MGMT 524 – Strategic Management

Strategic Assessment of a Public Corporation:

Nestlé

GROUP MEMBERS

JASNA BELSAK 135818

QOBILJON BOBOMURODOV 135078

ASKAR SMAGULOV 125562

OLUWABUNMI ROSEMARY AFUWAPE 135115

VENHAR CIDIK 135486

VEFA HUSEYNOVA 115634

SUBMITTED TO

PROF. Turhan Kaymak

FACULTY OF BUSİNESS AND ECONOMİCS

MAY 2014

Executive summary

Project is a strategic plan of company Nestlé. Corporation is a swiss company with long tradition

– it was established in 1866 by Henri Nestlé who gave company the name. Corporation is

trustworthy global leader in food and beverage industry famous for it's innovation, quality and

wide range of differentiated products. In this paper will be analyzed why and how they became

to that point and what Nestlé should do in the future to become even better and more profitable.

Mission of Nestlé will be analyzed, external and internal analysis of the company done, business

and corporate-level strategy of Nestlé identified.

At the beginning mission of Nestlé will be discussed. Mission represents company's vision,

beliefs and goals –Nestlé's is to be global first nutrition choice of consumers and leading health

and wellness company and Nestlé is making it trough with it's activities.

In external analysis of Nestlé Porter's five forces model of industry will be applied and discussed

how good Nestlé operates in high competitive food and beverage industry. Threat of substitutes

is high while while threat of new entrants, bargaining power of suppliers and buyers are low and

concurrence numerous. Remote environment of Nestlé is changing – it results in consumer's

tendencies to healthier nutrition choices, changes in preferences and values of customer,

technological improvement, demographic changes and changes of lifestyle etc.

In third section Nestlé's competitive advantages, core competencies and assets together with

financial situation will be discussed. Nestlé's competitive advantages are product portfolio of

numerous key brands, customization to local markets, innovative R&D and wide geographic

presence. Operational pillars of Nestlé are innovation and renovation, quality, operational

performance and customer engagement. Considering resources Nestlé has numerous production

sites, good technological, physical, organizational and financial and human resources, strong

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company's culture, high reputation, good manufacture and distribution system and marketing.

Financially company is successful and profitable.

Business and corporate level strategy of Nestlé shows that the company operates in broad range

of businesses (food, beverage, nutrition) and is segmented and fragmented. Has rich portfolio of

brands and operates globally. Nestlé applies low-cost cost leadership approach and has three

distinctive corporate level strategies (operational pillars, growth drivers and competitive

advantage).

Although Nestlé has done a great job till now there is always space for improvement and making

things differently to enhance company's performance. Nestlé should focus on improving

innovation, brand recognition, crisis management social responsibility and carefully choose

materials/ingredients used.

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1. Mission Statement

Nestlé is the producer of various food and beverage products like baby food, breakfast cereal,

confectionary Kit-Kat , coffee (Nescafe), dairy foods, pet foods, frozen foods, Nestlé water and

so on. Nestlé has been successful in achieving its goals of becoming the world’s company No.

1 in terms of providing to the market the desired products that people want to buy for nutrition,

wellness and health.

Mission of the company: “Nestlé is the world’s leading nutrition, health and wellness company.

Our mission of “Good food” and “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.” (www.Nestlé.com, 2014)

The initial mission statement of Nestlé in terms of the phrase “Good Food, Good Life” is a

total sum of the company’s corporate ambitions. They provide the focus for the people who

direct the strategic priorities that set up and accelerate the achievements of the company.

Nestlé’s products are everywhere in the world, they are providing high quality and reliable

products to meet the needs and nutritional values for their customers both daily and life long

needs. The emphasis is on providing well-known brand offerings for their consumers. The

success of Nestlé is based on the quality image of their products which they have been able to

achieve over the years by the ability to anticipate their consumer’s needs, they have launched

new products that are required by the consumers of the various Nestlé companies across the

countries of the world.

Vision and values of the company: “To be a leading, competitive, nutrition, health and wellness

company delivering improved shareholder value by being a preferred corporate citizen,

preferred employer, preferred supplier selling preferred products.” (www.Nestlé.com, 2014)

Goals of the company:

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Nestlé’s stated goal is to be recognized globally as the leader in nutrition, health, and wellness.

This is accomplished by Nestlé’s attempt to promote its nutritional value in its products and to

expand into new areas of nutritional food- and food-based products. Most of their business

activities are focused toward that.

