nestle india

Strategic Management: Report I,II & IIIStudy of Food processing industry –

Nestle India Ltd.

Section C, Group 8Dasharadi Keerthi Krishna 13130

Karthick Prakash Balakrishnan 13139Lalthanzoa Sailo 13142

Mittul Kirtan Desai 13146Prateek Rahul Arya 13156

Siddhartha Singh 13165

Table of ContentsTitle Slide No

Report I 5

Food Processing Sector 6

Processed Food Market 12

Regulation and Control 14

Roles of Ministry of Food Processing Industry

17

Present Status and future prospects of food processing Industry

22

Main Products 30

Competitive Landscape 31

Success Factors 35

Background of Nestle 37

Product Categories 43

Sales 48Financial Performance 49Merger 50Acquisition 53Ventures 55Competitors 58Market Share 60Target Customers 61Where are we looking at? 62Report II 63Ratio Analysis 65Nestle Strategy 92What Nestle has done over the years 96Heinz Strategy 99

HUL Strategy 100

Top Ramen Strategies 103

Cadbury Strategies 105

Britannia Strategies 107

Kwality Dairy Strategies 108

SWOT Analysis 109

Growth 114

Report III 118

Porter’s Five Forces 119

Degree of Rivalry 120

Barriers to New Entry 122

Supplier Power 125

Buyer’s Power 126

Threat of Substitutes 127

Rivalry 128

Barrier’s to entry 134

Bargaining power of supplier’s 136

Bargaining power of customer’s 137

Analysis of Nestlé's strategies 138

Mergers and Acquisitions 146

Analysis of Competitor’s strategies 155

GlaxoSmithKline 156

Cadbury India 163

Britannia India 170

REPORT I

Food Processing Sector – An Introduction

• Food processing involves any type of value addition to the agricultural produce starting, the post harvest level.

• The processed food industry provides safe convenience foods to consumers, and promotes diversification and commercialisation of agriculture by providing effective linkages between the farmer and consumers in both domestic as well as international markets

Types of Processing

• Primary Processing: cleaning, grading, powdering and refining of agricultural produce, e.g., grinding wheat into flour.

• Secondary Processing: basic value addition, e.g., tomato-puree, ground coffee, cleaning and processing of meat products.

• Tertiary Processing: high value addition products like jams, sauces, biscuits and other bakery products that is ready for consumption at the point of sale.

Food Processing Sector in India• India ranks first, globally, in the production of milk and

pulses and second in the production of tea, fruits and vegetables.

• Despite being a major food producer, India's share in world food trade is less than 2 per cent.

• At present, just 6% of the food-items produced in the country India are processed in contrast to the developed nations where 60% to 80% of the food items are processed. While the sector grew at an impressive 14.7% in 2008-09 despite the global slowdown.

• In recent years, however, the market for branded processed food products has expanded. As per a study conducted by McKinsey and the Confederation of Indian Industry The total food market turnover is over Rs. 2,500 billion (US$ 69.billion). Of this, value-added food market comprises Rs. 800 billion (US$ 22.2 billion).

• Growing at about 14%, the processed food industry has started attracting increased investment to cater to both, the domestic and export demand. The food processing industry contributes around 10% to India’s manufacturing GDP and 13% of the country’s export.

• The industry employs over 16 million workers directly and has a wide scope covering activities such as agriculture, horticulture, plantation, animal husbandry and fisheries. It also includes other industries that use agriculture inputs for manufacturing of edible products.

• The country’s highest authority - The Prime Minister expects the National Food Processing Policy to the necessary boost to the sector.

• Packaging of food products has become important to ensure safety and hygiene.

• In India, most foods are consumed in the fresh form and a small quantity is processed for value addition.

