nestle – addressing non market constraints in india

Nestle – Addressing Non-market Constraints in India

An integrated approach to non-market issues

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Bhaskar Jayaraman

Agenda

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Case & Issue Introduction • Introduction • Nestle’s country focus – India • Beverage Industry & Water Use – Recent Industry Impact • Industry related issue – Coca-Cola

Issue analysis • Competition’s response to issue & strategy • Unilever’s Integrated Strategy • Response Outcome

• Non-Market approach • Emerging Trend • Evolving Issue & Impact - New Ground Water Regulation • Evolving Issue’s Relevance to Nestle

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Issue Analysis Non-Market approach Case & Issue Introduction

Introduction • Nestle

– Major US food & beverage co. with global footprint

– Turnover 2010 – $ 75 Billion

– Food Categories

• Liquid

– Hot drinks, alcoholic beverages, soft drinks, dairy, sauces

• Solid/Semi-solid

– Baked goods, cereals, confectionery, snacks, soups and prepared meals

– Sales distribution

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Americas, 40%

EMEA, 37%

Asia, 23%

Issue Analysis Non-Market Approach Case & Issue Introduction

Nestle’s country focus – India • Parameters of business growth (Industry Anal. – Appendix I)

– Emerging economy

– High GDP growth, wealth creation, labor force growth

– Demand for better products/services

– Large population with significant youth numbers

– Retail market • 2011 size - $ 450 Billion

• Expected 2021 size - $ 1000 Billion

• India specific Non-market issue sources – Labor

– Regulation

– Environmental

– Resource depletion

• India specific non-market issue focus – Industry Water Use (Ground water only source)

– Affected people (Near manufacturing area)

– Interest group backlash (Mostly affected people)

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Milk, Coffee,

Tea, Water 95%

Soft drinks

5% Indian Beverage Market

Split


Beverage Industry & Water Use – Recent Industry Impact

Issue – Industry water use

Regulatory Body Pressure

Old regulation

• Ambiguous

New Regulation

• Developing

Information

Industry information impact

• Water/Soil pollution

• Image, Brand, Reputation

New Information Impact

• Ground water depletion discovery

Interest groups

Activist Pressure

• Farmers/Home Owners/NGO

• Consumers

Other Industries

• Competitive pressure

Institutions

Activist Pressure

• Political

Judicial Pressure

• Ambiguous interpretation

• Penalties

Media Pressure

• Reputational loss

3/29/2014 6 Issue Analysis Non-Market Approach Case & Issue Introduction

Industry related issue – Coca-Cola Overuse of Water

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Issue’s -ve Impact on Firm

Issue Identification

Interest group formation

Legislation Administration Enforcement

2002 – Incidents of ground water depletion

2002 – 2005 Farmer/NGO activism www.globalresearch.ca www.indiaresource.org infochangeindia.org

2005 – Political Activism

2005 – 2011 Plant shutdowns

2011 Judiciary - Penalty/Compensation

Issue Life Cycle

Decreasing Discretion


http://www.globalresearch.ca/

http://www.indiaresource.org/

http://infochangeindia.org/

Coca-Cola Issue origination

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Interest group – Public

Interest group – Corporate

Institutional action – Pvt.

Institutional action – Public

New Understanding

Market forces

Scientific (discovery/advances/uncertainty)

Moral concerns

Farmer protests

Negative media coverage

Administration & Judiciary

Issue Analysis Non-Market Approach


Case & Issue Introduction

Issue impact – Coca-Cola (2002 - 2011)

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Legislation Administration Judiciary Media Buyers

Increased exit barriers (M)

Reputation loss

Less bargaining power (M)

Penalties & Compensation

Plant shutdowns

Issue Analysis Non-Market Approach


Farmers/Home Owners Coca-Cola

Water share

(M) – Market Impact

Case & Issue Introduction

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Issue response – Overuse of Water

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Respond only when compelled to act

Damage control once challenged

Anticipatory, prepared, tackle before problem arises

Proactive, affect what issues arise & how they’re framed

Coca-Cola

Unilever, Pepsi, SABMiller

Increasing Discretion



Response Strategy

Address the Issue

What?

• Industry Water Use Backlash

Where?

• Semi-urban/rural area

Why?

• Land/Water availability

• Low population density

Address Information Availability

What?

• Inform

• Create Awareness

• Increase transparency

Whom?

• NGO/Activists

• Institutions

• Consumers

How?

• Web, Social media etc.

• Events

Address Interest groups

What?

• Educate/Engage

• Gain trust, influence

Whom?

• Farmers

• Consumers

• Other Businesses

• Consumers

• Activists/NGOs

• Trade Assn.

How?

• Partner

• Sponsor

Address the Institutions

What?

• Influence/Engage

• Gain support, approval

• Build relations

Whom?

• Administrative

• International

• Political

• Media

How?

• Events

• Sponsorships

• Awards


Competitive Response to Issue – Examples

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Pepsi, SABMiller (Appendix - II)

Unilever (Global Approach) Sustainable Tea Farming

Institutions & Interest Groups Rainforest Alliance Certified™ (Association)

Farmers

McDonalds (Corp.)

NatGeo (Media)

Department for International Development (U.K. Gov.)

India Water Body Initiative Assess water demand-supply gap

Rainwater harvesting at Co. and Farms

Reduce on site water use

Institutions & Interest Groups DHAN (Advocacy group)

NABARD (Gov.)


