analysis on nestlé

Nestlé: Internal and External AnalysisStrategic Planning Individual Assignment

Name: Dumindu Katuwala

Student ID: 2948

Lecturer: Mr. A. C. Marcelline

Nestlé: Internal and External Analysis Strategic Planning

Table of Contents

Executive Summary 2

Trends to look out for 3

Issues faced by Nestlé 7

Nestlé’s Response/Adaptations 10

SWOT Analysis 17

Porter’s Five Forces Analysis 18

Recommendations 20

Conclusion 21

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Executive Summary

This report holds an extensive analysis of the Nestlé Global Corporation. The report is

targeted towards the board of directors of Nestlé Global. The main goal of this report is to

identify the internal and external factors which influence Nestlé’s business strategies using

appropriate theoretical frameworks and applying them into a practical scenario.

The report is started off by remembering the core mission and vision statements of

Nestlé. This is done to give you a flashback on your company’s core strategic values and for

you to evaluate to yourself if the company is still under the said framework (mission, vision

and values).

The next focus point would be the trends that the company should look out for in the

coming years. These are important factors that the company should focus on and should

create suitable strategic decisions in order to adapt in the future.

The issues faced by Nestlé globally are brought forward to you in detail with all

possible data. The actions taken by Nestlé to overcome these issues will be further discussed

and evaluated to justify if the necessary actions were taken.

As a summary the SWOT analysis and analysis of the Porter’s five forces will be

brought forward to you into the latter part of the report.

The report would conclude with specific recommendations related to the trends and

issues discussed in the report.

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Nestlé’s Mission

Nestlé is the world's leading nutrition, health and wellness company. Our mission of "Good Food, Good Life" is to provide consumers with the best tasting, most nutritious choices in a wide range of food and beverage categories and eating occasions, from morning to night.

Nestlé’s Vision and Values

Nestlé is to be a leading, competitive, Nutrition, Health and Wellness Company delivering improved shareholder value by being a preferred corporate citizen, preferred employer, preferred supplier and selling preferred products.

Before moving forward with this report it is important for us to go back to the core

strategies and values of your company, Nestle. The reiteration of Nestlé’s Mission, Vision

and Values is for you to read and understand if Nestle has really been able to stick to the core

business strategies that it has been built upon. It is also important for us to understand that

any changes or modifications that need to be done due to the developing trends and issues

globally should be done within the constraints of the said core strategies of the company.

Nestlé has come a long way since its inception in 1867 and stands strong today as the

world’s largest food company. It is our responsibility to maintain Nestlé at this position and

also to take the necessary strategic decisions by evolving to the different trends, issues and

challenges that come up.

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Trends to look out for

Sustainable Selection

The modern consumer is very complex. Consumers are not only basing their food and

beverage purchases on taste and price, but they are also concerned about where their food

comes from, how its production has impacted the environment, how close the final product is

to its raw ingredients, and also how its purchase affects the income of the producers down the

product development chain.

These concerns can be summed up into five main categories of sustainable food and

beverages:

Organic

Locally sourced

Fair trade

Carbon footprint

Eco-packaging

The wide variety of issues under sustainability shows that it is more than just “being green”

or making green product choices.

Impact on Nestle:

This new trend that is developing among the consumers is something that would directly

affect Nestlé as your company has had certain issues regarding sustainability which would be

discussed more specifically under Issues faced by Nestle Globally (Refer pg.: 05).

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Putting Health and Wellness on the Menu

The health stakes are high

The obesity rate has tripled since 1960, and two-thirds of the population is

overweight.

An estimated 14% of all deaths have been attributed to poor diets and/or sedentary

lifestyles.

It is estimated that healthier diets might prevent $71 billion per year in medical costs,

lost productivity and the value of premature deaths associated with these health

conditions.

Reasons such as this has caused an increase in overall consumer interest in selecting food and

beverages geared towards wellness. Also attitudinal and behavioral analyses indicate that

consumers are becoming more selective in their product and lifestyle choices. Eating healthy

food is something that has been talked about for many years, however according to the latest

data it seems that consumers are greatly concerned about this factor today than ever before.

