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Nestle Strategic Analysis in Food and Beverages Industry

The purpose of this report is to conduct an in-depth strategic analysis of Nestle in regards to the external factors some of which discussed are the political environment, economic, social, technology, legal and the environment. The paper demonstrates the competitive position of the company, and how well it fits in a competitive market of food and beverages industry. To achieve the objective of the report, three analyses were conducted. One of them is SWOT analysis, which aimed to look into details the strengths, weaknesses, opportunities, and threats of Nestle. This model is primarily concerned with the internal and external features that would influence the growth of the company. In the same vein, PESTLE analysis is concerned with external factors. Among the described elements, it was evident that the ability of Nestle to expand and operate in different countries is strongly impacted by the existing laws. The precepts of every state aim to protect the natives; hence the company operates with regards to ensuring that the products they offer do not harm the health of the consumers.  The last analysis that was conducted was the Porters Five Forces Model. Out of the five rudiments of this model, Nestle only managed to control suppliers’ bargaining power. Such, three recommendations were put forward. One, Nestle should look for alternatives to differentiate its products in the market, so as to beat the rivals. Also, the company should seek for alternatives to sourcing their product at a cheaper price, so as to offer the customers affordable prices but still maintain the quality. Finally, the company should offer products that have no close substitute. The paper concludes by affirming that Nestle faces huge competition from the emerging companies, hence the need to continually disrupts its mode of operation to remain relevant.

Introduction

The food and beverages industry is currently competitive, which places the huge companies such as Nestle to align its operations with the demand of the market. The company is able to understand the prevailing markets well, by conducting both internal and external analysis, that helps in identifying opportunities and areas of improvement. Having a clear understanding of the competitive market assists in coming up with appropriate marketing strategies. Furthermore, strategic marketing focuses on four sets of optimal explananda and Tafesse (2014, p.1009) delineates the important questions of paramount importance in the market. They are: how do different companies behave? how do the policy processes affect the policy outcome? what explains the international success of a company? and how do the companies outfit the competitors? The four questions serve as the lead, in helping the marketing team to come up with an appropriate way of marketing the products. This report will conduct an analysis of NESTLE to identify its position in the market it competes in and other external factors that affect its operations.

Background of NESTLE

The history of Nestle is dated back in the year 1866 and operated in a competitive market with its rival Anglo-Swiss. By the time, Anglo-Swiss was supplying condensed milk products in the market, while NESTLE had invested in ‘Farine Lactee’, that was regarded as milk-based infant product, which was formulated for the children alone. Later after twenty years, the two companies merged to establish a new market in the United State, which contributed to their proliferated growth. By this time, NESTLE owned branches in Australia, Europe, the U.S, and a warehouse in Singapore. When the World War I began, there was a sudden rise in demand for condensed milk but the supplies plummeted. Due to this, Nestle chose to focus on the markets of Australia and the U.S, where the shift prompted the double fold increases in production and sales. This was the genesis of the growth of the company, that has commanded in both local and international markets, for its quality and curated products.

Soon after 1938, the company introduced a new product in the Market-Nescafe, which was an instant coffee. The company responded to the plea of the government, to find a solution on how to deal with the mass production of coffee in Brazil at that time. The new product opened more avenues for revenue collection and the company progressed introducing other products in its chain of supply among them including pharmaceutical products, cosmetics, foods and drinks. Currently, Nestle is the largest food and drinks company with premises in 194 states and producing virtually anything, ranging from dog food to cream for facial applications. According to the Nestle report for the full-year result of 2018, the company registered an increase of sales by 2.1%, totaling to CHF 91.4 billion an increase from CHF 89.6 billion which was registered in the year 2017(Nestle Report,2018). In the same vein, the company has a base of 308,000 employees across all the areas it operates in, which has guaranteed their success in the international markets.

Mission of Nestle

Nestle is focused on providing healthy and high-quality food, to all people at any particular time. Their mission 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.

Vision

To be the best nutrition, health and wellness enterprise offering services that make us preferred employer and supplier, whose products are meant to improve the lives of the consumers.

Industry Analysis of Nestle

Nestle has positioned its operations in the global arena and attracts a considerable amount of competitors in the industry of food and drinks (Nestle 2018, n.d). As time progresses, so are the companies in the same industry coming up with strategies to counter the force Nestle has impacted on them. As one of the oldest in this industry, the startups find it hard to equal the measures and the skills that the management of this company has amassed over time, and the advantage of Nestle is that it has sunk in the minds of the customers (Kose 2007, p.83). It is a brand that has established the market niche, and the marketing strategies they employ are by far modern. For example, the company has a workable ERP system, that consolidates the market data, and allows all stakeholders- suppliers, customers and employees, to review the information in a common place (Payaud 2013, p.63). This way, the marketing department has managed to extract the views of the customers from the website, hence design the marketing strategies based on facts and solid data.

