Nescafe

Nestle: Global Strategy Good food, Good life 1

History

Nestle’s Head Office & Factory In London 2

ESATBLISHMENT In 1866 Henri Nestlé, a pharmacist developed a food that made from powdered milk, baked food, and sugar for babies who were unable to breastfeed. Henri Nestlé founded Nestlé’s headquarters in Vevey, Switzerland in 1866. People quickly recognized the value of the new product, after Nestlé's new formula saved the child's life, and soon, Farine Lactée, Henri Nestlé was being sold in much of Europe. And Nestlé’s first foreign office established in London in 1868. With so many ups and downs now Nestlé emerges its existence throughout the world. Peter BRABECK-LETMATHE is the present Chairman & CEO; Chairman of Chairman's and Corporate Governance Committee 3

BUSINESS TYPES: Nestlé is one of the world's oldest and largest multinational businesses. Nestlé covers nearly every field of nutrition foods: infant formula, milk products, chocolate and confectionery, instant coffee, ice-cream, culinary products, frozen ready-made meals, mineral water etc. they are also a major producer of pet food.

RESOURCES : They have “Expatriate Army” around 247,000 employees. 500 factories are extending the whole world to deliver the customers needs. 4

SALES : Sales at the end of 2004 were CHF 87 billion, with a net profit of CHF 6.7 billion. Roughly 38% of its food sales were made in Europe, 32% in the American and 20in Africa and Asia. Africa & Asia 20%

America 32%

Europe 38%

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EXPANSION PLAN : Nestlé committed to offering consumers highquality food products that are safe, tasty and affordable. The Nestlé Seal of Guarantee is a symbol of this commitment. Nestlé's existing products grow through innovation and renovation while maintaining a balance in geographic activities and product lines. Now a day the company focuses on new technology platform such as non-animal protein resources or agricultural biotechnology products. 6

SWO T Analysi s

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Strengths : 1. Pioneer of soluble coffee drink In 1938, Nestlé had been effected by the effects of 2nd World War. Their profits had dropped down from $20 million to $6 million in the time duration by 1938-1939. After that Nestlé started its most revolutionary journey with Nescafé, the world ‘s first soluble coffee drink. In that time Nestlé's production and sales rise in the wartime economy. Still now Nescafé is the most offered and prominent coffee in throughout the world. 8

2. Nestlé owns Massive brands Nestlé - the world's largest food group, not only in terms of its sales but also in terms of its product range and its geographical presence. Nestlé covers nearly every field of nutrition; infant formula, milk products, chocolate and confectionery, instant coffee, ice-cream, culinary products, frozen ready-made meals, mineral water etc. they are also a major producer of pet food.

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Nestlé is present in different markets with the following main brands: Coffee Water Other beverages Shelf stable Shelf stable Chilled Infant nutrition

Nescafé, Taster’s Choice, Ricoffy, Bonka, Nespresso, Zoégas, Loumidis Nestlé Pure Life, Nestlé Aquarel, Ice Mountain, Nestlé Vera, Deer Park, Nestea, Milo, Carnation, Libby’s, Caro Nestlé, Nido, Milkmaid, Klim, Nestlé Omega Plus, Bear Brand, Coffee-Mate Nestlé, Nido, Milkmaid, Klim, Nestlé Omega Plus, Bear Brand, Coffee-Mate Nestlé, Ski, Yoco, Svelty, Molico Nestlé, Nan, Lactogen, Nestogen, 10

HealthCare nutrition Ice cream Frozen foods Chocolate, confectionery and biscuits Foodservices and professional products Pet care

Nutren, Peptamen, Modulen Antica, Maxibon, Mega, Mövenpick, Stouffer’s, Hot Pockets, Maggi Cailler, Milkybar, Kit Kat, Smarties, Baci, Butterfinger, Polo Chef, Minor’s, Santa Rica

Fancy Feast, Alpo, Mon Petit, Dog Chow, Cat Chow, Pro Plan, 11

3. Extensive R&D Though Research & Development operation is a common functional department in every company but at Nestlé it took a special place. 3,100 employees dedicated to these functions. They covered 18 different groups in 11 countries through out the world. They spend approximately 1% of its annum sales amount. Around 70% of R&D budget spend on development initiatives that is new products and fulfill rising needs.

