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I.

Company Profile

Sector: Consumer Staples


Industry: Consumer Products
Sub-Industry: Packaged Food
Nestl is one of the oldest of all multinational businesses. The company was founded in
Switzerland in 1866 by Heinrich Nestl, who established Nestl to distribute milk food, a type
of infant food he had invented that was made from powdered milk, baked food, and sugar. From
its very early days, the company looked to other countries for growth opportunities, establishing
its first foreign offices in London in 1868. In 1905, the company merged with the Anglo Swiss
Condensed Milk, thereby broadening the companys product line to include both condensed milk
and infant formulas. Forced by Switzerlands small size to look outside its borders for growth
opportunities, Nestl established condensed milk and infant food processing plants in the United
States and Great Britain in the late 19th century and in Australia, South America, Africa, and
Asia in the first three decades of the 20th century.
In 1929, Nestl moved into the chocolate business when it acquired a Swiss chocolate
maker. This was followed in 1938 by the development of Nestls most revolutionary product,
Nescafe, the worlds first soluble coffee drink. After World War II, Nestl continued to expand
into other areas of the food business, primarily through a series of acquisitions that included
Maggi (1947), Cross & Blackwell (1960), Findus (1962), Libbys (1970), Stouffers (1973),
Carnation (1985), Rowntree (1988), and Perrier (1992).
By the late 1990s, Nestl had 500 factories in 76 countries and sold its products in a
staggering 193 nationsalmost every country in the world. In 1998, the company generated
sales of close to SWF 72 billion ($51 billion), only 1 percent of which occurred in its home
country. Similarly, only 3 percent of its 210,000 employees were located in Switzerland. Nestl
was the worlds biggest maker of infant formula, powdered milk, chocolates, instant coffee,
soups, and mineral waters. It was number two in ice cream, breakfast cereals, and pet food.
Roughly 38 percent of its food sales were made in Europe, 32 percent in the Americas, and 20
percent in Africa and Asia.

Vision

Since its inception, Nestl has been increasingly aware that food and beverage choices can
impact quality of life, so they are committed to make their products tastier and healthier and to
provide more options for global consumers. The backbone of a diverse product portfolio is
Nestls unmatched R&D capability, nutrition science and innovation, as well as high standard of
food quality. With this in mind, we can see that Nestl employs a team of scientists, engineers,
nutritionists, designers, regulatory specialists and consumer care representatives. This group of
talented individuals makes every effort to earn consumers trust by creating and delivering safe
products of the highest quality. Thus, thanks to the corporate financial health and solid trust from
all its stakeholders, Nestl can reach its goals of becoming the world leader in Nutrition, Health
and Wellness.

Mission Good Food, Good Life

Clearly, the objective of Nestl is to become a leading Nutrition, Health and Wellness company
in the world, while promoting a common value in nutrition and protecting the environment in
which their businesses operate. Nestl believes that size and behavior contribute to leadership in
the industry. They acknowledged that trust is built over time through continuous promises. The
companys mission and conduct are embedded in the term "Good Food, Good Life", which
summarizes the corporate ambitions. In order to support these goals, Nestl is committed to
encourage their people to deliver a high level of performance, and to build the far-reaching and
short-term entrepreneurial action by constant inspiration.

Company History

Nestl was founded in 1866 in Vevey, Switzerland. Its founder was Henry Nestle, a
nutrition expert from German. The background of Henry Nestl is the number of babies who die
before they reach the age of one year, this is because the mother can not breastfeed their own
babies. Moreover, when a friend of Henry Nestl approached him to save premature babies.
Henry Nestl then took the baby to his house and give the baby a blend of bread, milk and sugar.
The baby's condition was gradually recovering from day to day. Henris product was a carefully
formulated mixture of cows milk, flour and sugar. Nestls first product called Farine Lacte
Nestl was soon marketed throughout much of Europe, and a new brand name began to take on
life.
Brief History of Nestle :
1905 : The Anglo-Swiss Condensed Milk Company, founded by
Americans Charles and George Page, merged with Nestl after a
couple of decades as fierce competitors to form the Nestl and
Anglo-Swiss Milk Company.
Wartime
1914 : The start of World War I made it difficult for Nestl to buy
raw ingredients and distribute products. Fresh milk was scarce in
Europe, and factories had to sell milk for the public need instead
of using it as an ingredient in foods.
1918 : Nevertheless, the war created new demand for dairy
products, largely in the form of government contracts. To keep up, Nestl purchased
several existing factories in the United States and, by war's end, we had 40
factories worldwide.
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Crisis and Reorganization


