Good Food, Good Life

Presented by: Tran Nguyen Hung M977Z220Hoang La Phuong Hien M977Z221FEBRINA HAMBALAH M987Z248

Overview

• Introduction• Case Analysis• Questions and Answers

Introduction

• Type: Public• Founded: 1866• HQ: Vevey, Switzerland• Key people: Henri Nestle (Founder)• Products: Chocolate, water, dairy products• Revenue: 88.6 billion USD• Net Income: 4.9 billion USD• Employees: 305,000

Industry Analysis

• Very strong globally

• Many different brands

• Compete in several markets

• Chocolate, dairy products, food, water, baby food and pet food

Global market

• Nestle leads the global milk market with a 3.2% share

• Leads the global ice cream market with a 17% share

• Leader of bottled water in North America, Europe, Middle East-Africa

• Ranks third in the soft drinks global market with 3.4 percent in total sales

Did you know....• Nestle invest around CHF 1.5 billion in Research &

Development every year.• Nestle markets its products in 130 countries across

the world • Nestle manufactures around 10,000 different

products and employs 25,000 people• Nestle sells over a billion products every day

Italian Culture on Coffee Consumption

• Coffee is so much a part of Italian culture that the idea of not drinking it is as foreign as the idea of having to explain its rituals. These rituals are set in stone and not always easy for outsiders to understand.

• For an Italian, coffee is an utter necessity. It is considered essential and without its presence all aspect of civilization will fall to pieces. Being stuck in a forsaken land mass situated across the Pacific does not change that fact. You may take away their mobile phones, you may take away their pasta or pizza, even their privacy, but not their coffee.

THE COMPETITORS

Nescafe Italy

Lavazza SpA of Turin

The coffee market leader and the only company to offer a complete product line.

•Coffee Shop

Lavazza SpA of Turin

• Coffee Machine

Lavazza SpA of Turin

• At Home

Blend Coffee Lavazza Blue

Lavazza SpA of Turin

• At Work • Foodservice Outlets

Segafredo-Zanetti SpA of Bologna

• Segafredo Zanetti is the Italian leading espresso company worldwide. It has a huge number of clients in all distribution channels, from bars to restaurants, catering and large-scale distribution.

Crippa & Berger SpA of Milan

This was the first company to produce decaffeinated coffee in Italy. The firm competed directly with Nestle through its own brand of instant coffee, Faemino.

But its particular strength lay in its decaffeinated coffee Hag (65% market share, versus 27% of Lavazza decaffeinated brand.)Crippa & Berger’s brands were: Gah (a new product featuring low caffeine and low fat), Faemino and Hag.

Procter & Gamble Italia• The Italian subsidiary of the Cincinnati-based

multinational, with its Splendid brand, benefited from strong distribution penetration due to the broad range of the group’s grocery products. P&G promoted the Splendid brand by sponsoring television programmes with high viewer ratings (e.g. the most successful Italian variety show, Fantastico, in 1988.)

• The positioning was different for the different products: Splendid Oro and Classic were presented as the coffee used in the most prestigious restaurants; the other product in the line was targeted, through aggressive promotion, to the large family segment.

Illy Caffé of Trieste

• This firm produced one blend of normal coffee which seven different which seven different degrees of roasting. Illy Caffé was well known for its excellent quality and a series of decaffeinated and low-caffeine coffees (Mite).

Café do Brazil

The company had a strong brand in Caffe Kimbo, favoured especially in Southern Italy where consumers enjoyed its strong, and bitter flavour. Kimbo coffee had rapidly gained in market share as a result of competitive prices coupled to a strong advertising effort.

MARKETING MIX

4P

PRODUCTS

• Whole Coffee Beans1. Coffee Houses2. Restaurants• Ground Coffee (Home) 1. 200 and 250 gram bags(49% in family

segment)2. 400 and 500 gram bags (38%)3. 500 gram tins (4%), 4. 1 kg bags

PRICES

Suggested Retailer selling Price: 7,500 lire /125 gram Nescafe

Instant Coffee was generally retailed to the public at 60,000 lira /kilogram, against 13,000 lire average for normal coffee.

