Nestle's Brand Management StrategiesL

"Nestle is a brand in its own right. For consumers, relevance of Nestle as a companycomes first of all through contact with products that are branded Nestle. Ifwe want tobe perceived as the world's leading Food Company, we have to offtr consumers anincreasing amount of products that they can identify as Nestle ·s."

- Peter Brabeck Letmathe, CEO, Nestlel•

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In mid-1988, Nestle SA (Nestle), the world's largest consumer packaged foodscompany based in Switzerland, acquired Rowntree Mackintosh PLC (Rowntree), inthe largest ever acquisition deal of a British company during that time. Rowntree wasthe world's fourth largest manufacturer of chocolates and confectionery products, withwell-known brands like Kit Kat, After Eight, Smarties and Rolo.The deal attracted considerable attention allover the world since several bids2 toacquire Rowntree were rejected. Rowntree claimed that the bids were too low for itsvaluable, well-recognized brands. In the end, Rowntree was acquired by Nestle for£2.5 billion, two and a halftimes the pre-bid price and eight times the net asset valueof the company. This acquisition made Nestle the largest chocolate manufacturer inthe world.

Analysts felt that Nestle had paid £2.5 billion because of Rowntree's brands, not itspast financial performance. Industry observers wondered how Nestle would manageRowntree's brands. Rowntree followed a "one product, one brand" policy. The brandswere simply Kit Kat, After Eight, Smarties and Rolo, Rowntree was never mentioned.Moreover, Rowntree's brands were not strongly managed European brands. In fact,according to an analyse, Kit Kat was one of the worst cases of an over-localized brandof a company across Europe.

ill an interview with The McKinsey Quarterly in 1996.Nestle and Jacobs Suchard, which had already acquired 15% of Rowntree's stores, were themajor players in the tussle to acquire Rowntree,

3 According to Chris Macrae, author of Brand Chartering, published in 1995,

In the mid-1860s, Henri Nestle (Henri), a merchant, chemist, and innovatorexperimented with various combinations of cow's milk, wheat flour and sugar. Theresulting product was meant to be a source of infant nutrition for mothers who wereunable to breast-feed their children. In 1867, his formula saved the life of aprelDaturely born infant. Later that year, production of the formula, named FarineLactee Nestle, began in Vevey, and the Nestle Company was formed.

Henri wanted to develop his own brands and decided to avoid the easier route ofbecoming a private label. He also wanted to make his company a global company.Within a few months of establishing his company, Henri began to sell his products inmany European countries. In the initial years, Henri restructured the organization tofacilitate research, improve product quality, and develop new products.

In 1875, Daniel Peter, Henri's friend and neighbor, developed milk chocolate. Hesoon became the world's leading chocolate maker. Later, his company was acquiredby Nestle. In 1905, Nestle merged with Anglo-Swiss Condensed Milk Company, amanufacturer of milk-based infant food. During World War I, there was a huge

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Brand 'Management

demand for dairy products and Nestle capitalized on this opportunity by executingmilitary contracts of various countries involved in the war. In 1938, after eight yearsof research, Nestle discovered a soluble powder that revolutionized coffee drinkingaround the world. The product was launched under the brand name Nescafe andbecame an instant success. The end of the World War II marked the beginning of anew phase of growth for Nestle. The company added many new products.

In its effort to expand its operations further, Nestle merged or acquired severalcompanies. In 1947, Nestle expanded into culinary products by merging withAlimentana, a Swiss company that produced and sold Maggi soups, spices and otherfood products in many countries. In 1950, Nestle acquired Crosse & Blackwell, aBritish manufacturer of preserves and canned foods. This was followed by theacquisition of Findus, a Swedish company producing frozen foods (1963), Vittel, aFrench mineral water company (1969), Libby's, a British fmits, vegetables and meatcompany (1971), Ursina Franck, a Swiss company producing milk products, babyfood and culinary products (1971), Stouffer's, a US frozen foods company (1973), andL'Oreal, a leading French cosmetics manufacturer (1974). All these acquisitions(Refer Exhibit II for other acquisitions by Nestle) led to substantial synergies inNestle's production, distribution and sales.

In the mid-1970s, Nestle's financial position deteriorated. Oil prices rose, growth inindustrialized nations slowed down; the US dollar, the pound, the deutsche mark andthe French franc declined in value as compared to the Swiss franc; and the pri<;eofcoffee beans and cocoa shot up. Between 1980 and 1984, Nestle divested a number ofnon-strategic or unprofitable businesses, amounting to nearly SFr 8 billion. Thedivestments included certain food products that were not coherent with Nestle'semphasis on high value added segments. In 1988, Nestle acquired Buitoni-Pemgina,Italy's third-largest food company.