Processed Food Market

• Packaged food products• Dairy, fruits and vegetables• Grains• Meat and poultry• Fisheries• Consumer foods including packaged foods,

beverages and packaged drinking water

Beverages

• Alcoholic Beverages– Beer– Wine– Spirits– Flavoured beverages

• Hot Drinks– Coffee– Tea– Other drinks

• Chocolate based

• Soft Drinks– Carbonated beverages– Fruit/vegetable juices– Bottled water– Functional Drinks– Ready-to-drink concentrates– Ready-to-drink teas

Regulation & Control•As per extant policy FDI up to 100% is permitted under the automatic route in the food infrastructure (Food Park, Cold Chain/warehousing).• In so far as food retail is concerned the FDI policy does not permit FDI into Retail sector except Single Brand Product Retailing. This policy is uniform for all retailingactivity.

Regulation & Control - continued• FDI policy for manufacture of items reserved for the SSI sector is uniform for all items so reserved and a separate dispensation for items in the food-processingsector is not contemplated.• The policy for distillation of alcohol has been announced vide Press Note 4 (2006) according to which FDI up to 100% is permitted on the automatic route fordistillation & brewing of alcohol subject to licensing by the appropriate authority.

Regulation & Control - continued

Policy Support•Formulation and implementation of policies for food processing industries within overall national priorities and objectives. •Facilitating the creation of a conducive policy environment for healthy growth of the food-processing sector. •Promoting rationalization of tariffs and duties relating to food processing sector.

Roles of Ministry Of Food Processing Industry

The strategic role and functions of the Ministry fall under three categories -

1) Policy support developmental & promotional2) Technical & advisory 3) Regulatory.

Roles of Ministry Of Food Processing Industry - continued

•It is concerned with the formulation & implementation of policies and plans for all the industries under its domain within the overall national priorities and objectives. Its main focus areas include -- development of infrastructure, technological up gradation, development of backward linkages, enforcement of quality standards and expanding domestic as well as export markets for processed food products.


•The Ministry acts as a catalyst and facilitator for attracting domestic & foreign investments towards developing large integrated processing capacities, by creating conducive policy environment, including rationalization of taxes & duties. It processes applications for foreign collaborations, Export Oriented Units (EOUs) etc. and assists/guides prospective entrepreneur in his endeavour.

Developmental•Assistance under various plan schemes. •Widening the R&D base in food processing by involvement of various R&D institutes and support to various R&D activities relating to development of product, process and packaging with special emphasis on traditional technologies. •Human resource development both for entrepreneurs as well as workers engaged in the food processing industry by up gradation of their skills.


Promotional Assistance for organization of workshops, seminars, exhibitions and fairs etc.Assistance for studies / surveys etc.Publications and films. RegulatoryImplementation of Fruit Products Order (FPO)

(Source: http://mofpi.nic.in/ContentPage.aspx?CategoryId=116)


•No industrial license is required for almost all of the food & agro processing industries except for some items• Items reserved for S.S.I. include pickles & chutneys, bread and confectionery• Up to a maximum of 24% foreign equity is allowed in SSI sector and Use of foreign brand names is now freely permitted.

Present Status and Future Prospects of Indian Food Processing Industries

•With an estimated population of over 1.1 billion, rising disposable incomes, exposure to western lifestyle, increase in the population of working women and prevalence of nuclear double income families, especially in urban areas

• India is rapidly becoming a key market for processed, ready-to-cook and ready-to-eat food

•Economic growth has altered the structure of the labour force in urban areas characterized by increased female participation with important consequences for the family diet.

•The consumption of readymade meals, or foods that cut the long preparation time of traditional dishes, have increased and are likely to be a more common feature of the diet for families where there is a high female participation rate.

•This is expected to increase demand for processed food products, giving a boost to the domestic food-processing industry, and providing opportunities for increased imports of processed foods and food ingredients.

• The food processing sector is highly fragmented industry, it widely comprises of the following sub-segments: fruits and vegetables, milk and milk products, beer and alcoholic beverages, meat and poultry, marine products, grain processing, packaged or convenience food and packaged drinks.