Impact on Nestle:

As Nestlé holds over 8000 brands with a wide range of food and beverage products all around

the world it is a responsibility of Nestlé to take action for the health issues that people go

through globally.

Technology

Faced with the task of feeding 9 billion people in the not too distant future, there is a

massive shift of the use of technology in the production of food and beverages. We are at the

beginning of the most radical transformation of our food industry since the Green Revolution.

Until now, food innovation — including agricultural production, processing, distribution and

retail — happened in the laboratories and strategy shops of a few select multinationals. These

approaches to innovation have been proprietary, consolidated and designed to maximize

shareholder interests. But as the Internet democratizes virtually every industry, like

healthcare, media and education, it’s becoming increasingly clear that a more holistic future

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is possible. The new trend of using technology would be to level the playing field between

industrial and sustainable food by leveraging information, technology and multidisciplinary

design. A future that’s decentralized, collaborative and designed to maximize the interests of

producers, eaters and the environment is not far away.

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Issues faced by Nestle Globally

Nestlé: Global Water Predator?

That’s right; Nestlé is now starting to be known as the “Global Water Predator” by

different factions around the world, especially in the States. This is a major issue for your

company as it would certainly impact the brand image of the company. There are also certain

sites that have been put up against your company such as StopNestléWaters.org which are

creating an entirely bad image of Nestlé.

The said website (StopNestléWaters.org) and other factions are making many claims

as to why they are going against Nestlé.

A few of them are quoted as follows:

“Nestlé takes water from US communities on the cheap, bottles and sells it for

billions of dollars in profit and dumps the environmental and other costs onto

society.”

“Nestlé's predatory tactics in rural communities divide small towns and pit

residents against each other.”

Another comment by an actual consumer quoted:

“I drank water today from a Poland Spring (Nestle) bubbler at work that

I personally opened and replaced, knowing I was the only one that

handled the bottle I knew the problem came from the distributor. After a

short time after drinking some of the contaminated water, I noticed the

water smelled VERY strongly like GASOLINE! I saved my water bottle

for testing, my union is investigating. SCARY SCARY who will hold these

major companies liable?”

These are not baseless comments; they are backed by a certain degree of evidence.

Let us try to understand the necessary actions taken by your company (Nestlé), in dealing

with the water issue which has escalated largely in the recent times under Nestlé’s

Response/Adaptations (Refer pg.: 08). Issues such as this would cause ripple effects to the

consumer loyalty as consumer’s are now going more towards sustainable selections (Refer

pg.: 03).

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Child Labor

A year ago an article titled “Nestle Audit Finds Child Labor Violations in Cocoa

Supply” was published in the Bloomberg. As members of the director board you should be

aware of this issue. However it is important for us to recollect the results of the audit last year

and also evaluate the necessary actions taken by Nestlé to overcome the problem (Refer

Nestlé’s Response/Adaptations pg.: 08).

Nestle buys about a 10th of the global cocoa production and more than a third of that

comes from the Ivory Coast, the world’s biggest producer. About 89 percent of Ivory Coast

children were involved in growing cocoa, according to a 2008 government survey. According

the President of the FLA (Fair Labor Association) Van Heerden the root causes of child labor

in the cocoa industry include poverty and a lack of schools.

Issues such as this are external supply chain issues which would directly affect the

brand image of the final customer (before going to the consumer) Nestlé.

Nestlé: Baby Killer?

A boycott was launched in the United States on July 7, 1977, against Nestlé corporation. It

spread in the United States, and expanded into Europe in the early 1980s. It was prompted by

concern about Nestlé's "aggressive marketing" of breast milk substitutes, particularly in less

economically developed countries (LEDCs), which campaigners claim contributes to the

unnecessary suffering and deaths of babies, largely among the poor.