2. External Analysis

Porter's Five Forces Analysis

Threat of Substitute products (high)

Food and beverage market has a long industry chain and big industry span so threat in

substitute products is high. Giants such as Wrigley (Mars, Milkway, Snickers etc.), Unilever

(Knorr, Cornetto, Lipton Ice tea etc.), Coca Cola and Pepsico have similar products to offer to

customers. There is wide range of similar products that can compete directly with Nestlé's

products. In order to make a differentiation in the worldwide market Nestlé should innovate its

products to stay in the market and to go beyond its substitutes.

Threat of new Entrants (low)

The company has tradition which gave Nestlé experience in the food and beverage industry.

With substantial brand equity and a base of loyal customers Nestlé is at an insignificant risk

from entrants. Nestlé has an advantage of holding majority of the share in the market where

competition is becoming increasingly fierce in the world today. Although the food and

beverage industry is very competitive and is constantly evolving with entrants, small business

don’t have much advantages due to high cost of business, little profit which lead their survival

into serious threat. Nestlé Distribution channels of Nestlé are indirect. They are used by

companies who do not sell their goods directly to consumers. Nestlé has its own distribution

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networks with necessary transportation facilities. They transport their products at major

regional sales office and then later to shops where they're available to actual customers.

Bargaining power of suppliers (low)

The cost of production in the food industry is relatively low and Nestlé has power in reducing

the cost of all raw materials. Nestlé holds a higher bargaining power than its suppliers and has

minimal switching costs as the company’s strong distribution channel consists of suppliers (165

000), farmers (556 6000) and multiple agents (source: www.nestle.com, 2014). Nestlé's

interaction processes with suppliers starts from informing suppliers about contracts to engaging

and assessing them to constant monitoring with gap analysis and corrective actions of

necessary to qualifying suppliers with development and new opportunities internationally. The

company prefers long-term relationship with its suppliers what keeps quality of products on

high level. Nestlé also presents helpful guidance to its suppliers on how to work more

proficiently to decrease redundant expenses and on that way cares about its suppliers .

Bargaining power of customers (low)

The bargaining power of buyers is a minimal threat to Nestlé due to its large portfolio. Nestlé

markets its products in 130 countries across the world. Global sales share of Nestlé’s product

mix is significantly high compared to its competition and that contributs to power over the

customers Nestlé obtains (details in Fig. 1 in appendix). The buyer switching cost is minimum.

Although majority of the products hold secure positions, some categories like daily and dairy

products suffer a potential risk. Bargaining power of consumers is high in the industry but

Nestlé has monopoly in most countries and product categories.

Jockeying for position with rivals (high)

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Position rivalry within the nutrition and food and beverage industry is very high and is

increasing. Nestlé is a large global powerfull company but still has to compete with many

competitors such as Group Danone, Unilever and Kraft Food (details in Fig. 2 in appendix).

Facing with this unhealthy competitive environment, companies should focus on product

innovation and R&D and establish strong brands. Rivalry is fierce in the food industry, and

consumers has advantage in this situation. As long as these companies are competing with one

another, consumers will continue to enjoy ever- improving product lines.

Changes in remote environment

The main change in food and beverage industry's environment is change of consumer and it's

preferences. People’s taste is changing and produced products are (and have to be) changing

along to it. Consumers and their preferences are changing extremelly quickly. Values, beliefs,

traditions aresubject to constant change. People are redetermining their roles in life and society

what leads to new realities resulting in new taste and preferences of consumers - once

structured and predictable, today changable and unpredictible. New trends are emerging and

customer's lifeystyle is changing. Globalization and mass media has huge influence on today's

consumer. Customer preferences vary not only among countries but also across the same

nation. Demographic structure is changing, population is rising. In healthy food boom period

when people consider about their health and environmental concerns are rising more than

before. Technological improvement is another big change. We are more and more relying to

Internet in modern electronic devices in all aspects of our lives. Modern customer is very

sophisticated (sometimes even spoiled) and well informed.

Nestlé has always been aware of changes in the external environment and was following them.

Company was changing it's strategy over time, developing new products and adapting them to

new trends, changes and preferences of costumers in order to satisfy their emerging needs.

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Nestlé is doing it very sucessfull - most of all with huge investments in R&D and innovation,

studies of consumer behaviour, developing new products where health and convenience play a

significant role in the shaping product strategy.

3. Internal Analysis

Competitive advantages and core competences

The food industry is highly competitive. Nestlé is the market leader in food and beverage

industry. They are producing high quality well known brands. There no is such competitor that

can compete Nestlé in its total product portfolio. But there is still some competitors company

has to consider (details in Fig. 3 in appendix).

Nestlé is a universal symbol for a numerous products and brands on local and global level.