• This segment accounts for more than 70% of the output in terms of volume and 50% in terms of value. Though the organized sector seems comparatively small, it is growing at a much faster pace.

• The food processing sector holds 9 % share in the total manufacturing sector

•Primary food processing (packaged fruit and vegetables, milk, milled flour and rice, tea, spices, etc.) constitutes around 60% of processed foods.

•It has a highly fragmented structure

•It includes thousands of rice-mills and hullers, flour mills, pulse mills and oil-seed mills, several thousands of bakeries, traditional food units and fruits, vegetable and spice processing units in the unorganised sector.

Main ProductsSome of the most promising sub-sectors in the Indian food industry, as identified by

the Ministry of Food Processing:-

• Confectionery manufacture • Fishing and aquaculture • Grain-milling and grain-based products • Meat and poultry processing • Alcoholic beverages • Milk processing • Tomato paste • Fast-food • Ready-to-eat breakfast cereals • Food additives, flavours etc. • Fruit and vegetable products • Animal products, meat and dairy • Wine and beer • Packaging machinery

•The food processing sector in India is multi-segmented.•Some multinational companies and a few local players enjoy nation-wide recognition in specific product segments. •The unorganised sector dominates each of the above segments, although market leadership may be vested with large organised manufacturers. •The government’s policy of reserving the food-processing sector for small-scale units, effective until 1991 discouraged large-scale domestic and foreign direct investment.•However, following economic liberalisation in 1991, the food-processing industry was opened, resulting in increased investment in this sector, both domestic and foreign

Competitive Landscape

•Over the last few years, several large companies, both Indian and foreign, have invested in the food-processing business in India, resulting in significant growth in this sector.

•Low entry barriers and apparently attractive economics of industry continuously attract new entrants.

•Some Indian food-processing companies have increased market share by decreasing product prices.

•Besides some product categories that enjoy country-wide consumption, high variance in products profile, tastes and preferences has led to creation of regional niche markets in some product categories which have been successfully addressed by regional players and have led to a flourishing unorganised segment in the industry.

•Large number of players and largely undifferentiated nature of most products leads to price competition, often losses, because of which staying power gives competitive advantage.

Success Factors

•Effective distribution network and supply chain

•Product range that is customised to suit local market requirements

•Superior processing technology

•Brand building and marketing

•Constant re-invention of brands

•Early entry in ready-to-eat food market

•Targeting specific consumer base

• Subsidiary of Nestle S.A, Switzerland• Relationship with India dates back to 1912

when it began trading as The Nestle Anglo-Swiss Condensed Milk Company in the Indian Market

• Incorporated in 1959• Nestle S.A Switzerland holds 62 percent stake

in the company

Background of Nestle

• 1962 - company’s first unit was started at Moga (Punjab) for manufacturing milk products, infant milk food, culinary products and beverages

• 1967 - second factory at Choladi, Tamil Nadu to produce beverages (tea)

• 1968 - went public to part finance its projects• 1991 - entered into a joint venture floated by the

parent company in collaboration with the BM Khaitan group to set up facilities to manufacture a range of soya based products

• 1995 - launched the world famous Kit Kat• 2000 – entered the liquid milk market

Progress

• Between 1989 to 2006, Nestle India has opened 5 more plants across the country

• Nestle has been deeply involved in the development of its farmers’ community

• Starting its collection of milk from just 180 farmers, it has expanded its operations to over 85,000 farmers

Present Scenario• Nestle India currently has approx. 4983

employees• Head office is located at Gurgaon, Haryana

with bran offices in Delhi, Kolkata, Mumbai and Chennai

• Factories are located in Punjab, Haryana, Uttarakhand, Tamil Nadu, Karnataka and Maharashtra