The first half of the 1990s was favorable for Nestle as several countries dismantledtheir trade barriers. The opening of Central and Eastern Europe and China and ageneral trend towards the liberalization of foreign investment regulations were strongpositive indicators for Nestle. In 1997, Nestle strengthened its position in the mineralwater business by acquiring the Italian San Pellegrino group. Through this acquisition,the company acquired three internationally well-known mineral water brands: SanPellegrino, Levissima and Panna.

By the late 1990s, Nestle had emerged as the world's largest consumer packaged foodcompany The company was the world leader in various product categories like coffee,mineral water, beverages and chocolates. It had manufacturing facilities in 522locations spread over 81 countries, and sold its products in more than 100 countries.In the financial year 1998-99, the Nestle group's total workforce was 231, 881. In thesame year, Nestle recorded revenues of SFr 71.7 billion (US $51.99 billion) and a netprofit of SFr 4.29 billion (US $3.11 billion). Nestle had a market capitalization of SFr117.3 billion (US $85 billion) in 1998 and ranked 36 in the Global Fortune 500 list

Nestle was able to successfully expand globally because its products like instantcoffee, chocolates and· frozen foods appealed to consumers all over the world.Moreover, high R&D and marketing costs also forced Nestle to offer products with aglobal appeal so as to recover its high investments.

NESTLE'S BRANDING STRATEGY

The Nestle brand itself had played a key role in the company's globalization efforts.In 1996, about 40% of the total revenues were generated from products covered by theNestle corporate brand. Nestle's logo was an important part of the company'scorporate identity. The 'nest' was a graphic translation of Henri Nestle's name, which

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meant "little nest." The logo attempted to convey security, maternity and affection.The symbol, a central element in Nestle's corporate identity, also projected Nestle's~story, quality and tradition.During the mid 1990s, Nestle's brand portfolio (Refer Exhibit I) consisted of tenworldwide corporate strategic brands, 45 strategic worldwide product brands, 140regional strategic brands, 700 local strategic brands and more than 6,700 local brands.Some of the leading worldwide corporate brands included Buitoni, Carnation,Friskies, Maggi, Perrier, Nescafe, and Nestle. The company's worldwide strategicbrands included After Eight, Baci, Cerelac, Coffee-Mate, Crunch, Kit Kat, MightyDog, Polo and Smarties. The regional strategic brands included Alpo, Contadina,Findus4, Herta, Mackintosh, Perugina, Stouffer's and Vittel. Some of Nestle's localstrategic brands were Brigadeiro, Rocky, Solis and Texicana.

Each of Nestle's worldwide corporate strategic brands was managed by a seniorexecutive, called 'brand champion,' based at Nestle's headquarters in Vevey. Thebrand champion, who also had other roles such as VP Nutrition, acted as a brandadvocate and had full authority and responsibility of the corporate strategic brandhe/she handled. Nestle consolidated all its resources behind its worldwide corporatestrategic brands. Typically, each product brand was supported by one of its corporatebrands. For example, Nestle was a corporate brand while Milo was a product brand.Milo was supported by Nestle, hence the name 'Nestle Milo.' The selection of theproducts that were clubbed under the Nestle brand depended on the way theseproducts enhanced the Nestle image and not on what Nestle brought to these products.

The worldwide strategic product brands were the responsibility of the generalmanagement at the strategic business units (SBUs). They established a framework foreach brand including a planning policy document, labeling standards, brandpositioning, communications methodology, and packaging. Each worldwide productbrand was managed by the concerned SBU. For example, Polo was managed by thechocolate and confectionery SBU. The regional brands were the responsibility of theSBUs and the regional management. Apart from this, Nestle had local strategic brandsthat were important to particular countries. These were managed by the local marketsand only monitored by the SBUs. Nestle's management was only involved inestablishing their positioning and a minimu~ labeling standard. There were also manylocal brands in which Nestle's management did not intervene at all.