They found niche and core competencies in combining nutrition health and wellness.

Competitive advantages (according to Nestlé itself) are: unmatched product and brand

portfolio, unmatched R&D capability, unmatched geographic presence and people, culture,

values and attitude (www.nestle.com, 2014). Nestlé's competitive advantages are numerous and

great products. Nestlé’s product portfolio includes a strong presence of numerous key brands

which focus on developing local marques for their markets and are customized at the

requirements of local market. Other competitive advantage are strong and innovative R&D

capabilities and innovation, wide geographic presence practically all over the globe and an

entrepreneurial spirit, strong values shared among great people living and working for the

prestigious company. The Nestlé culture, with long term and short term activities, connects

their people all over the world with a shared way of doing business.

Nestlé identified it's core competences (called also operational pillars) as: innovation &

renovation; wherever, whenever, however; consumer engagement; operational efficiency

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(www.nestle.com, 2014). Nestlé is unique in development – they are inventing and renewing

all areas of business (products, processes, systems, strategy) quickly and continuously. One of

the important core competencies is excellent quality, that Nestlé reaches and their opponents

can not. Operational performance is one of important strengths of Nestlé. They developed very

efficient operational system that is nearly impossible to imitate. Excellent holistic marketing is

their strong point and core advantage. The company is aware of importance of holding good

relationships with consumers, suppliers, stakeholders and all others.

Analyzing the resources

Total current assets in 2013 were 30 066 million CHF and total non-current assets 90 376

million CHF (Consolidated Financial Statements of the Nestlé Group, 2013).

Tangible assets:

Production sites: Nestlé produces in over 86 countries around the world, including all

continents (details in Fig. 4 in appendix).

Technological Resources: Nestlé is innovative, science driven company with rapid

technological change. It has it's own world's largest food and nutrition research organization,

with about 5000 people involved in R&D. Nestlé owns 4 research centers and 34 Product

Technology centers and R&D centers worldwide and have partnerships with universities.

Financial resources: Main financial resources of Nestlé are sales. In 2013 total sales were 92

158 million CHF and profit 10 445 million CHF. Total assets of Nestlé in last year (2013)

were 120 442 million CHF and total liabilities and equity 120 442 million CHF (Source:

Consolidated Financial Statements of the Nestlé Group, 2013). Nestlé's biggest competitor

Unilever in the same year (2013) had profit 5,263 million CHF, total assets 45 513 million

CHF and total liabilities and equity 45 513 million CHF (Source: Consolidated Financial

Statements of the Unilever Group, 2013). If we compare Unilever in Nestlé we can clearly see

that Nestlé is much more successful profitable in all aspects.

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Organizational Resources: Nestlé is highly structured organization. It has board of directors,

CEO and their function is to connect functions, operation and finance in a more effective way.

Part of Nestlé's organizational structure is executive board and a bunch of managers in lower

levels of decision making processes. Nestlé has every year annual general meeting of

shareholders.

Physical Resources: coffee, water, ice cream, confectionary, baby food, health care, nutrition,

pharmaceuticals.

Intangible assets:

Intangible assets of Nestlé were 12 673 million CHF in year 2013 (Consolidated Financial

Statements of the Nestlé Group, 2013). Some of the most important are:

Culture: Nestlé's culture reflects the company’s view and values. Some of the most important

values of the company: integrity and strong work ethic, providing the highest quality,

innovation, passion for products and brands, open communication, cooperation and openness to

new ideas and respecting different opinions, realistic but future oriented approach to business

and new business opportunities.

Reputation and brand name: Brand name in connection with reputation is extremely valuable

asset of Nestlé. Nestlé has been named one of the top ten most reputable companies in the

world according to some researches. Nestlé has a strong reputation among consumers,

suppliers and others in supply chain around the world.

Innovation and strategic partnerships: Nestlé is on the list of 50 most innovative companies on

the world and the most innovative among food and beverage companies. Spends millions of

CHF yearly for innovations. Nestlé has over 20,000 patents worldwide and constantly

producing new ones - an average speed is 250 new patents per year. It provides know-how in

engineering, marketing, production, organization, management and personnel training on a

continuous basis.

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Organizational capabilities

Human Resources : Company has human resources policy. Company employes around 330.000

employees form different countries and backgrounds. Nestlé offers them potential for

professional development, mentorship programs, trainings, positive work environment,

motivational compensation packages and bonuses and other opportunities.

Distribution/logistics: Distribution teams in Nestlé are responsible for the flow of raw materials

and finished product, moving it from the factory to their distribution centers and then into

stores. More than 100.000 tonnes of products are transported daily on that way. Nestlé has well

planned, efficient and optimal distribution chain and on that way costs and pollution are

reduced what results in benefit for company and society.