Groups such as the International Baby Food Action Network (IBFAN) and Save the Children

claim that the promotion of infant formula over breastfeeding has led to health problems and

deaths among infants in less economically developed countries. There are a few problems

that can arise when poor mothers in developing countries switch to formula:

Formula must normally be mixed with water, which is often contaminated in poor

countries, leading to disease in vulnerable infants. Because of the low literacy rates in

developing nations, many mothers are not aware of the sanitation methods needed in

the preparation of bottles. Even mothers able to read in their native language may be

unable to read the language in which sterilization directions are written.

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Although some mothers can understand the sanitation standards required, they often

do not have the means to perform them: fuel to boil water, electric (or other reliable)

light to enable sterilization at night. UNICEF estimates that a formula-fed child living

in disease-ridden and unhygienic conditions is between 6 and 25 times more likely to

die of diarrhea and four times more likely to die of pneumonia than a breastfed child.

Many poor mothers use less formula powder than is necessary, in order to make a

container of formula last longer. As a result, some infants receive inadequate nutrition

from weak solutions of formula.

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Nestlé’s Response/Adaptations

Nestlé on Sustainability

With the increased global trend towards sustainability, your company (Nestlé) had to adapt

fast and Nestlé really was able to make a difference.

Nestlé started off by making its own definition of sustainability which is "the process of

increasing the world's access to higher quality food, while contributing to long-term social

and economic development, and preserving the environment for future generations".

Nestlé also took the steps in creating the Sustainable Agricultural Initiative with other food

manufacturers. The group defines sustainable agriculture as "a productive, competitive and

efficient way to produce agricultural raw materials, while at the same time protecting and

improving the natural environment and social/economic conditions of local communities".

Nestle is also attempting to improve the performance of its suppliers of agricultural

commodities to raise quality, lower costs, and contribute to sustainable development. Its

initiatives focus first on coffee, cocoa, and milk. Nestle managers assert that the initiatives

deliver both private benefits (better quality and reduced costs to the firm) and social benefits

(higher incomes for farmers, better environmental quality in farming regions, improve brand

image).

Achievements

Nestlé is the leading food products company in the Dow Jones Sustainability Index for the

first time with a score of 88%, double the industry average.

The company has also achieved the maximum score for the second year running in the CDP

‘Climate Disclosure Leadership Index’ and the CDP ‘Climate Performance Leadership

Index’, both of which are published in the Global 500 Climate Change Report 2013.

Nestlé’s leading positions in all three indices recognize its strong performance against a

number of benchmarks that measure the environmental and the social impact of its operations

and the transparency of its information disclosure.

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Nestlé on water

Nestlé has been working immensely on producing water efficient products for many years

now with all pressure from different factions. Over 10 years to 2008, the company reduced its

waste use per kilogram of product by 49%. The Nestlé Waters business reduced the amount

of additional water needed to produce 1 liter of bottled water to 0.76 liters, a fall of 26% since

1999.

At the beginning of last year, Nestlé’s factory in La Penilla, which makes chocolate,

confectionery, milk and infant formula, was using 72 cubic meters of water per tonne of

product.

Now, after introducing changes such as a water efficiency program, and investing one million

euros (CHF 1.2 million) it has reduced this by 60% without increasing energy consumption

or greenhouse gas emissions.

Response by Nestlé chairman on water

Nestlé Chairman Peter Brabeck makes the astonishing claim that water isn’t a human right.

He attacks the idea that nature is good, and says it is a great achievement that humans are

now able to resist nature’s dominance. He attacks organic agriculture and says genetic

modification is better. Water is a foodstuff like any other, and should have a market value.

Evaluation of Nestlé’s response on Sustainability

Nestlé’s efforts towards sustainability have been promising. The idea to collaboratively work

with other multinational organization by forming the Sustainable Agricultural Initiative is a

positive sign for the future of sustainable development in the food and beverage industry.

The achievements reached by Nestlé clearly show that Nestlé has been successful in helping

with the necessity of sustainable development.

The steps taken to reduce the water consumption in their production, clearly reduces the costs

of production and also it positively affects the environment. However it should be evaluated

if the necessary issues that are raised by people are addressed by Nestlé (Refer pg.: ). The

different pressure groups that are developing against Nestlé should addressed fast as they are

growing and their growth would affect Nestlé’s brand image in the long run.