The price to wholesalers was 85% of the retail price, and the variable manufacturing costs amounted to 37.5% of the retail price. Sales and distribution costs represented 15,3%, and all of this ensured a high operating profit of about 32,3%.

PLACE

• Food Channel, Modern Outlets, Cash and Carry, Street Vendors

• Coffee-house Restaurant, Hotel Channels, Coin Operated Coffee Machines, Public Places

PROMOTION

• Using TV ads from France: The Train 1981

SWOT ANALYSISStrengths- Broad geographic coverage – Nestlé is the leading player in hot drinks in every regional market, except North America (in which it ranked sixth in 2007), insulating it against downturns in particular markets. - Global leader in instant coffee – the company has a clear global lead in the important coffee sector, which is growing significantly in emerging markets, accounting for 21% of global value in 2007. - World number one in other hot drinks – Nestlé's portfolio of chocolate and malt milk products have established it as the leading player in global other hot drinks, in which it held a 23% share in 2007. - Strong brand portfolio – the company's hot drinks portfolio includes a number of high-recognition brands supported by considerable marketing and research and development resources, including Nescafé, Nesquik and Milo. - High levels of research and development expenditure – Nestlé's high levels of investment in research and development offer significant opportunities to develop its operations beyond the Nestlé Nutrition division, including hot drinks. - Solid financial base – Nestlé has a number of cost-savings programmes (notably GLOBE) in place and as a result, has been able to place itself in a position where it is able to afford sizeable investment in brand development. - Capacity to pass on costs – Nestlé's size and marketing power enable it to pass on a significant proportion of the rising costs resulting from increasing coffee and cocoa prices to retailers and consumers. Moreover, the economies of scale and synergies available to the company increase its capacity to make internal cost savings to offset the remainder of the increases.

SWOT ANALYSISWeaknesses

- Reliance on mass market – the mass-market positioning of Nestlé's core hot drinks brand, Nescafé, presents significant difficulties in terms of tapping into the growing demand for premium coffee products. - Limited presence in tea – Nestlé has developed only a minimal presence in tea, a sector which is benefiting notably from the rise in consumer health-consciousness and would therefore seem to fit with the company's efforts to reposition itself as a health-orientated manufacturer. - Increasing bias towards low-margin products – the relatively strong growth registered by emerging markets, where the company is largely represented by lower margin brands, is negatively impacting Nestlé's beverages' operating margin. Meanwhile, higher margin Western European markets are being hit by challenging trading conditions. - Bias towards caffeine-based products – Nestlé's hot drinks portfolio is biased towards products containing caffeine, a substance which has gained a negative image amongst many health-conscious consumers. - Negative ethical image – Nestlé has received considerable negative publicity for its infant formula operations in emerging markets, which may hamper its efforts to target the trend towards ethical consumerism in markets such as the UK.

SWOT ANALYSIS

Opportunities

- Strong growth forecast in Asia-Pacific – Euromonitor International forecasts that Asia-Pacific will be the fastest growing market for hot drinks over the 2007-2012 period. As Nestlé's largest regional market, Asia-Pacific therefore presents significant opportunities for the company in spite of poor conditions in major Western European markets.

- The premium trend – while the mass-market positioning of Nescafé is an obstacle, the growing demand for premium coffee products is creating opportunities for the company to generate growth in mature markets through the development of brands and extensions, such as Nespresso and Nescafé Dolce Gusto.

SWOT ANALYSISOpportunities

- The health trend – while coffee has not received the positive health-related publicity of tea, its image became less resolutely unhealthy in recent years, with suggestions that it can help to prevent various conditions, including Parkinson's disease. Moreover, the company's repositioning and substantial research and development infrastructure place it in a strong position to develop health-orientated new products.

- Ethical consumerism – fairtrade products are growing strongly in hot drinks markets such as the UK, offering a potentially important way to counter maturity in developed regions.

- Cross-branding – Nestlé's diversified packaged food and beverage portfolio offers it the opportunity to develop brands from other categories in hot drinks. Notably, it could further develop its confectionery brands in other hot drinks along the lines of existing products such as Aero Hot Chocolate.