Manufacturing: Frontline innovative manufacturing roles of Nestlé can be found in a variety of

areas, including warehouse/supply chain, quality, production, safety, maintenance and

sanitation.

Marketing: Marketing is right at the heart of what they do. They focus on three key areas:

brand management, communications and consumer insight. Marketing in Nestlé is working

together with their customer and sales teams. Aim of Nestlé's marketing is to meet the taste of

each type of consumers.

Management: Nestlé has well trained and qualified managers from all around the world and

with different level of experience in diverse industries what helps to manage the huge

multinacional company well and successful.

R&D: Nestlé's R&D department is very strong. They do an enormous number of projects and

researches and have employedd only exceptional mechanical, chemical or industrial engineers,

food technologists.

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Financial performance over last four years (2010-2014)

The best year in the financial performance of company was 2010. Total sales and total profit in

that year was the highest and total assets the lowest in last four years. Nestlé reported over

three-fold jump in net profit to 34.2 billion CHF in 2010 driven by sale of its Alcon Eyecare

business, in which Nestlé sold its 52 % to Novartis AG and strong revenues from emerging

markets, including India and China. The worst year was 2011 partly due to global recession

and bad economic situation what affected significantly the financial performance of Nestlé.

Sales were 10 million CHF lower than the year before and consequently profit was the lowest.

In last two years Nestlé was performing better and more profitable, in the year 2013 slightly

better than in 2012 (more information in Table 1 in appendix).

4. Business and Corporate-Level Strategy

Nestlé is a great supplier of food and beverages. Nestlé works and sells globally and

approaches production locally. Nestlé is an expert in nutrition, health and wellness products.

Strategy of differentiation and segmentation is applied. Different food and beverage service

businesses are distributed all around the world, each business or each brand of Nestlé has

different markets and consumers in different countries. Businesses are committed to the high

quality, efficiency and low-cost production. They produce baby foods, bottled water, cereals ,

chocolate and confectionery, coffee, culinary, chilled and frozen food, dairy, drinks, food

service, health care nutrition, ice cream, pet care, sports nutrition and weight management

products.

Some brands of Nestlé like Nescafé or KitKat are very profitable for the company, others are

less but still better than competitors. Their strategy consists of building partnerships with local

companies and making acquisitions globally. Some examples of acquisitions of Nestlé in last

years are Henniez, Kraft frozen Pizza, Wyeth Nutrition, Dreyer's ice cream, Novartis Medical

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Nutrition, Chef America and Ralston Purina. Erikli, Yinlu, Hsu Fu Chi (in all of them Nestlé

has 60% of ownership) are just some of examples of establishing strategic partnerships in

different countries.

Focus of Nestlé: Nestlé focuses on nutrition, sustainability, and economic and community

development. Nutrition holds importance for people of all age gropus. Aim of Nestlé is to help

people to keep and improve their health and to contribute to economies and societies around

the world.

Low - cost leadership: Nestlé applies low-cost leadership approach. Company standardize the

products that they provide to all people. Company produces in high amounts. Nestlé buys

materials at lower prices because company buys in huge amounts - economy of scale. Low –

cost of inputs reflects to the prices. Products are consenquently sold at cheaper prices.

Nestlé’s Corporate Level Strategy

Nestlé has three three distinctive corporate level strategies. These strategies are operational

pillars, growth drivers and competitive advantage. These strategies let Nestlé to maintain a

competitive advantage over their rivals. Numbers of sales clearly show that their corporate

level strategies guarantees the company’s success; their nutrition, health and wellness based

activities have very high reputation.

Aim of Nestlé's corporate level strategies is being efficient in production. Another aim is to

increase customer communication. Nestlé also approaches premiumisation as well as that

makes Nestlé’s products first class products. Nestlé added popular brands to the corporation

portfolio in order to keep it’s profitability margins stable and high. Nestlé Nutrition (nutrition

business) is an self activated unit within Nestlé and responsible for the claim-based business of

infant and health care nutrition.

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5. Recommendations for Strategic Change

Areas Nestlé should consider and improve are:

Brand and sub-brands recognition: In order to increase brand recognition Nestlé should

increase advertising of some of it's less known products and make new innovative and creative

campaigns mostly in emerging markets. Company should consider and use different ways of

marketing, adversing and promotion — mostly social media and and consider the idea of

sponsorship. Nestlé is not known as being sponsor of any club/event/ and entering this area

would increase brand recognition and consequently revenue over years. Recommendation is to

enter to a soccer or basketball club or being sponsor of a famous festival in European market

where the brand is rapidly loosing it's value in last years.