1925 : The 1920s were a time of deep economic hardship, and Nestl suffered
severe difficulties along with much of the world. Operations were partially
streamlined, but the company was able to continue, and with the acquisition of
Peter, Cailler,Kohler Swiss Chocolate Company, chocolate became an integral part
of Nestle business. This sparked further variety in the products offered including
malted milk and a powdered drink called Milo.
1938 : Nescaf coffee was launched.
World War II
1939 : During World War II, Members of the Board and General Management were
transferred to the U.S. where they coordinated Nestl activities in the Western
Hemisphere, the British Empire and overseas.
1940 : In the early 1940s Nestea was launched.
1943 : Ironically, having slowed the initial launch of Nescaf, the war then helped to
popularise it with the United States entering the war, Nescaf coffee became a
staple beverage of American servicemen serving in Europe and Asia.
End of the War and beginning of a new phase
1945 : The close of World War II marked the beginning of a particularly dynamic
phase of Nestle history. Dozens of new products were added as Nestle growth
accelerated and Nestle acquired outside companies.
1947 : The Maggi products, from seasoning to soups, become part of the Nestl
family following the merger with Alimentana S.A.
1948 : Nesquik, the instant chocolate drink, was developed in the United States. Its
original name of Quik was a direct allusion to the speed and simplicity of its
preparation.
1974 : For the first time Nestle diversified outside the food industry when Nestle
became a major shareholder in L'Oral, one of the world's leading makers of
cosmetics.
Alcon, Carnation, Buitoni and Nespresso
1977 : Rising oil prices and slow growth in industrialised countries meant that
Nestle needed to respond to a radically changed marketplace. In 1977, Nestle made
their second venture outside the food industry by acquiring Alcon Laboratories Inc.,
a U.S. manufacturer of pharmaceutical and ophthalmic products.
1981 : In 1981 the World Health Assembly adopted the International Code for the
Marketing of Breast-milk Substitutes (WHO Code) and recommended that its
Member States implement it. Nestl was the first company to develop policies
based on the WHO Code and apply them across our entire operations in developing
countries.
1984 : An improved bottom line allowed us to make new acquisitions, including a
public offer of USD 3 billion for the American food giant, Carnation. At the time, this
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was one of the largest acquisitions in the history of the food


industry.
1986 : The Nespresso story began in 1986 with a simple idea:
enable anyone to create the perfect cup of espresso coffee,
just like a skilled barista.
1988 : The Italian brand Buitoni, in
Sansepolcro, became part of Nestle
portfolio.
1993 : The first half of the 1990s were favourable for Nestl with the opening up of
Central and Eastern Europe, as well as China good news for
a company with such far-flung and diverse interests.

More acquisitions
2001 : Merged with the Ralston Purina Company, which had been
founded in 1983, in 2001 to form a new pet food company, Nestl
Purina PetCare Company.
2002 : Two major acquisitions were made in North America in 2002:
in July, the merger of Nestle U.S. ice cream business with Dreyers;
and in August, a USD 2.6 billion acquisition of Chef America Inc., a
leading frozen food product business.
2003 : Nestle acquired Mvenpick Ice
Cream, enhancing Nestle position as a
market leader in the super
premium category.

2005 : The Chairman Peter Brabeck-Letmathe recognised that the eating habits of
the worlds population were changing and then began a transformation. Nestle
began to move away from being a processor of agricultural commodities towards
becoming a producer of food with added benefits and ultimately a provider of a
wide range of products and services in the areas of nutrition, health and wellness.
2006 : acquired Jenny Craig and Uncle Toby's
With the help of Harvards Michael Porter and Mark Kramer, we articulated for the
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first time the concept of Creating Shared Value. Creating Shared Value expresses
our conviction that we can only be successful over the long term if we create value,
not just for our shareholders, but also for society.
2007 : acquired Novartis Medical Nutrition, Gerber and
Henniez.

