MILKPAK LTD

Vision Statement
To be in every consumer’s home through the high-quality safe products we bring to their everyday life.

Mission statement
To incorporate our wholesome product range into the daily life of our consumers through the safe, health
conscious and socially responsible best practices that define Milkpak Ltd.

Introduction
Milkpak was part of a family group of businesses, known as the Ali Group, which also operated
businesses in textile industry, had major holdings in the vegetable and soap industries among
others. One of the Ali Group’s leading companies was called Packages Limited, established in
Lahore in 1956. This company supplied packaging materials to a variety of industries and also
provided technical assistance to packaging plants overseas.

In 1976 a review of Packages Ltd showed that one of its machines, the Tetra Laminator, was
much underutilized. This machine was designed for making packaging material for long-life
milk or UHT milk. Milk packaged in this way had a shelf life of up to three months without
refrigeration. Thus, following this review, Milkpak was established to create a market for the
packaging materials produced by Packages Ltd. The company then found one milk plant in
Pakistan which was suited to produce sterilized milk. It leased the plant and launched a pilot
project, which turned out to be a success.

Milkpak was therefore incorporated in January 1979 and began commercial production in
November 1981. In 1984 Milkpak started marketing the Frost line of fruit juices which had
been introduced a few years earlier by Packages Ltd. Soon after, Milkpak bought the Frost
brand name from Packages and in 1986 it accounted for 9% of Milkpak’s total sales. In 1985
the company launched its own butter, and in 1986 it launched a sterilized cream product
called ‘balai’ and also a cooking oil called ‘Desi Ghee.’ These products were sold under the
brand name of Milkpak.

Situation Analysis
The environment in which businesses operate is dynamic, never static, that is it keeps
changing. It is increasingly turbulent due to the era of change and uncertainty in which we
live and is never stable. The pace of these changes is accelerating, which requires continual
response from the business organization.

In this section we will discuss some of the external factors and internal factors that influenced
Milk Pak operations:

In line with this objective, Nestle Milkpak envisions to grow in the shortest possible time into
the number one food company in Pakistan with the unique ability to meet the needs of
consumers of every age group – from infancy to old age, for nutrition and pleasure, through
development of a large variety of food categories of the highest quality.

Nestle Milkpak envisions the company to develop an extremely motivated and professionally
trained work force, which would drive growth through innovation and renovation.

It aspires, as a respected corporate citizen, to continue playing a significant role in the social
and environmental sectors of the country.

SWOT Analysis
When making decisions it is very important for the business to consider the external
environment as well as the firms existing resources. The SWOT analysis helps the
management to set objectives and make plans to build up on the strengths, rectify the
weaknesses, avail the opportunities and counter the threats.

Strengths
Milkpak had a high market share.

Milkpak Ltd product line included diversified products.

The strength of Milkpak is its identity.

Extensive and continuous supply of milk from different sources.

Milkpak distribution network grew rapidly between 1981- 1986. Within few years of its
establishment it had sales offices in major cities of Pakistan.

Milkpak had a reputation for consistent high quality for both consumers and the trade.

Milkpak limited was owned by one of the leading industrialist of Pakistan i.e. Ali Group.

Milkpak had a shell life of up to 3 months and did not require refrigeration.

Milkpak also catered to low income consumers.

Milkpak taught it supplier’s scientific methods of livestock care and breeding. This made it
milk supplies more reliable and of high quality.
Weaknesses
The total processing cost was around 25% of the total product cost.

Packaging material which were heavily taxed by the government lead for another 26%of
Milkpak production cost.

Milkpak limited lacked required technical knowledge and expertise to expand the business.

New “brick pak” was introduced in 1986, this required extra packaging material and therefore
lead to an increase in Milkpak cost.

Opportunities
Government fostered the UHT milk industry by removing duties on import of machinery for
dairy products.

An opportunity of a joint venture with a foreign company.

Training of Milkpak employees if Milkpak had a joint venture with Nestle’ or Friesland.

Threats
Government sanctioned a number of additional plants which lead to the possibility of
substantial overcapacity in the market.

Chaudhri Industries entered the market in 1986 with a competitive advantage i.e. brick
packaging.