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The response made by your chairman is questionable. Statements as such would never

conform to be positive socially, politically and even economically. It is your responsibility as

the distinguished board of directors to advice your chairman to refrain from making

statements as such, as it would affect the company’s image and also lose its credibility as a

eco-friendly and sustainable company. All efforts by the various sectors in improving

sustainable development and such would all be a waste with statements of that nature.

Response on Child Labor

This issue needed quick response as word was spreading all around the world and it

could have resulted in loss of brand image thus sales in the long run for Nestlé. However your

company (Nestlé) was able work with the FLA (Fair Labor Association) and come up with

certain strategies to minimize this issue.

The FLA made 11 recommendations to Nestlé, all of which the company fully supported and

started acting upon, in some cases in collaboration with its partners. There were

improvements done in the company’s supplier code prioritizing the measures needed to tackle

child labor.

The company started working more closely with its suppliers, its certification partners and

other bodies to ensure those working throughout the cocoa supply chain received better

training on the nature of the child labor problem and how to address it.

Nestlé also started working with its partner, the International Cocoa Initiative, which is a

foundation that works with the cocoa industry, civil society and trade unions, to set up the

new monitoring and remedy scheme.

A few statistics:

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More than 6,000 cocoa farmers in Côte d’Ivoire have received training in 2012 as part

of the plan.

Over 800,000 better quality cocoa plants have been distributed to them.

In March 2013 the company opened the first school it has built for a Nestlé Cocoa

Plan co-operative.

By 2015 Nestlé aims to train a further 24,000 farmers in Côte d’Ivoire, and deliver a

further three million plantlets.

Evaluation of Nestlé’s response on Child Labor in Côte d’Ivoire

The steps taken by Nestle to support with this issue looks to be a good approach. The aim of

Nestlé to train a further 24,000 farmers in Côte d’Ivoire by 2015 looks to be a positive move

as the increase in skilled farmers would reduce the use of child labor. However this method

would necessarily not stop child labor but it would encourage your suppliers not to use

children for labor as there are more skilled individuals.

Nestlé on health and wellness

As mentioned under Trends to look

out for (Refer pg.: 04), consumers are

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moving towards healthier selections and as mentioned with statistics obesity is starting to be a

global epidemic. What has your company done regarding this global issue?

Nestlé was the first company in the food industry to introduce comprehensive policies for the

systematic reduction of specific nutrients considered to be detrimental to health when

consumed in excess.

Nestlé has published a set of 30 social and environmental goals focused on countering the

global nutrition crisis and environmental decline, to be achieved by or before 2020.

In response to the growing obesity epidemic, your company Nestlé plans to provide portion

guidance on all children’s products by 2015 and label guideline daily amounts (GDA) on the

front of the pack on more products by 2016.

The most recent one is where Nestlé has pledged to accelerate the reduction of salt across all

its food brands worldwide to support a World Health Organization salt target of no more than

5g of salt per person, per day, by 2025.

Nestlé is also at the cutting edge of nutritional research into salt alternatives, collaborating

with US life sciences company Chromocell Corporation to identify compounds with similar

or equally pleasing tastes that could potentially be used instead of salt in a range of foods.

With brands such as Maggi worldwide, Nestlé also provides consumers with healthy cooking

education programs, helping them to create tasty and balanced meals every day with more

vegetables, less salt and less fat.

Connecting the technological trend with health and wellness

Nestlé has the largest R&D network of any food company in the world, with 34 R&D

facilities – including three Science & Research Centers and 31 Product Technology Centers

and R&D Centers worldwide - and over 5,000 people involved in R&D.

Nestlé Research Tokyo focuses on fundamental research in nutrition and health in Japan

while a joint research program, Food for Life, addresses a number of topics related to

nutrition and health including healthy ageing and metabolic syndrome.

Response for the issue on breast milk substitute products

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There was no proper solution brought forward by Nestlé regarding this issue and it is still an

issue discussed today. However in 1981 the WHA (World Health Assembly) brought forward

an International Code of Marketing of Breast-milk Substitutes. This code bans the promotion

of breast milk substitutes and gives health workers the responsibility for advising parents.