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4. Good number of acquisitions. Two-third of Nestlé’s growth has come from acquisitions. Some are as follows;

1977 1985 1988 1992 1998 2000 2001 2002 2003 2004

Acquisition of Alcon Acquisition of Carnation Acquisition of Rowntree Acquisition of Perrier Acquisitions of San Pellegrino and Spillers Petfoods Acquisition of Power Bar Acquisition of Ralston Purina Acquisition of Schöller and Chef America Acquisition of Mövenpick, Powwow and Dreyer's Acquisition of Valio (ice cream activities) 13

Weakness : 1.

Inadequate infrastructure of China.

In 1990 Nestlé opened up a new plant to produce powder milk and infant formula in china. But soon they realized that there were no adequate infrastructures to collect the milk and deliver the finished goods.

2. Improper forecasting Nestlé had a good sales and position in Japan. Japanese were accepted the instant coffee that helped them to be the dominant coffee product in Japan. But to compete with soft drinks they launch a new canned coffee that was not accepted by the Japanese like instant coffee. Because it was just a coffee flavored drinks rather than real things. 14

Opportunity • Growth possibilities in different zones. Development in economic and population growth simply provide the opportunity to increase the sales and market shares in some markets such as; eastern Europe, Asia and Latin America. Though many of these countries are relatively poor but when economy will be in the booming condition then the income level of the people will be rise.

2. Government paid less to the farmers Every developed country’s government helps its farmer by giving incentive in different terms to increase the productive capacity of that particular sector. In china the government had reluctant to pay the incentives. This opens the door for Nestlé to work out their objectives. 15

Threats

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1. Cannibalizing. 2. Strong competition. 3. Price war.

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Co rporate le ve l st rategy that h as t aken

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Nestlé goal is “to evolve and adapt to a changing world continuously and reflects the basic ideas of fairness, honesty, and a general concern for people.” On the basis of this goal Nestlé formulate its strategies. Such as,

1. Nestlé owns enormous brands Nestlé wants “to evolve continuously” that is visible in their enormous brands extension. 8500 brands help them to be one of the largest MNC through out the world.

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2. Global adaptation Nestlé wants “to adapt in changing world continuously”. Nestlé uses the global brand (Nescafe) in some developed countries but when they went to a developing country they must try to fit processing technology and ingredients with that particular local condition.

3. Good number of acquisitions Nestlé’s two- third growth comes from their constant acquisition activities, which is a critical function for any company. 19

4. Decentralize management structure It depends on the company’s policy whether it follows centralization or decentralization management system. Nestle follows decentralization management system that increase the efficiency of each level of the company. Though separate regional office reports to the head office but it operates and takes action according to the local policies and values to achieve the company goal. It reduces the decision making process and develops the accountability among the executives.

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5. Growth possibilities in different zones: To grab the opportunities of Eastern Europe, Asia and Latin America, nestle initially focus on niches rather than expose with handful strategic brands. The goal is to building a commanding market position of these niches.

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Busi ness le ve l str ate gy that h as t aken

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Corporate strategies are formulating from corporate levels managers and translate by individual business level managers to implement in individual division to direct functional level managers so that goals can be achieved.

1.Extensive R&D Nestlé’s 3100 employees dedicated to this function. They covered 18 different groups in 11countries through out the world. They spend approximately 1% of its annum sales amount and allocate around 70% of R&D budget spend on development new products. Now a –days they concern with the development of non-animal protein sources or agricultural biotechnology products. 23

2. Inadequate infrastructure of China Nestlé established own distribution network among 27 villages to collect milk. Managers also offer the farmers vans to carry out the milk promptly. The network known as “Milk Roads” and the factory collection points known as “Chilling Centers “

3. Government paid less to the farmers When Government paid less to the farmers it gave a opportunity to the Nestle to work out the farmers for themselves. They paid the farmers payment appropriate and promptly. Farmers become motivated and got encourage to buy another cow. As a result within 18th month the numbers of cow increase from 3,000 to 9,000. So more cow helps nestle to get more milk to produce powder milk.

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Recommendations 25

1.Improper forecasting & Cannibalizing Nestlé forecasted that Japanese will easily accept canned coffee instead of taking Coca-cola whenever they want soft drinks. To protect instant coffee form industry competition in Japan nestle launch a flunk product that is canned coffee. Because Coca-cola is a strong brand and posses highest brand loyalty in the soft drinks industry. But they became fail and loose market share because Japanese didn’t like the canned coffee since that not give the real taste of coffee. Now nestle can take the following steps;

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2. Price war To keep them away from the price war, Nestlé can manage their sales and profit by sticking with its price level. Because consumers must know that quality products require its real price. People perceive that high price indicates high quality. So nestle should not involve in price gambling game.

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Thank you 28