Because the industry risked facing overcapacity, it was important for Milkpak to increase its
market share. If it did not, its competitors could have dominated the market.

Many companies were planning to enter the dairy industry.

Strategy of Milkpak
In Pakistan, one of the major problems facing all milk producers and distributors was the
discrepancy between the demand and supply of milk. There was a marked seasonal demand
for milk, which peaked during the summer and slowed during the winter months. In contrast,
the production of milk was highest during the winter months i.e. December to May, also
known as the ‘flush season’ and was lowest during the ‘lean season’, i.e. from May to August.

To alleviate the problems brought about by the seasonal mismatch between supply and
demand for milk during summer, the Pakistani government adopted liberal policies toward
the import of milk products. This meant that Milkpak now had to compete with foreign
markets alongside local milkmen who supplied ‘raw’ milk. Milk powder became a popular
import and by 1986 was making up 30% of all milk supplies in Karachi.

The problem of seasonality meant that during the lean season Milkpak faced a shortage in
demand, and during the flush season the company had to refuse milk supplies. The company
needed to gain some knowledge and insight regarding how to operate in an environment
where demand and supply were so seasonal. Furthermore, Milkpak marketing managers were
reluctant to promote Milkpak heavily during the flush season for fear of creating demand in
the lean season which they would not be able to satisfy. Although they were committed to
increasing UHT milk sales, the UHT business was a very high volume and low margin business,
where the technology for manufacturing UHT milk was considered very expensive. To counter
the problem of milk shortages during the lean season it was possible to add milk powder to
increase overall output volume. However, since the milk powder itself would be imported,
this was an expensive option which also resulted in providing competitors with business.

Milkpak also encountered some difficulties in marketing its product. A major challenge which
the company faced was in positioning the milk. It was difficult to introduce the idea of long-
life milk to their target market, especially since this milk did not require any refrigeration. At
that time the market was mainly accustomed to buying small amounts of ‘raw’ milk on a
frequent basis, which needed to be stored in cool conditions. Another concern which
consumers had was that the Milkpak brand contained preservatives, or were perhaps not
genuine because it contained no cream.

Milkpak’s success with UHT milk encouraged a number of other competitors to enter the
market. Some of these competitors were short lived and left the market soon after facing
financial difficulties. Others were more sustained, such as Milko, Pakistan Dairies and
Chaudhuri Dairies. All these competitors had some advantages over Milkpak, either in terms
of more experience, better distribution networks, or more convenient packaging.
Furthermore, the government was now encouraging companies to enter the market by
making exemptions on the import of machinery for dairy plants and by providing low cost
financing by several government agencies. The government had also sanctioned a number of
additional plants which would be in working condition soon. The concern now was that the
UHT milk industry would be facing a substantial overcapacity.

It was thus decided that finding an appropriate joint venture partner would be a viable
solution to the problem of growth for Milkpak. As it would provide Milkpak with the
opportunity to obtain new capacity, expertise and technological knowledge which was very
much required. And also that Joint venture with any of the competing firms would possibly
wipe off the competition from the market.

In assessing Nestle as a joint venture partner, there were many advantages to both Milkpak
and to the Pakistani industry as a whole. However, the company still faced certain drawbacks.
Both companies were likely to be concerned about management control of the operation.
Another point which needed to be settled was what products were to be manufactured and
where they would be produced.
Objectives and core values
Lead a dynamic motivated and professional workforce – proud of its heritage and bullish
about the future.

· Meet the nutritional needs of consumers of all age groups from infancy to old age, from
nutrition to pleasure, through an innovative portfolio of branded food and beverage products
of the highest quality.

· Deliver shareholder value through profitable long-term growth, while continuing to play a
significant and responsible role in the social, economic and environmental sectors of the
country.

Development of strategy
There are many models for the development of strategy i.e. Potters generic strategies. There
are 3 generic strategies of potter

Cost leadership

Differentiation

Focus

Anssoff Matrix Provides the basis for an organization’s objective setting and sets the
foundation of directional policy for its future’ (Bennett, 1994).

The best selection for Milk pack is cost leadership. For this purpose Milk pack needs to
outsource it non-core activities.