Ingredients (raw materials) of products: Nestlé should be using their science research

technology to look into the organic foods. To improve reputation Nestlé should use only the

most quality, ecological and GMO free raw materials and ingredients. Tracing nutrients and

providing this information to customers would improve their performance and strengthen

relations with customers. One of Nestlé's weaknesses is the fact that they also have unhealthy

product brands. Recommendation is to look into those products with highly unnecessary sugar,

fats, and other unhelathy ingredients and see how they can enhance their product but without

changing taste of products.

Social responsibility: Commitment to ethical practices and policies is essential to improve the

reputation and trust of Nestlé. In Africa for instance Nestlé can take advantage of the deserted

lands, turn them to farms and employ from that land’s population to overcome their starvation

problem or at least decrease. Nestlé should care about environmental issues. Due to problems

with Greenpeace and other environmental organizations, company should invest in eco-friendly

materials used in their production line and decrease pollution caused by their production and

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distribution. Use of recyclable materials is recommendable. Researches done by their R&D

department should be reachable to general public and researches about environmental issues,

rising diseases and other current issues benefiting the whole society should be done.

Crisis management: Nestlé faced some unexpected situations and crises in last decades and

their response was inappropriate. Good management team should be able to extrapolate if a

plan they have might back fire such as the scandalous event resulting from their oil practices,

cosmetics, testing on animals, quality of breastfeeding substitutes etc. Recommendation is to

make different crisis plans for that kind of situations and taking actions quickly and correctly.

Innovation, quality and R&D: Nestlé should come up with new products in nutrition sector.

Nestlé should enhance and find the way to enrich their products with substances and vitamins

that will provide consumer’s daily needs. Nestlé should focus on increasing hygienic standards

and policies in order to ensure and keep the best quality of their products. Investing sources on

innovation and research and emphasis on nutrition will give Nestlé bigger competitive

advantage.

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Appendix

Fig.1: Sales share of Nestlé’s at Regional, Country and Product levels (Source: Gehlhar, 2003)

Fig. 2: World's biggest food companies in 2006 (Source:

http://cs.millersville.edu/~udgraphs/index.php/corpus/individual_graph/B519-A)

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Fig. 3: The biggest food corporations on the world and their brands (Source:

http://www.zideate.com/2/772/implementation/infographic-leading-global-consumer-

advertisers)

Fig 4: Location of Nestlé production around the world (Source:

http://www.Nestlé.com/aboutus/globalpresence)

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Table 1: Financial performance of Nestlé over last four years 2010-2014 (Source: Consolidated

Financial Statements of the Nestlé Group, 2013; Consolidated Financial Statements of the

Nestlé Group, 2011)

IN MILLION CHF 2013 2012 2011 2010

Total sales 92 158 89 721 83 642 93 015

Operating profit 13 068 13 388 12 538 14 832

Total profit 10 445 10 677 9 804 35 384

Total liabilities 56 303 49 043 55 817 49 043

Total assets 120 442 125 877 114 091 111 641

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References

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http://cs.millersville.edu/~udgraphs/index.php/corpus/individual_graph/B519-A

Gelhar, Mark (2003, June 27). Regional concentration in the global food economy. Reading,

first biennial conference of the food system research grop from market and drade division.

ERS-USDA, Wisconsin.

Nestlé group. http://www.nestle.com (20.5.2014)

Nestlé Group. (2011). Consolidated financial statements of the Nestlé group. Retrieved from

www.nestle-ea.com/asset-library/.../financial-statements%202011.pdf (20.5.2014)

Nestlé Group. (2011). Nestlé in Switzerland. Retrieved from: www.nestle.com/asset-

library/documents/library/documents/about_us/Nestle-in-switzerland-en.pdf (20.5.2014)

Nestlé Group. (2013). Consolidated financial statements of the Nestlé group. Retrieved from

www.Nestlé.com/asset-library/documents/library/documents/financial_statements/2013-

financial-statements-en.pdf financial report Nestlé 2013 (20.5.2014)

Unilever group (2013). Consolidated Financial Statements of the Unilever Group. Retrived

from

http://www.unilever.com/investorrelations/annual_reports/AnnualReportandAccounts2013/fina

ncial-statements.aspx (20.5.2014)

Zideate Staff ( 2012, August 9). Infographic: Leading Global Consumer Advertisers. Message

posted to http://www.zideate.com/2/772/implementation/infographic-leading-global-consumer-

advertisers (20.5.2014)

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