2009 : Held the first Creating Shared Value Forum in New York, with leading experts in the areas
of nutrition, water and rural development coming together to discuss serious global challenges
facing us in these three areas and the role of business in helping to solve them. The Creating
Shared Value Forum has been held on an annual basis since then.
2013 : Nestl Health Science acquired Pamlaba US-based company with an innovative portfolio
of medical food products for use under medical supervision in the nutritional management of
patients with mild cognitive impairment, depression and diabetic peripheral neuropathy.

II. Business Strategy

Nestls objectives are to be recognized as the world leader in Nutrition, Health and
Wellness, trusted by all its stakeholders, and to be the reference for financial performance in its
industry.
They believe that leadership is not just about size; it is also about behavior. Trust, too, is
about behavior; and we recognize that trust is earned only over a long period of time by

consistently delivering on our promises. These objectives and behaviors are encapsulated in the
simple phrase, Good Food, Good Life, a phrase that sums up their corporate ambitions.
Nestls Roadmap is intended to create harmony for their employees behind a cohesive
set of strategic priorities to accelerate the achievement of their objectives. These objectives
demand from their employees both long-term inspirations needed to build for the future and
short-term entrepreneurial efforts, to deliver the necessary levels of performance to achieve their
goals.

Competitive Advantages

Unmatched product
and brand portfolio
Unmatched R&D
(Research &
Development)
capability
Unmatched geographic
presence
People, culture, values
and attitude

True competitive advantage comes from a combination of


hard-to-copy advantages throughout the value chain, built
up over decades.
There are inherent links between great products and strong
R&D, between the broadest geographic presence and an
entrepreneurial spirit, between great people and strong
values.

Growth Drivers

Nutrition, Health
and Wellness
Emerging markets
and PPP
Out-of-HomeLeadership
Premiumisation

These four areas provide particularly exciting prospects for


growth. They are applicable across all our categories and
around the world.
Everything we do is driven by our Nutrition, Health and
Wellness agenda and our motto Good Food, Good Life
which seeks to offer consumers products with the best
nutritional profile in their categories

Operational Pillars

Innovation and
Renovation
Wherever,
Whenever,
However
Consumer
Communications
Operational
Efficiency

Nestl must excel at each of these four inter-related core


competences. They drive product development, renewal and
quality, operational performance, interactive relationships with
consumers and other stakeholders and differentiation from our
competitors.
If we excel in these areas we will be consumer-centric, we will
accelerate our performance in all key areas and we will achieve
excellence in execution.
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They are seeking to achieve leadership and earn that trust by satisfying the expectations
of consumers, whose daily choices drive our performance, of shareholders, of the communities in
which they operate and of society as a whole. They believe that it is only possible to create longterm sustainable value for our shareholders if our behavior, strategies and operations are also
creating value for the communities where they operate, for their business partners and, of course,
for their consumers. They call this Creating Shared Value.
They are investing for the future to ensure the financial and environmental sustainability
of our actions and operations: in capacity, in technologies, in capabilities, in people, in brands, in
R&D (Research & Development). Nestle aim is to meet todays needs without compromising the
ability of future generations to meet their needs, and to do so in a way which will ensure
profitable growth year after year and a high level of returns for their shareholders and society at
large over the long-term.
Porters Competitive Forces and Strategies
Studying a number of business organizations, Michael E. Porter (1979) found five forces
that determine a companys position vis--vis competitors in the industry. He suggested that
managers can formulate a strategy that makes the organization more profitable and less
vulnerable in the industry environment