The major risk of outsourcing is that you may not be building the value of your company in
terms of personnel, in-house knowledge, and infrastructure. In this case, the value of an
outsourcing agreement with a provider will be less effective than an internal department.

Implementation plan for strategy

“Strategy making needs person with vision whereas strategy implementation needs a person
with administrative ability”

The implementation plan can be divided into many parts

Project Implementation requires the management to have a firm grasp of the strategy to be
implemented. Project management involves recognition of critical success path. With all the
activities lying in the critical success path will then be given significant importance. If a project
needs to be implemented in time, then all the activities lying on the critical success of must
be performed on time.
Procedural Implementation means that milk pack has to bring change in its value chain. The
value chain describes all the core activities of the business. After all the core activities of the
business have been recognized, support activities can be removed or restructured.

Resource Allocation is the most important part of the strategy. If proper allocation of the
resources is not made the strategy might not be implemented. Before choosing a strategy for
implementation the company carefully analyses all its resources and then allocates some
resources for implementation of the strategy. For the strategy of outsourcing to work it is
necessary that Milkpak is able to find a suitable company to outsource. This requires a lot of
time and effort, appropriate resources and time allocation needs to be made.

Structural Implementation is necessary if the company requires a change in structure to

support the strategy. Without the proper structure for the strategy, the strategy is bound to
fail.

Functional Implementation means the division of objectives of strategy into functional

achievable and goals i.e. budgets. This is the implementation of the strategy at grass root
level.

Behavioural Implementation suggests a change in the culture of the organization. The people
of the organization need to accept the change in strategy. If the people are working hard to
implement the strategy then there is a good chance that the strategy will be successful.
 NESTLE

Vision Statement
“Nestlé aim is to meet the various needs of the consumer every day by marketing and selling
food of a consistently high quality. The confidences that consumers have in our brands is a
result of our company’s many years of knowledge in marketing, research, and development,
as well as continuity – consumers relate to this and feel they can trust our products”.

Mission Statement
“Nestle is dedicated to providing the best foods to people throughout their day, throughout
their lives, throughout the world. With our unique experience of anticipating consumers’
needs and creating solutions, Nestle contributes to your wellbeing and enhances your quality
of life.”
Nestle is not only Switzerland’s largest industrial company, but it is also the World’s Largest
Food Company. The mission statement emphasizes on the fact that Nestle products are
available in nearly every country around the world. Wherever one may live, only Nestle can
provide the best and most reliable food and beverage products to meet his/her needs
throughout the day, throughout the life. Especially, people on the move want to be able to
find good food wherever they are, whatever the time of day. They are often reassured that
they will find well-known brands out of home. This statement also reflects the image of high-
quality products that Nestle offers. Nestle has the advantage that it offers caterers, fast food
chains, and other restaurants a complete range of high-quality ingredients, base products,
and meal components, as well as leading consumer brands such as Nescafe. Quality is the
cornerstone of the success of the Nestle Company. Every day, millions of people all over the
world show their trust in the company by choosing Nestle products. This trust comes from a
quality image that has been built up for over a century. Therefore, the quality of the products
ultimately enhances the quality of the consumer’s life. In addition, the mission statement
declares that Nestle has the ability to anticipate “…consumer’s needs and create solutions….”
Nestle has proven this ability a number of times by introducing new products that were
required by consumers.

Introduction
Established over 150 years ago, Nestlé is the world’s largest, most diversified food and
beverages company. We have a unique global footprint and sell our products in 190 countries
worldwide. Through enhancing quality of life and contributing to a healthier future, we aim
to deliver sustainable, industry-leading financial performance and earn trust.
The pioneer years
Our history begins in 1866, with the foundation of the Anglo-Swiss Condensed Milk Company.
Henri Nestlé develops a breakthrough infant food in 1867, and in 1905 the company he
founded merges with Anglo-Swiss, to form what is now known as the Nestlé Group. During
this period cities grow and railways and steamships bring down commodity costs, spurring
international trade in consumer goods.

