with many companies such as Nestle in
the cereal industry allowing for them to be global producers in
over 100 countries.

Just like Nestl, General Mills is concerned with nutrition and

health of their customers. Therefore, they make their products
specifically geared toward dieters, children, and women. This
creates a competition with Nestl, who also tries to make their
products more nutritious; but they have been seen to advertise
their unhealthy products, taking away from their focus.

Because Nestl is part of a global food industry, threats of

substitute products is very high. Dannon, Stonyfield Farm and
Yoplait are all competing with Nestle's yogurt products.

Analysis

Nestl has established its products in many countries and it has

expanded its company by increasing its food brands. Although
it has many competitors, Nestl is able to maintain its
competitive advantage with the current market conditions.

Since Nestl is the only leader in the food industry when it

comes to producing products with reduced energy, Nestl is
able to market their products for a very low price. Nestl has
also great customer relations since they provide quality
products at a lower price then its competitors.

They also have may brands that allow them to create many
new innovative products and services. With these many brands,
they are able to differentiate their products and services so that
they are able to lock in customers. They have also established
many alliances with other companies like General Mills and the
government. Nestl upholds its companies values and concerns
by creating a greener environment while also providing
nutritious products, this allowed them to be working with the
government since they see that Nestl is maintaining the
environment and helping the communities.

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Strengths
Unmatched product and brand portfolio. The
business offers one of the widest portfolio of food and brewery
products in its sector. It also operates 29 brands that earn more
than $1 billion in annual revenues. With more than 8,000
products it is hard for any other corporate to compete against
Nestl.
R&D capabilities. Nestl invested more than $2 billion in
R&D in 2011. Its introducing new and redesigned products
every year, strengthening firms competitive advantage.
Distribution channels and geographic
presence. Nestl runs in more than 100 countries and has
extensive distribution channel all over the world, which
supports its operations globally.
Competency in mergers and acquisitions. Over the
years Nestl has been forming successful partnerships and
acquiring other companies in order to grow and maintain its
leadership in the market.
Brand reputation valued at $7 billion. Nestl is known
almost everywhere and has a reputable brand for its products
that are used by millions every day.

Weaknesses
1.
Inability to provide consistent quality in food
products. Nestl has been recalling many products from trade
due to food contamination or poor quality supplies. This does
not only hurt firms sales but its image as well as the business
is unable to control quality of the products.
2.
Weak implementation of CSR. The company has
announced and is involved in many programs that aim to make
company more eco-friendly and improving the working
conditions of its suppliers. Still, Nestl receives a lot criticism
over the effectiveness of its programs.
Opportunities
1.
Increasing demand for healthier food products. The
trend of buying and consuming only healthy food products is a
major shift in consumer tastes and opens up an immense
market for companies. Currently, Nestl tries to introduce more
healthy food products in response to the trend.
2.
Acquiring startups specializing in producing wellbeing products. Many new startups are forming and
introducing new products for well-being or revolutionizing the
ways those products are made. Startups are cheap and can
easily be acquired. Nestl is focusing on providing more wellbeing products and this is a great opportunity to expand its
portfolio.
3.
Establishing new joint ventures. Nestle is already
involved in many successful partnerships with major world
companies like The Coca-Cola Company and Colgate-Palmolive.
Threats
1.
Food contamination. Although it is Nestles
responsibility to run thorough quality checks of its products, the
company had been reportedly providing contaminated food or
other products to the market. Such actions hurt companys
reputation and result in losses.
2.
Trend towards healthy eating. Nestl is a major
supplier of chocolate and chocolate drinks that have high level
of calories and due to changing customer habits, will
experience decline in demand.
3.
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.
4.
Rising raw food prices. With an overall growth of world
economy and population, the demand for raw food will rise. The
result of that will be higher material costs and squeezed margin
for Nestl.