One of the companies that have offered Nestle a competitive journey is Mondelez, which is a snack producing company with an estimated return of $30 billion (Payaud 2013, p.58). The other one is Mars, a topmost producer of confectionary products among others. According to Kose (2007, p.75), the future of the food industry is expected to grow, due to the surging population. The current world population stands at 7.7 billion people, and all these rely on the food industry, to meet the basic need of food (UN 2018).  According to the United Nations, the population will continue to grow linearly, and so the demand for food. Also, the perception and the demands of the consumers will change based on the modern lifestyle, hence it is prerequisite of the players in this market to continually disrupt their systems to capture the essentials of the modern buyer. The graph below shows the trend of world population projections, which gives the trend of the food industry(UN,2018)

The external factors have an enormous impact on the performance of any company. Nestle, having a presence in different states, experiences a lot of distractions from the policies of the native states and also the prevailing changes in the economic seasons. The following models will help to show the strength of Nestle, in its pursuit to command the international markets.

SWOT Analysis

Strengths The company possess unmatched research and the capacity for development, contributed to by the huge revenue that it collected from the different states.The company offers an unrivalled brand that has a huge presence globally.The company engages in environmental sustainability effortsNestle owns a wide range of brands in the world, which gives it a winning strategy as opposed to other competitors in the same market. Weaknesses Contaminated food recalls which lowers the return.Being the largest food company in the world, it faces a lot of criticism in regards to its policies, and there is no exception to this. Among them is unethical marketing of baby products among others(Nestle 2017,n,d).
Opportunities Clear and accurate labelling to attract customers and avoid selling the default products. Enhancing transparency in the sourcing of the products. Customers are currently more focused on establishing how the products they consume were grown, as the issues of health become paramount in modern society.A growing number of food startups that are introducing new ways of growing and retailing foods and drinks. Nestle should invest in such companies to help in meeting the future demand for food in the world.There is growing ready to drink coffee and tea market. According to Nestle(2017,n.d)), for the past three years, the ready to drink tea market grew by 37%, where Nestle can tap into to increase its growth rate. Threats Increased competition in the industry, which forces the company to continue restructuring its marketing models, which is an expensive venture (Nestle 2017). Also the increasing number of local and international players in the foods and beverage industry makes it hard for Nestle to differentiate its products.Increasing prices of commodities will heighten the prices offered to the consumers thus resulting to lowered sales and probably brand switching.Buyers power. With the diversified consumer goods market where there is a plethora of brands, consumers are at liberty of choosing what they want. It is difficult to stick to one brand, which exposes Nestle to possibility of losing customers to rivals.        

The SWOT analysis conducted above illustrates both the internal and external factors of consideration that makes Nestle be where it is. Also, it gives the projection of the possible threats and new areas that have not been explored, thus giving a clear position of the company in the food and beverage industry.

PESTLE Analysis

One of the factors that affect the operations of Nestle is political dynamics. Being an international company, it has to continually restructure to fit in the demand and regulations of every country, which sometimes is costly (Nestle 2017, n.p). Different countries have varying rules of taxation, import, excise duty among others, which the company should be aware of, and continually adhere to them. Furthermore, the company should have considered the risks associated with supplying unhygienic products, hence the need for sticking to the quality of products supplied to their stores. Also, political instability in some countries affects the operations of the company, as chaos and uncertainty disturb economic performance negatively.

Economic factors on the other hand affect the extent the company can expand (Cavusgil et.al 2014). Different countries record varying strength of economic growth, hence Nestle has to set economic policies based on the state they wish to establish the base in. They have to study aspects such as the inflation rate and the buying power of the consumers. Such, a continuous analysis report has to be generated by the management to help in designing workable strategies.

Furthermore, the social factor determines how well the company relationship with the customers. Nestle has managed to understand the needs of the people- living a healthy life, thus capitalizing on this to do business (Kemp 2013, p.110). The priority of this company is to make sure that the buyers can access healthy foods and drinks, that improves their health. Therefore, the company pegs its operation on the values, which has made it grow significantly. In the same vein, Nestle is using the state of art technology in the production of various products that are of high quality. Similarly, they leverage on the use of internet and e-commerce to market the products. However, this is one of the areas that the company has to continue improving, due to the rapid changes that are happening in the field of information technology (Burns 2014).