The Belle Époque

In 1905, Nestlé & Anglo Swiss has more than 20 factories, and starts using overseas
subsidiaries to establish a sales network that spans Africa, Asia, Latin America and Australia.
As World War One approaches, the firm benefits from the period of prosperity known as the
Belle Époque or ‘Beautiful Age’, and becomes a global dairy company.

Survival during wartime

The outbreak of war in 1914 leads to increased demand for condensed milk and chocolate,
but a shortage of raw materials and limits on cross-border trade hamper production for Nestlé
& Anglo-Swiss. To solve this problem, the company acquires processing facilities in the US and
Australia, and by the end of the war it has 40 factories.

Crisis and opportunity

After the war military demand for canned milk declines, causing a major crisis for Nestlé &
Anglo-Swiss in 1921. The company recovers, but is rocked again by the Wall Street Crash in
1929, which reduces consumer purchasing power. However, the era carries many positives:
the company’s management corps is professionalised, research is centralised and pioneering
products such as Nescafé coffee are launched.

Riding out the storm

The outbreak of World War Two in 1939 affects virtually every market, but Nestlé & Anglo-
Swiss continues to operate in difficult circumstances, supplying both civilians and armed
forces. In 1947, the company adds Maggi soups and seasonings to its product range, and
adopts the name Nestlé Alimentana.

Greater consumer convenience

The post-war period is marked by growing prosperity, and people in the US and Europe spend
money on machines that make life easier, such as refrigerators and freezers. They also favour
convenience foods, and Nestlé Alimentana meets this need with new products
including Nesquikand Maggi ready meals.
Frozen foods to pharmaceuticals
Acquisitions enable Nestlé to enter fast-growing new areas such as frozen foods, and to
expand its traditional businesses in milk, coffee and canned foods. In the 1970s the company
diversifies into pharmaceuticals and cosmetics. It starts to attract criticism from activist
groups that allege its marketing of infant food is unethical. Nestlé later becomes one the first
companies to apply the WHO code on breast-milk substitutes across its business.

Towards Nutrition, Health and Wellness

From 1981 to 2005 years of growth, Nestlé disposes of unprofitable brands and promotes
those that satisfy increasingly health conscious consumers, in line with its new ‘Nutrition,
Health and Wellness’ ambition. The company expands in the US, Eastern Europe and Asia,
and targets for global leadership in water, ice cream and animal food.

Creating Shared Value

Nestlé articulates its Creating Shared Value approach to business for the first time, and
launches its Nestlé Cocoa Plan and Nescafé Plan to further develop sustainable supply chains
in cocoa and coffee. While strengthening its position in traditional segments, infant formula
and frozen foods, Nestlé strengthens its focus on medical nutrition.

SWOT Analysis
Internal Factors
Strength

Brand Image.

Marketing strategies established by the company are innovative.

Financial, marketing and sales strategies are formulated by gauging the periodic research
carried out to judge market trends.

It is a large scale organization, with abundant funds and has the capability of acquiring weaker
firms by throwing them out of competition.

Growing Sales and profits.

Major shareholder in the food industry of Pakistan.

Aggressive Marketing.
Efficient Distribution networks throughout the country.

Quality Products.

Environment Friendly.

Skilled labour.

Educated staff.

Large number of offerings.

Pre purchase virtual display.

Good background of the company.

Easy to approach outlets.

Strong supply chain network

Strong research and development department.

Weaknesses

The target market of Nestle products is upper middle and high class because lower middle
and poor class cannot afford to buy Nestle products due to its premium price compare to
other companies like Shezan etc.

It is a main weakness of Nestle products that there are different companies which provide
substitutes of Nestle products but the name of Nestle products is always stand in the last
because of low advertising and marketing.

External Factors
Opportunities

Nestle have opportunity to expand their product line like tea etc.

Company can open separate stores for eliminating retailers.

Integration of new acquisitions in growth markets.

Growth in international & emerging markets.

Transition to a "Nutrition and well-being" company.

Continuous growth in the Pakistan coffee market.

Ethical business activities and support in community.

Nestle can make itself as social company.

Fair Trade agreements for cocoa and other products produced in third world countries.

In today's health conscious societies, they can introduce more health-based products, and
because they are a market leader, they would likely be more successful.