SWOT ANALYSISThreats

- Sluggish prospects in developed markets – market maturity and aggressive competition amongst retailers are set to constrain hot drinks growth severely in major developed markets during the forecast period.

- Coffee machine competition – Nestlé's efforts to attract younger consumers and tap into the growing demand for premium coffee in developed markets with the introduction of the Nespresso and Nescafé Dolce Gusto coffee systems could come under threat from the development of rival cheaper models.

- Rising costs – increasing transport and raw material costs, mainly relating to rising bean, oil and packaging prices, are placing significant pressure on margins in the company's beverage operations.

- Competition from beyond hot drinks – the expansion and diversification of soft drinks, which are effectively targeting trends towards health and convenience, pose a notable threat to Nestlé's hot drinks product

4 strategic options given by Mr Baruffa

1. To focus on old segment, already heavy consumers of the product

2. To broaden the use of Nescafe, as a “milk modifier”, particularly in the morning

3. To try to position Nescafe for younger and more “cosmopolitan” professionals, marketing Nescafe as the “international coffee beverage”

4. Try to penaltrate the CHR segment of the market

Which of the four options outlined in the case would you adopt and why? Is there yet another, even better alternative?

QUESTION 1

We highly agree with the option chosen by Mr Guiliani, head of strategic planning:

Radically modify the Nescafe positioning, marketing the coffee as an international coffee (not as Italian coffee) that mainly lives in the Northern cities. Nestle food products should become standardized in the future at least in the European market

Couples of Reasons for our decision:

- For this strategy, Nescafe still can nurture and strengthen their mainly heavy coffee consumers – old people and singles who sensitize to the effects of caffeine (less Robusta) and prefer the less “aggressive” image as well as the ease of preparation

- Furthermore, they are also able to extent the coffee market due to the significant organizational benefits could come from this policy and that, looking at the market place, there were a “transnational consumers” segment that, travelling and living all over the world, was achieving “universal” consumption habits

What would be the target segment(s)? Proposed positioning and promotion, pricing and distribution strategies?

QUESTION 2

Target Segments

Our group has agreed to targeting the both segments. Young Executives (25-34) and Elders (45-54). We believe that the composition of the age group, will help the brand to reach it’s highest position in Italy Market. In Recent times and also in the future.

PRODUCTS

Il Caffe

Caffe Golosi

PRODUCTSCaffe Golosi

Il Cappucino

PROMOTION

1. Young Executives Oriented• Go for sponsoring college/universities

events.• Provide the special marketing team to

market their HCRs.2. Elder People Oriented• Sponsoring Seminar, • Free Tester

PRICING

• The price slightly above the average is still okay. Because the power purchase parity for young executives and the elders are higher than the other customers.

DISTRIBUTION STRATEGIES

• Universities, Colleges

• Food Channel, Modern Outlets, Cash and Carry, Street Vendors

• Coffee-house Restaurant, Hotel Channels, Coin Operated Coffee Machines, Public Places

• Office Building

What would be the advertising copy strategy and the budget to invest on the

“relaunch” of Nescafe?

QUESTION 3

• To counter Starbucks' test of Via instant coffee in Chicago and Seattle, Nescafe has launched an outdoor campaign in both cities via McCann Erickson, Los Angeles. One Chicago subway car, plastered in the ads, makes the price case this way: "Starbucks makes great instant. We make great instant. So why does theirs cost 400% more?" The last piece to the multipanel ad proclaims Nescafe's Taster's Choice as "the smart choice." The style, copy and even typeface strongly resemble advertising for the Starbucks brand and Starbucks Via.

• Given how much instant coffee has been in the news lately, Nestle wants the communications to remind people that with Nescafé they can enjoy a great-tasting, high-quality cup of coffee with a wide variety of blends and flavor options at the right price.

• There are other competitors who charge much more for a similar-quality coffee, and we would like to encourage people to prove for themselves that there are smarter options from which to choose.

THANK YOU FOR ATTENTION!