Brands varied in the amount of independence they had from the corporate brand. Forexample, Maggi, a product brand, was not supported by the Nestle corporate brand.Those products that did not carry the Nestle brand, carried a 'Nestle Seal ofGuarantee' with a short note like, "All Maggi products benefit from Nestle'sexperience in producing quality foods allover the world." Nestle attempted to strike abalance between making consumers aware of the Nestle brand and preserving thedistinct identity of its other strategic corporate brands. Lethmathe explained, "Wherewe have a relevant core competence combined with a specific brand territory, as wedo with Maggi and Buitoni for example, it is better to keep a separate brand identity.We do not combine Nestle/Buitoni, because Buitoni is more than a product: itrepresents the authentic Italian lifestyle. Nor do we have Nestle/Maggi. Maggi offerslocal recipes to suit local tastes, even though it belongs to a multinational."s

However, there were a few exceptions to Nestle's branding strategy. The Nestle sealof guarantee was not used on products consumed by animals for many reasons,including cultural ones. Nestle also decided not to put its seal of guarantee on mineralwater since the company felt that people buying water were concerned with the purity

4 The brand was later divested by Nestle's in February 1999.S In an interview with The McKinsey Quarterly in 1996.

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of the source, not the seal of the manufacturer. In this case, Nestle established aspecial institute, Perrier-Vittel, to guarantee the quality of the mineral water.

Nestle developed a comprehensive brand positioning and communication system tocommunicate its long-term vision of a brand's personality. In addition, Nestleproduced positioning documents for its worldwide brands and key regional brands.These were compiled by the SBUs in conjunction with the marketing andcommunications staff from the markets, and were approved by the generalmanagement. Nestle established minimwn labeling standards to protect its brands. Alllocal markets were expected to follow these standards. Nestle also constantlyreviewed its brand communication strategy. The company made efforts to establish alink between its corporate communication theme, which was "good food, good life,throughout your life," and its product advertising.

Establishing a balance between global and local brand identities and creating aninterface between tactical and strategic decision-making during the branding processwas a challenging process for Nestle. The company's visual communications expertswere entrusted with two major tasks. They had to arbitrate between Nestle's strategicbrand requirements and ideas on brand identities related to marketing initiativesrecommended by national subsidiaries. They also had' to ensure that Nestle'sworldwide corporate strategic brands were communicated in a consistent mannerthroughout the world, projecting the image of a global consumer packaged foodcompany and yet flexible enough to connect up with every sub-branding presentation.Each corporate strategic brand had its own "territory" into which the local brand wasclubbed. Nestle gave its local managers considerable autonomy. By decentralizingbrand management to a certain extent it kept close to its billions of consumers.

INTERNATIONALIZING THE 'KIT KAT' BRAND

When Nestle acquired Rowntree's brands in 1988, the major challenge before thecompany was managing them. Rowntree had a "one product, one brand" policy. Thebrands Kit Kat, After Eights, Smarties and Rolo were marketed with no mention ofRowntree. Rowntree's brands were not strongly managed European brands.

Before the 1980s, 'country managers' outside the UK in several European countriesmanaged Rowntree's business. They were free to run their units provided businessobjectives were met. The orientation at Rowntree was short-term just to meet annualbusiness objectives and country managers added nothing to the overall organizationEven though Kit Kat was a leading brand in UK, it was ignored outside the country.

In the early 1980s, Rowntree established Rowntree Continental Europe, whichhandled business responsibilities outside the UK in Europe. However, this did notbenefit Kit Kat, which was launched in Europe by Rowntree Continental Europe as amulti-local brand. Rowntree's local market research suggested that almost everyaspect of Kit Kat's UK brand mix needed customization. Almost every countrymanager created hislher own brand design of Kit Kat. The name reminded someEuropeans of a cat food brand. The chocolate pack's red and white color wasunfamiliar to Europeans and did not appeal to them. It was reported that Kit Kat's UKadvertising slogan, "have a break, have a Kit Kat," meant nothing to Europeans,because .only the British had institutionalized the tea or coffee break at workMoreover, analysts felt that Rowntree never appreciated that a product-oriented sloganlike "have a break, have a Kit Kat" could appeal to global consumers.

In the early 1990s, Nestle faced the challenge of turning Kit Kat, a multi-local brandinto a European brand. The company decided to support Kit Kat with Nestle, one ofits corporate strategic brands. Hence, Kit Kat became Nestle Kit Kat. An analyst6

6 According to Chris Macrae, author of Brand Chartering, published in 1995.

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commented: "Increasingly, more and more branding effort is being put into whatNestle stands for. Kit Kat is re-badged now with Nestle's name and logo veryprominently alongside Kit Kat The idea is that both brands can contribute to eachother. So Kit Kat's leading position in the UK and strong consumer loyalty can rub offon Nestle, and meanwhile Nestle can now launch Kit Kat in other parts of Europewhere Kit Kat isn't known but Nestle is."