It should regularly indulge with candy and chocolates.

Threats

Price fluctuations due to rupee devaluation as raw material are imported. The uncertainty of
economic conditions poses a great threat as the major funds invested in the country come
from outside Pakistan.

The present economic crisis in the world, led to the withdrawal of foreign management from
the company and the investment has come to a halt.

Competition with Nestlé’s owns smuggled brands.

Effect of Seasonality’s upon sales.

Imported raw material, in some of the company’s products.

Major Player may enter target market Legal and ethical issues.

Market segment growth could attract new entrants.

Economic slowdown can reduce demand.

Main competitors Shezan, Olfrut, Maza and Haleeb are main threat for Nestle juices especially
the Shezan is growing very fast.

Inflation is getting higher and higher so the purchasing power of the people is decreasing day
by day.

Taste of consumer has already developed which is hard to change.

Strategy of Nestle
As the 'Good Food, Good Life' company, we enhance quality of life and contribute to a
healthier future. Winning with consumers is the source of our sustainable financial
 performance and our way to earning trust and maintain our market leadership. Based on a
compelling Nutrition, Health and Wellness strategy, our company delivers sustainable value
over the short term and the long term.

Nestlé has many distinctive strengths that keep us at the top of our industry. Our people are
our greatest strength. We have an attractive product portfolio in growing categories with
leading market positions. We are a global company with deep local roots, which gives us a
unique ability to understand local consumers and adapt fast to their preferences. We have
powerful, valuable brands, which consumers trust. Our products reach more than 1 billion
consumers every day across the world. We also have industry-leading R&D capabilities that
support our Nutrition, Health and Wellness strategy and our innovation initiatives.

Creation of long-term value

Our long-term value creation model is based on the balanced pursuit of resource efficient
top- and bottom-line growth. We create value by:

 Increasing growth through innovation, differentiation and by being relevant to our consumers. We
have committed to reach mid-single-digit organic growth by 2020.
 Improving operational efficiency with the goal to increase our underlying trading operating profit
margin to between 17.5% and 18.5% (from 16.0% in 2016), and
 Allocating our resources and capital with discipline and clear priorities, including through
acquisitions and divestitures.

Increasing growth
Our portfolio is well positioned for growth. In the past, we have consistently delivered organic
growth at the high end of the industry. We have a clear path to achieving mid-single-digit
organic growth by 2020.

Investing in high-growth categories and regions

We have identified five high-growth food and beverages categories with attractive growth
rates: coffee, pet care, nutrition, water and Nestlé Health Science. Together, they represent
57% of sales and 61% of underlying trading operating profit *. In 2018, organic growth was
+4.0%. In these key categories, we have strong market positions and highly-differentiated
offerings. They receive particular emphasis from a capital allocation standpoint, with
significant investments in R&D, marketing, capital expenditure and external growth whenever
appropriate. The other categories continue to be important contributors and had 1.9%
organic growth in 2018. These businesses are managed for a combination of growth and
value.

We are also focused on expanding our presence in high-growth regions. Emerging markets
represent 42% of sales. In 2018, they grew organically by +4.9%, three times faster than
developed markets and with a higher underlying trading operating profit margin. In most of
these emerging markets, Nestlé has been present for many decades and our brands enjoy a
high level of trust and are rightly viewed as local.

Fixing underperforming businesses

We have taken decisive actions to improve underperforming businesses through innovation,

better consumer understanding and, when needed, management changes and restructuring.
In 2018, turnaround examples included Nestlé Skin Health and Yinlu in China.

Innovating products and business models

Rapid innovation and bringing products to market faster are key dimensions of our growth
agenda. At the same time, we continue to invest in cutting-edge science and technology to
address evolving consumer expectations through new offerings and product reformulations.
Innovation also helps us to premiumize our offering and contributes to margin improvement.
In 2018, 22% of our sales came from premium products. We are not just innovating with new
products but also new business models. In particular, we have a strong focus on personalized
and Direct-to-Consumer offerings. In 2018, 8.2% of our sales came from Direct-to-Consumer
business models.