Furthermore, the legal factors of Nestle involve the legal environment that influences its operations to meet the demand and reduce the cost of production (Khayat 2015, n.p). Nestle has to observe to the health and safety policies for employees while at the same time selling hygienic products to the customers. These have to be duplicated in other countries where they operate. Finally, Nestle has been taking into consideration the aspect of the environment, by engaging in activities that do not pollute the environment. This is also supported by their adherence to the environmental laws of different countries.

Porters Five Forces Model

The threat of substitute: According to Arshed and Pancholi (2016) consumers are willing to pay any prices if there is no substitute for the products they wish to buy. The lack of close substitutes means that the buyers are insensitive of the prices, and they can pay any amount. The extent to which the alternatives are available depresses the prices. For the case of Nestle, it faces a lot of threats from the homemade food products that are retailed at way low prices. Also, the notion that the baby milk formulation sold by Nestle is not healthy has made the health conscious people seek other alternatives.

Supplier’s bargaining power: In this case, the buyer is the company, and the seller is the producer. Nestle is an international brand, and its command overrides and subdues others in the same line of operation (Nguyen 2017, n.d). They can buy the products at lower prices form the producers, which significantly increases their revenue. For example, one of the oldest suppliers to Nestle is Musim Mas, who supplies palm oil, who have low bargaining power. Hence Nestle can control the price.

Buyer’s Bargaining power: The bargaining power of the customer is determined by factors such as the ease of switching, cost and the information regarding the available substitute (Khayat 2015, n.p). Nestlé’s customers have high bargaining power because the cost of bargaining is low, and they can seek similar products from brands such as PepsiCo, Coca-Cola and others. Failing to consider their feedback can result in a mass exodus, which would affect the profitability of the company negatively.

Barriers to Entry: The optimal barriers to enter the market includes product differentiation, government and legal requirements, capital requirements, economies of scale and others (Kemp 2013, p.112). For Nestle, they face a huge challenge to enter new markets due to the lack of product differentiation. They offer products that can be accessed on other companies such as PepsiCo, hence making it difficult to win new customers.

Competitive Rivalry: The competition in the foods and drinks industry is wide, which exposes Nestle to such rivalry (Johnson et al. 2013). This forces the company to innovate new ways of marketing, and manufacturing products that are of high quality and meets the modern customer’s demands. Nestle being an international brand benefits from the loyalty of the customers.

The three models are useful in identifying the position of Nestle in the market. Porters Five Forces models show where power lies, in an environment that is competitive. It explains both the external elements that impact the growth of the company. This model has an advantage of shedding light to the management, on where to capitalize on. However, it fails to give workable strategies that can be adopted to override the competition. On the other hand, PESTLE explains the macro-environment factors affecting an organization. This model is not appropriate in determining the competitive edge of the company, as it primarily indicates how the company has performed in the said elements (Kotler and Keller 2014). It is appropriate in helping the management to know which rules and policies to adhere to in regards to the new environment. In the same vein, a SWOT analysis helps to determine the internal strength of the company that would foster its growth. The models show that Nestlé’s dinstitivenes and attractiveness lies in its brand recognition.

Recommendation

  • Nestle should look for alternatives to differentiate its products in the market, so as to beat the rivals. With the increasing number of companies dealing with food and beverages, Nestle stands at a position where it can be subdued by the emerging enterprises, that come with modern strategies of marketing their products. To sustain its command, the company should re-work on its products, for example by rebranding or adding an extra ingredient to attract the modern customers.
  • The company should seek alternatives of sourcing their product at a cheaper price, so as to offer the customers affordable prices but still maintaining the quality. The new entrants in the food and beverage industry are providing those products at lower prices than Nestle. In order to retain the customers and attract new ones, Nestle can lower the production cost, which would be translated to low prices of products.
  • To curb the buyers’ power, Nestle should be in a position to provide products or services that have no substitute. Product differentiation would work better in this case. This can be achieved through accurate and clear labelling, which is a show of quality thus attracting many customers.

Conclusion

Nestle has a long lasting brand image, that is widely spread in different states. Due to its recognizable face in the global market, the company has continued to grow over the years, thus increasing the revenue collected per given period. However, the company is facing proliferated challenge from other companies in the same line of operation such as PepsiCo, Coca-Cola, among others, which has necessitated the management to continually change the operation strategies. The global food and beverages industry is growing. Hence the new startups come with new ways of producing foods, thus making Nestle remain alert of such changes to remain relevant. The three models (SWOT, PESTLE and Porters Five Forces Model) indicated that the company is facing stiff competition, and its brand loyalty keeps it on top of others.

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