The CEO in this year stated that it keeps on to the code but there different groups of people

who state that Nestlé is violating the code.

Nestlé however according to my in-depth research seems to be encouraging mothers to breast

feed her child and only advices to use breast milk substitute products as an option at last

resort.

Evaluation of Nestlé’s response on health and wellness

The 30 social and environmental goals published by Nestlé to counter the global nutrition

crisis and environmental decline is positive step forward. It is also important to note that your

company has given these goals a dead line (on or before 2020). There are many organizations

that come up with strategies like this but as a multi-national organization and also as the

world’s largest food company Nestlé sends out a positive message to the whole world. By

actions such as this Nestlé is able to further improve its brand image globally.

Nestlé’s plan to provide portion guidance on all children’s products by 2015 would definitely

help parents understand the necessary balanced meal that should be given to their children. If

this is successful it would help to reduce the obesity issue in the future as young children

would be fed just right.

The use of technology is becoming very popular in the food and beverage industry and Nestlé

is best at using the modern technological aspects in its productions. By using technology

Nestlé is able to produce more eco-friendly and healthy products. For example the reduction

of salt and having alternatives to salt is a result of research and development which

eventually results in the better living standards of people in the long run.

The breast milk substitute issue is something that is talked about at large even today. There is

no real solution provided by Nestlé regarding this issue but the stance they have taken in

encouraging mothers to breast feed the child and to use the substitute as a last resort option

should be greatly appreciated. There is no evidence to prove that the child deaths and

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illnesses are caused by this substitute but possible solutions should be brought towards the

use of this product in low-income countries where the water used to prepare the substitute

maybe inappropriate.

Strengths

More than 140 years in the industry

World biggest brand, top brand in Fortune 500 list

Global reach with presence in over 86 countries

An employee strength of around 328,000 people worldwide

Wide product range including baby food, pet food, dairy products, confectioneries, pharmaceuticals, beverages, etc.

Popular brands owned like Maggi, Haagen-

Weaknesses

Being a big global brand, Numerous

controversies in different countries of

operation can cause issues

Strong competition by other brands

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Dazs, Boost, Kit Kat, Nescafe, etc.

Largest R&D network facilitating continuous innovation

Strong supply chain network

C.S.R. activities for rural development, environment protection, water conservation,, etc.

Mergers and acquisitions and joint ventures to increase market share

Strong marketing and advertising power

Strong brand loyalty and brand recallOpportunities

Introduce more health based food products to tap the health consciousness amongst consumers

Expand with focus on developing economies

Continue with acquisitions and joint ventures to increase its market share

Threats

Failure of the complex supply chain

Economic instability and inflation in most countries

EURO zone crisis, as most of its revenue comes from Europe

Increase in cost of raw materials

Stiff competition in all product segments

SWOT Analysis

Porter’s five forces analysis

Threat of New Entrants

As the food and beverage market is quite large (one of the biggest needs globally)

many companies enter into the market every year in an attempt to gain a portion of the

profitable market. Luckily for Nestle, the company has been around for over a century and

boasts a long history of quality products and consumer satisfaction which has allowed the

company to obtain a considerable share of the market.

Threat of Substitute Goods

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Due to the nature of the industry, Nestle is affected by the threat of substitute goods.

From bottled water, there are arrays of similar products that compete directly with Nestle. It

is vital for Nestle to continuously find new ways to improve its products as there are large

array of substitute products in the market. In recent years, Nestle has focused on the health

and wellness aspects of its products to maintain its competitive edge in the market.

Bargaining Power of Suppliers

Nestle prides itself on creating and maintaining positive relationships with its

suppliers all over the world. Due to the large purchasing power of Nestle and the fact that the

suppliers of agricultural commodities offer a product that is far from unique, Nestle holds

more bargaining power than its suppliers. Aside from this, Nestle does prefer to create and

preserve long term relationships with its suppliers as this helps to ensure the quality of the

raw materials being purchased. In addition, Nestle also offers useful advice to its suppliers

on how to perform more efficiently to minimize unnecessary costs.