• Nestle was ranked as one of the Most Admired Company

• Net Sales for Third Quarter increased by 25.7% over 2009

• Net profit of Rs. 2185.60 for Quarter 3 as compared to Rs. 1827.60 of last year

• Total Income has increased from Rs. 13110.30 to Rs. 16468.00 of last year

• Net Domestic Sales increased by 27.8%• Due to appreciation of Indian Rupee, export

sales have been negatively impacted• Nestle India is one of the major food and

beverages company who has pledged commitment of responsible marketing to children

Key EmployeesName Designation

Antonio Helio Waszyk Chairman and Managing director

Pradip Baijal Non Executive Director

Ravinder Narain Non Executive Director

Rakesh Mohan Non Executive Director

Christian Schmid Director (Technical)

Name Designation

Shobinder Duggal Director

Michael W O Garrett Non Executive Director

Richard Sykes Alternate Director

Swati A Piramal Non Executive Director

Product Categories

• Milk Products• Prepared Dishes and Cooking Aids• Chocolates and Confectionery• Beverages

Milk Products• Every Day Whitener • Every Day Ghee • Milk • Slim Milk • Nesvita Proheart milk • Fresh n Natural Dahi • Fresh n Natural Slim Dahi • Jeera Raita • Nesvita Dahi • Milkmaid Fruit Yoghurt • Milkmaid NIDO • Dahi

Prepared Dishes and Cooking Aids• Maggi

– Noodles – Atta Noodles – Cuppa Mania – Healthy Soups – Masala-ae-Magic – Sauces – Pichkoo – Pizza Mazza – Magic Cubes – Vegetable Multigrain noodles – Bhuna Masala – Coconut Milk Powder – Pazzta – Sanjeevani Cup Soup

Chocolates and Confectionery• Kit Kat • Kit Kat Chunky • Munch • Munch Pop Choc • Milkybar • Milkybar Choo • Bar One • Milk Chocolate • Polo • Eclairs • Milkybar Eclairs • Milkybar Crispy Wafer

Beverages

• NESCAFE – Classic – Sunrise Premium – Sunrise Special – Cappuccino – 3 in 1

• NESTEA – Iced Tea – Iced Tea with Green Tea – Instant hot tea mixes

SalesAs on June 2008 Product Group % of Total SalesMilk Products and Nutrition 43Beverages 20Chocolates and Confectionary 21Prepared dishes and Cooking Aids 16

Financial Performance Values in INR Cr

Dec '05 Dec '06 Dec '07 Dec '08 Dec '09

12 mths 12 mths 12 mths 12 mths 12 mths

Sales Turnover 2,476.90 2,816.06 3,504.35 4,335.11 5,149.99

Gross Profit 523.47 547.64 721.71 877.84 1,029.64

Interest 0.21 0.44 0.85 12.66 1.4

PBDT 525.9 546.81 703.35 865.18 1,028.24

Depreciation 56.84 66.28 74.74 92.36 111.27

PBT 469.06 480.53 628.61 772.82 916.97

Tax 159.49 165.43 214.8 238.74 261.97

Net Profit 309.57 315.1 413.81 534.08 655Earnings Per Share 32.11 32.68 42.92 55.39 67.93

Equity 96.42 96.42 96.42 96.42 96.42

Reserves 257.72 292.47 322.01 376.94 484.85

Face Value 10 10 10 10 10

Book Value (Rs) 36.73 40.33 43.4 49.09 60.29

Merger: Coca-Cola’s joint venture with Nestle.

• This global joint venture extended to India for

ready-to-drink tea — Beverage Partners Worldwide.

• Coca-Cola India will start selling ready-to-drink iced tea under the Nestea brand soon.

• Nestea’s extension to the ready-to-drink out-of-home segment could drive the brand’s at-home sales as well.

Contd..

• As part of the 19-year-old global agreement between the two giants, the rights to manufacture, distribute and market the Nestea brand in powdered and vending machine formats are with Nestle, while the rights to make, distribute and market Nestea in glass and PET bottles and cartons are with Coca-Cola.