According to Porter, a company can adopt one of three strategies to cope with the
competitive edges within five forces. The three strategies include differentiation, low-cost
leadership and focus. 7 In the case of Nestls business principles and strategies, the analysis
reveals that the company typically uses differentiation and low-cost leadership strategy to set
itself apart from the competition in the industry.
A differentiation strategy focuses on marketing its products in a way that is clearly
distinguishable from others in the marketplace. Nestl creates solid customer value by offering
various and high-quality products at a premium price. As the largest food and beverage producer
in the world, Nestl has adequate capabilities and resources to support its R&D to deliver
innovative, good quality and nutritious products. Nestl also distinguishes its products from
others in the industry by taking advantage of its creative employees, advertising campaigns,
distinctive product features, exceptional services and new technology. For example, when
entering Chinese markets in the early 1990s, Nestl took advantages of blister light box,
sidewall, bodywork and subway advertising to target customers who are at the age group of 1334 for Nescafe instant coffee. In the past decades, Nestls customer base has been increased by
three times, while the promotion expenditure has only been doubled. These various kinds of
advertising campaigns have proved to be very successful in Chinese market. Moreover, the
differentiation strategy helps Nestl reduce the rivalry with competitors and fight off the threat of
substitute products, because customers are loyal to the companys brands.
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It is reported by a management consulting firm that Nestl acquires competitive


advantages through the low-cost leadership strategy. The company tries to produce and to market
its products by keeping costs low compared to competitors. This can be achieved simply because
Nestl is able to achieve economies of scale in raw materials, production and marketing. In many
developing countries, Nestl promotes a wide range of products at affordable lower prices to
grasp the market share and build consumers loyalty.8 For instance, Nestl learnt that people in
Brazil prefer shopping on a daily basis but are less willing to buy food or beverage in
supermarkets because of the high price. Taking this local consuming pattern into consideration,
Nestl employed over 8000 women to distribute the companys products to local neighborhoods,
from which Nestl boosted its sales dramatically.

III.

Discussion

Nestle applied international diversity which means it differentiates its products based
on the local market and competition. The example has been given in the chapter before which
shows the Nestle ability in adapting itself to the local market. Strategic direction or development
directions are strategic options available to an organization in terms of products and market
coverage . There are 4 strategic development directions which are: protect/build, product
development, market development and diversification.
Nestle has done the 4 strategies. In recent years, the company has pursued a policy of
expansion and diversification through acquisition and divestment to achieve a more balanced
structure to the business. Product development is the main direction of Nestle and done by the
company R&D team. As what a director of Nestle said, renovation is to keep pace in the
industry; company needs to change at least as fast as consumer expectation. Innovation is to
maintain the leadership position; to move faster and go beyond what consumers will tell. These 2
strategies are intended for internal growth to achieve higher volumes. In 2005, Nestle's ice cream
business unit for the China Region launched 29 new products to attract more consumers having
its quality improved.
As the multinational company, market development is also very important in order to
increase the geographical area coverage. In this case Nestle is expanding the market by
geographical area. Nestle expanded to Asia region as it saw good opportunity there. In some
cases Nestle used joint venture to assist itself in entering into new market. As a multinational
company, Nestle has done some sorts of international strategy such as joint ventures with Coca
Cola and General Mills (Nestle SA, 2009). These 2 joint ventures still main for the food and
beverages industry (this also can be the example of related diversification). Joint venture with
General Mills is to form Cereal Partners Worldwide and joint venture with Coca-Cola is named
Beverages Partners Worldwide. The main reason for Nestle to do the joint ventures for its market
development strategy is to benefit from the traditional marketing expertise and distribution
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strength of Coca-Cola and General Mills. These 2 joint ventures also allow the companies to
have their market penetration (existing product in existing market).
Nestle has related diversification and unrelated diversification. For the related
diversification, it can be seen from the wide product portfolio which encompassing baby foods,
dairy products, chocolates, breakfast cereals, food seasoning etc. For unrelated diversification,
Nestle did it by acquiring or joint venturing with other big companies. For example Nestle
acquired Alcon Laboratories Inc. in Texas which is a pharmaceutical company specializing in
eye care. Another example of unrelated diversification is the joint venture with L'Oreal. Nestl
and L'Oral have a close relationship dating back to a shareholder pact made in 1974. Nestl
holds a 26.4% stake in the world's largest cosmetics group. Whilst it is unlikely that Nestl will
take over L'Oral in the immediate future, it could well do so in a few years (Nestle SA, 2009).
For the future days, Nestle may still come out with market development, product
development and diversification. Nestle with its R&D team can come out with more and more
innovative idea in developing the products and try looking for new market segment. The new
market segments can be new geographical unit or based on demographic factor. However for the
unrelated diversification Nestle shouldn't go to extensive. It is because the more extensive the
unrelated diversification the lower the performance will be.
SWOT Analysis