Bargaining Power of Customers

Customers have a large amount of bargaining power regarding their consumption of

Nestle products. As stated previously, there are close substitutes for Nestle products which

allows for the preferences of the customer to be very powerful. Nestle understands the power

of the customer and has taken specific steps to meet the needs of its products consumers.

Specifically, Nestle is incorporating health and wellness into the creation of its products as

society has begun to grown more health conscious.

Competitive Rivalry within the Industry

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Nestle is a powerhouse in the food processing industry but so are Kraft Foods and

Groupe Danone. These companies, among others, are in a constant and continuous battle to

outperform one another. Regarding advertising alone, these companies spend hundreds of

millions of dollars in an attempt to appear more desirable than the other companies. Rivalry is

fierce in the food processing industry and this is a good thing for consumers. As long as

these companies continue striving to one up one other, consumers will continue to enjoy ever

improving product lines.

Recommendations

In the social-economic point of view, the establishment of schools in Côte d’Ivoire

which provide free education would massively help to reduce this issue of child labor.

With free education parents would be keener in educating their children and not

forcing them to work in farms at a young age.

Nestle should try and work with the Côte d’Ivoire government to help tighten rules

against child labor in the country. The influence of a multi-national giant like Nestlé

would surely impact the government to strengthen rules against child labor.

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There are currently small groups of people who are having various issues with Nestlé

due to certain actions taken by Nestlé especially in the bottled water industry. It would

be easier if Nestlé could meet up with these different groups and come to a diplomatic

solution before things escalade to a whole different level. It is important to settle these

issues without delay as Nestlé at the highest level globally has a lot to lose.

The breast milk substitute is an issue that has been discussed for close to 3 decades

now and still no proper solution is brought up by Nestlé. As this issue is now

centralized only on low-income countries, Nestlé could target these countries and

create an action plan. The main issue is that contaminated water is used to make this

breast milk substitute. One recommendation would be to attach a bottle of water with

the breast milk substitutes which are shipped to low-income countries. This would be

a good response to the allegations set forward to Nestlé.

Create more social programs to build awareness about health and wellness. It is

evident that not many social programs are done by Nestlé to promote awareness about

health and wellness.

Move towards more organic products. The focus on organic products is not strong

enough at Nestlé. With the growing trends towards sustainable selection, it is

expected that more sales would be reached by the introduction of more organic

products.

Conclusion

Nestlé as the largest food company in the world has been able to create a valuable

brand image after over a century of operations. It is important for a company as Nestlé to

constantly adapt to the changing environment of its industry. Nestlé sits right on top of the

ladder when it comes to the largest food company in the world. A company as such more

often than not has a lot to lose than to gain and therefore it is important for Nestlé to be alert

to the different changes that are taking place in the industry

The primary goal of this report was to identify the internal and external factors which

influenced Nestlé’s business strategies using appropriate theoretical frameworks and applying

Dumindu Katuwala 20


them into a practical scenario. In simpler sense the report tried to focus directly on the trends

that Nestlé has to look out for in the food and beverage industry, the issues that Nestlé was

facing as a global company and what responses the company took to overcome these issues.

The responses were critically evaluated and were justified if it were the right decisions that

Nestlé took and suggestions were made on what more could have been done.

The food and beverage industry is an ever changing industry that is very profitable if

the right strategic decisions are made during the business operations. There are also pressure

groups that come up at various instances which try to force companies to change their

strategic decisions. In this report, issues as such that Nestlé faced were brought forward and

the solutions for these issues were discussed.

As the distinguished director board of this company I believe that you are satisfied

with my comprehensive analysis of your company. Various recommendations were given

(Refer pg.: 19) that would help Nestlé in the long run. When taking future strategic decisions

it is important for Nestlé to keep in mind the core values, and the core strategic values that

the company is built upon.

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analysis on nestlé

Documents

external analysis nestl

vision statements of

wellness company

nestls vision

core mission

nestl global corporation

nestls business strategies

core business strategies