Embracing digital opportunities

Our digital transformation focuses on delivering personalized messaging, services and
products to consumers at scale. Powered by data and technology, we are modernizing our
existing brands and business operations while developing new, digitally-centric business
models. Already 10% of all consumer contacts are personalized. In addition, in 2018, our e-
commerce sales grew five times faster than the Group average and reached 7.4% of total
Nestlé sales.

Managing our portfolio

We continue to actively evolve our portfolio towards attractive, high-growth businesses. In

2018, we strengthened our position in coffee through the acquisition of the perpetual global
license of Starbucks consumer packaged goods and foodservice products. We also divested
our USA confectionery and Gerber Life Insurance businesses. While much work has been
done, we are not yet finished. We recognize that acquisitions can provide access to new
technologies, brands, categories and geographies. Similarly, small to medium-sized
acquisitions can offer a fast and cost-effective way to embrace new capabilities or business
models. We are also actively divesting businesses that are non-core and where we have
limited ability to win. We do this in a disciplined way with an aim to minimize potential
disruption and maximize the value of existing businesses.
Improving operational efficiency
In addition to our growth agenda, we have committed to increase our underlying trading
operating profit margin from 16.0% in 2016 to between 17.5% and 18.5% by 2020.

Reducing costs

We are actively executing several cost-saving initiatives to reduce non-consumer facing

structural costs by between CHF 2.0 and 2.5 billion. These are primarily focused on the areas
of administration, procurement and manufacturing.

We continued to strengthen our business focus through our Nestlé Business Excellence
program to simplify and standardize processes, which helped reduce administrative costs. We
have increased the penetration of our shared service centres from 17% to 35% and are on
track to reach 50% by 2020. We have also generated efficiencies in facility management, and
real estate through site closure and consolidations.

In procurement we have realized significant savings by leveraging our size and scale through
three global purchasing hubs. We now source 55% of our requirements through these hubs,
and this will reach 60% by 2020.

In manufacturing we have further simplified our factory footprint and increased capacity
utilization.

The savings generated in these three areas so far have made a significant contribution to the
improvement in our underlying trading operating profit margin by 50 basis points to 17.0% in
2018, and there is more to come.

Freeing up resources
We have also continued to deliver efficiencies in R&D and marketing. The primary focus of
these programs is to free up resources to provide fuel for growth and innovation. As an
example, in the last three years, more than CHF 500 million in marketing savings have been
reinvested in building our brands.

Adjusting management structures and systems

We have continued to adapt our organization to be simpler and faster. We are empowering
our market and regional teams to drive growth. To support them, we have implemented
initiatives to delayer our organization and speed up decision making at a local level. In parallel,
we have tailored compensation to prioritize profitable growth and improved capital
efficiency.
Allocating capital with discipline and clear priorities
We follow prudent financial policies designed to strike the right balance between capital
allocation and flexible access to financial markets. We have well-defined priorities in this
regard.

Investing in organic growth

We invest in our business through R&D, brand support and capital expenditure to support
top-line growth. Our approach is rigorous and discerning. We are allocating more resources
behind those businesses with the highest potential to create economic profit. We have also
continued to focus on reducing working capital. The five-quarter average working capital in %
of sales reached 1.4% at the end of 2018, –20 bps versus the restated figure for 2017.

Paying dividends

For 2019, the Board of Directors has proposed a 24th consecutive dividend increase
amounting to CHF 2.45. This underlines our commitment to continually return capital to
shareholders.

Disciplined approach to acquisitions

This is based on strategic and cultural fit, as well as financial returns. We pursue a disciplined
acquisition policy, particularly in terms of the price that we are prepared to pay. We prioritize
our high-growth categories and regions, particularly coffee, nutrition, pet care, water and
Nestlé Health Science. For the companies we acquire, we have solid integration plans with
clear accountability and precise targets.

Share buybacks

We have returned CHF 6.8 billion of capital to shareholders in 2018 through share
repurchases. This is part of the three-year CHF 20 billion share buyback program announced
in July 2017. This brings the total returned to shareholders over the last ten years to 104
billion.

We also regularly review our capital structure to ensure it is appropriate in the context of
market conditions and our strategic priorities.