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STRENGTH
WEAKNESS
1. Committed to their stockholders in
1. Certain Nestle products encountered
the approach of business and strong
criticism in nutritional value. Often
cultural values .
blamed because of poor supplies
2. Strong commitment in social
2. India government sued for unfair
responsibility whereby as stated in
trade practices ($100m) for Maggi
CSR Wire (2014) long term
product (BBC News, 2015).
3.
Being tainted in negative public
commitment never being sacrificed
relations; baby milk scandal (the
for short term performance.
3. Diversity in products, have 8000
Guardian, 2013).
products sold in markets (Nestle,
2014).
4. Operation in more than 197
countries including indirect and
direct channels (Nestle, 2015).
5. Refereed to Forbes (2015), Nestle
was the 43th in Worlds Most
Valuable Brands position and 14th in
the market value.
OPPORTUNITY
THREAT
1. Developed their selling channel to
1. People more health conscious as
Africa with Coca Cola (Mark, 2012).
chocolate related products are one of
2. Disposable income increased in
the major products.
China, demanding pet food, water
2. Major competitors such as Unilever,
and ice cream (Decorvet, 2012).
Hersheys, Cadbury and also
3. Opened Nestle Caf in many
Starbucks
locations (Nestlecafefranchise.com,
3. Rising in price for raw materials as
2015).
global population increases where
4. Collaboration with Global Chocolate
Nestle might be forced to increase
Market 2015-2019 with companies
their selling price (Nestle, 2014).
as Mars, Ferrero Group and
4. Could lose dominance in India as
Mondelez International
Nestle products are getting banned
in India states

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BCG Matrix

The Matrix is divided into 4 quadrants derived on market growth and relative market share
which are as follows,
1. CashCows : products in low growth market with high market share, Cash cows require little
investment and generate cash that can be used to invest in other business units.
2. Stars : Products in high growth markets with high market share,Stars may generate cash, but
because the market is growing rapidly they require investment to maintain their lead

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3. QuestionMarks or Problem Child: Products in high growth markets with low market share,
these business units require resourceful to grow market share, but whether they will succeed and
become stars is unknown.
4. Dogs : Units with low market share in a mature, slow-growing industry.They may not require
substantial cash, but it ties up capital that could better be deployed elsewhere. Unless a dog has
some other strategic purpose, it should be liquidated if there is little prospect for it to gain market
share.

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IV.

Conclusion & Recommendation

Your most unhappy customers are your greatest source of learning by Bill Gates. This quotes
show clearly that Nestle too have bad experiences in the past, and yet they are striving to make a
change to their organization, family and also to the community. Nestls official website shows
that they have huge potential in most developing countries if they could keep up the pace. Nestle
company is known internationally and their company is able to deliver more goodness than they
do before for the future. I am sure that Nestle Company could do even better by applying more
strategies then their competitors.

As stated in Nestle.com (2014), the important source in competitive advantage is the


image of Nestle brand. Nestls big scope of business enables a significant scale in
administrating, marketing and manufacturing. Example, Nestle comes up with ventures into
new areas for growth in the reason of nutrition and wellness. Nestle joined a venture by
LOreal in the name of Inneoy. This joint venture takes place because of Nestls strong
reputation. In order to be different, they invest in many new industry such as nutricosmetics.
Being innovative is also an advantage for Nestle. They make sure that their 140 years of
research that takes place in their globally renowned R&D Centres main activity is for their
customers benefit. Price could be a threat for Nestle as there are many competitors and if
their price is higher than ceiling, other competitors would win over the customers. To ensure
this dont take place, Nestle have long availability for their raw materials, thanks to their
good relationship with their suppliers. If you dont have a competitive advantage, dont
compete says the CEO of General Electric Jack Welch. If Nestle apply more of their
competitive advantage strategy, they could be able to be in the lead in market for a long
period.
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