However, some analysts argued that before Nestle's double-branding strategy couldwork, it had to converge the various brand designs of Kit Kat; converge localmanagers' views regarding the essential meaning of Kit Kat; and re-organize ways ofworking so that national marketing and international branding could work together.

Nestle's management felt that since Kit Kat was essentially the same product in thesame packaging allover Europe, giving local country managers full freedom tomanage the brand was not appropriate. They felt that if a brand had been a leader in ahighly competitive market like the UK matket for many decades, it was likely tocomprise some strategic elements, which should be non-negotiable in anyinternational translation of the brand. Nestle drew up a four-pronged strategy totransform Kit Kat from a multi-local to an European brand. As part of this strategy:

• All country managers in Europe were directed to work together.

• A leading ad agency was appointed to fqcus on the core meaning of the Kit Katbrand.

• Market researchers were taught to put global interpretation before localaccentuation.

• Product mix elements and production were progressively harmonized.

Nestle decided to retain the advertising slogan, "have a break, have a Kit Kat" Thecompany felt that this slogan was essential to the brand, and used it in all itsadvertising campaigns in Europe. Nestle felt that this message did not have to beassociated only with coffee breaks. Continental Europeans could, for example, take abreak by having Kit Kat even when they were stuck in traffic. Thus, Nestle'sEuropean managers worked in a collaborative manner to converge Kit Kat's multi­local branding back to a singular European one on all strategic elements of the brand

Drawing from the Kit Kat eXperience, Nestle's CEO commented on the future ofconfectionery brands in Europe: "The future will be in the hands of the mega brandswhose manufacturers have understood and managed the 'virtuous circle' of worldclass quality and value."

Nestle's attempt to internationalize the Kit Kat brand paid handsome dividends. Bythe mid-1990s, Kit Kat's sales in continental Europe had more than doubled sinceNestle's acquisition. Moreover, Kit Kat soon became Nestle's flagship brand in theconfectionery segment. The "Kit Kat from Nestle" link had become strong enough foreach brand to add to the other's reputation.

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~IVESTING NON-STRATEGIC BRANDS[ The success of the Kit Kat brand inspired Nestle to think and act 'glocally' i.e.t establishing global as well as local brand identity. Nestle had taken a similar approachI to several other acquired sub-brands. Moreover, Nestle introduced the Kit Kat brand! in several other countries across the globe.t Nestle's brand management strategy included the divestment of non-strategic brands.~ In February 1999, Nestle negotiated the sale of its Findus brand of frozen food to EQTI Scandinavia BV. The divested business had annual sales of SFr. 1 billion. Investors

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Brand Management

welcomed this move and Nestle shares went up by 3.2% to reach SFr 2764. FrancoisPerroud, a company spokesperson, explained, "The strategy is to shift the company'sfocus away from smaller, low-margin frozen vegetables and fish lines to high-value­added sectors, including pizza, prepared dishes and snacks. We are not getting out ofthe frozen-food business but shifting to high growth areas."

According to analysts, the divestritent of Findus was expected since the brand was notperforming well. In an interview ill; 1996, Lethmathe had made the followingobservation about the Findus brand's performance, "Findus was a worldwide strategicbrand for frozen food for thirty years. It has been redefined as a regional strategicbrand. The market had moved so far that in the emerging markets, and where Findushad no presence, we could launch our frozen food products under the prevailingculinary brand! If one day we take frozen food into Eastern Europe, I'm sure we willuse Maggi, not Findus. In Germany, Maggi isa powerhouse. When we launched

under Ma~, we got a unanimous reaction from the trade that finally we understoodbranding." Complementing Nestle's brand management skills, Doriana Russo, ananalyst, commented, "This move confirms that Nestle management is getting moreaggressive about profitability."

Questions for Discussion

1. Critically analyze Nestle's branding strategies. The company successfullymanaged a large portfolio of brands across the globe. Why do you think it was sosuccessful?

2. Discuss the rationale for Nestle's double branding strategy. What problems didthe company face when applying the same strategy to Kit Kat?

3. Explain how Nestle successfully turned Kit Kat from a multi-local brand to aglobal brand. Why did the company decided to retain the advertising slogan,"have a break, have a Kit Kat?"

© ICFAI Center for Management Researr:h. All rights reserved.

7 In an interview with The McKinsey Quarterly in 1996.

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Exhibit I

'e: www.nestle.com. 2002

'e:By 2002, Nestle had more than 8,500 brands across the globe.

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Exhibit II

Nestle's Major Mergers and Acquisitions

Source: www.nestle.com

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Nestle's Brand Man~gement Strategies

Exhibit III

Nestle's Financial Information