Unilever’s Integrated Strategy – Industrial Water Use

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Pepsi

McDonalds

Activists, Consumers,

Media

Market

NGO Non-Market

Strategy

Market Strategy

Inform, Educate

Non-Mkt. Alliance

Develop marketing capability

Engage, Collaborate

Farmers

Engage, Support

Administration

Build Relations

Supply

Market to

Retailers

Influence consumer

choice


Response Outcome

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Farmers/Home Owners

Industries

Consumer Administration Partners & Collaborators

Consumer, Media

Buyers


Issue’s +ve Impact on Firm

Increased Preference (M)

Reputation improved /preserved

Reduced Regulatory pressure

More tie-ups

More bargaining power (M)

Farmers/Home Owners

Water share


Emerging Trend – Address issue early

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Issue Identification

Interest group formation

Legislation Administration Enforcement

Issue Life Cycle

Address Issue Here




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Evolving Issue & Impact - New Ground Water Regulation

Evolving Issue

What?

• Industry ground water usage

Where?

• Regional level

Guardians

• State Government

• Administration

Impact Cause

Why?

• New regulations

• Ambiguous clauses

Whom?

• Industries

• Existing users

• New users

Related to

• Water quality

• Water quantity

• Competitive landscape

• Nature (falling table etc.)

• Industry profile

Impact

Company effects

• Risk to availability

• Cost

• Scalability

• Profitability

Consumer effects

• Global brand image

• Product availability

• Price point

• Global reputation

• Preference

Industry effects

• New co. affected more

• Existing co. less

• Increased rivalry, exit barriers, & capital requirements


Evolving Issue Relevance to Nestle

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Impact relevance

Consumer Competitors Legislation Administration Judiciary Media Buyers & Suppliers

Partners & Collaborators

High

Switching consumer preference (M)

Mkt. share loss , New entrants, Substitutes (M)

Bargaining power loss (M)

Reputation loss

Plant shutdowns Loss of non-

market allies

Penalties & Compensation

Inc. exit barriers (M)



Addressing the Evolving Issue – Water Usage & Regulation

Relevant impact regions & response history

•Regions of issue and business relevance

•Competitive, institutional & interest group action

•Executed by – Political Science B.A., Policy & Institutions expertise (Allotted time, 3 weeks)

Consumer trends & business impact

•Consumer & media trends vs. regions vs. product mix

•Consumer, NGO, institutional, & interest group activity

• Identifying the right message

•Strategy to address trends and information channels (Old/New media campaigns)

•Executed by – Psychology Ph.D. – Veteran, Consumers expertise (Allotted time, 3 weeks)

Relevant markets & competition

•Market analysis vs. product mix vs. issue

• Identify potential markets

•Competitive response, strategy, & threats in non-mkt. area

•Executed by – Business B.A. – Intern, Markets and Regions expertise (Allotted time, 3 weeks)

Identify collaborators & marketing potential

•Businesses, interest groups, institutions to partner (Differentiation, pool costs)

•Partnership strategy w.r.t. non-market goals

•Aligning strategy outcome with business goals (economies of scale/scope , marketing potential, bargaining power, competitive advantage etc.)

•Frame the integrated strategy

•Executed by – Bhaskar Jayaraman, Strategy expertise (Allotted time, 3 weeks)


Questions?

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A balanced water share

Beverage Industry Analysis – Appendix I

• Bargaining Power of Supplier (Medium)

– Main input product “Water” – No substitutes

– Beverage Industry Source (India) – Private or Co. real estate

– Large volumes required

– Important to product quality

– Industry important to supplier (Other consumers diff. sources)

– Local sourcing (Supplier concentration)

– Low input cost & switching cost

– Water Supply Constraints

• Natural – Unavailability, Scarcity

– Seasonal, Uneven

– Falling ground water table

• Man-made

– Competition (Other Industries)

– Pollution

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Beverage Industry Analysis contd… – Appendix I

• Bargaining power of buyer (High) – Retailers/Consumer switching costs low – Product differentiation high – Products low in importance to buyer usage (not essential to livelihood)

• Threat from substitutes (High) – Milk/Coffee/Tea usage already high vs. packaged drinks

• Threat from new entrants (Low) – High capital costs – Economies of scale – Product differentiation high – Access to distribution channels/resources – Cost advantages independent of scale (Brand value, reputation)

• Rivalry (High) – Few equally powerful players – Fixed costs high – Lack of switching costs (Retailer, consumer) – Capacity increased in large increments

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Competitive Response to Issue – Appendix – II

• Pepsi Co (Local Approach)

– Positive Water Balance Initiative

– Performance With Purpose

– Institutions & Interest Groups • Farmers

• Unilever (Corp.)

• SABMiller (Local Approach)

– Ground Water Management

– Community Water Management

– Institutions & Interest Groups

• CII (Trade assn.)

• ACWADAM (Advocacy group)

• Gridline Consultancy (Corp.)

• Humana People to People (Watchdog)

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Emerging trend – “Corporations fend for self” – Appendix III

Interest groups observed

Corporate initiatives

Activism

• Consumers

• Organizations

• Watchdogs

Political agenda

Interest group examples

“Coca-Cola …Depletion...”

• http://www.globalresearch.ca

• http://www.indiaresource.org

• http://infochangeindia.org

“AIDMK election campaign… drinking water supply” – Oct. 2011

“Human Elephant Conflict Inside Coffee Forests”

• http://www.ineedcoffee.com

Institutions observed

Policy making

• Mandatory water harvesting

• New Ground Water Regulation

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http://www.globalresearch.ca/

http://www.indiaresource.org/

http://infochangeindia.org/

http://www.ineedcoffee.com/

nestle – addressing non market constraints in india

Food

issue examples

issue impact cocacola

cocacola issue origination

firm case issue introduction

firm issue identification

market issues

issue life cycle

market constraints