• The same brand, in different formats, will be sold and marketed by two separate companies in India.

Competitor merges: Pepsico India’s joint venture with TataTea.

• The venture is on the verge of being kicked off.• To produce non-carbonated, health and

wellness beverages, particularly with focus on low-cost beverages.

• This venture, however, will not compete with Nestea as PepsiCo has a global alliance with Unilever to sell Lipton ice tea.

Acquisition:Speciality Foods

• Nestlé India Board Approves Proposal To acquire Healthcare Nutrition Business of Speciality Foods

• Acquisition of the Healthcare Nutrition Business is aligned with and will further reinforce the leadership position of Nestlé India Ltd in Nutrition, Health and Wellness.

Contd..

• Speciality Foods India Pvt. Ltd is the other subsidiary of Nestlé S.A. in India.

• The product portfolio under the Healthcare Nutrition Business is meant to satisfy the needs of consumers with special nutritional requirements.

• The Healthcare Nutrition Business had revenue of Rs. 28.8 crore for the year ended March 31, 2009.

Ventures:

• Over the last three years, Nestle India spent over Rs 650 crore on capital investment and will have invested more than Rs 450 crore in 2010 alone.

• The funds will further be invested for expanding facilities at Bicholim and Ponda in Goa, Moga in Punjab, Nanjangud in Karnataka, Samalkha in Haryana and in new greenfield facilities.

• Will continue to invest in brands and distribution capabilities while accelerating investment in capacities to provide consumers a wide product range, from popularly positioned products for low income consumers to premium offerings

Nestle India Ltd to make domestic acquisition investments

• The company is keen on introducing new product categories in the Indian market.

• Nestle India Ltd is also keen on investments in acquisitions in India as part of plans to boost the global Swiss food giant’s growth in emerging markets.

• it would be undertaking a $1.4 billion investment in Brazil, Russia and India from 2010 through to 2012.

• Its chief target is to ensure that India’s contribution to global sales, currently at record lows, increases considerably.

Nestlé to establish an R&D Centre in India.

• The facility will be built in Manesar and will be operational in 2012.

• The investment of around US $ 51.5 million will help to further strengthen Nestlé's R&D capabilities in emerging markets.

• The new centre will focus on Popularly Positioned Products, especially for India, but also worldwide.

Competitors• Amul India Ltd.

– It basically competes with Nestle in the category of Milk and Milk Products and also Chocolates and Confectioneries

• Britannia Industries Ltd.– It basically competes in the Milk and Milk Product Category

• Kwality Dairy – It competes in the Milk and Milk Product Category

• Cadbury – It is a major competitor for Chocolates and Confectioneries

• HUL - Brooke bond and Lipton Tea– It competes in Beverages, especially Tea

• Tata Tea– It competes in Beverages through Tea

Competitors (contd…)• Godrej Tea

– It competes in Beverages through Tea• Smith and Jones

– They are their competitors in the noodle segment• Nissin Foods

– They are the major competitors in noodle segment through Top Ramen Noodles

• ITC– They compete with their Sunfeast Pasta and its confectioneries like

mint-o and candyman• Heinz

– It competes through its Tomato Sauces

Market share

GlaxoSmith Con10%

Britannia18%

Kwality Dairy5%

Rei Agro13%

KRBL8%Lakshmi Energy

6%

Usher Agro2%

Heritage Foods5%

LT Foods4%

Kohinoor Foods4%

Nestle26%

Market Cap.

Target Customers

• Nestle India generally targets higher income of people • Its Milk and Milk Products have a price which is slightly

higher than its competitors• Even its beverages like Nescafe brand of coffee and

Nestea brand of tea have a premium price• However the chocolates and confectioneries are priced

at a lower price to target the general population• Even its Maggi brand of products have a lower price to

target the general population

What are we looking at?

• This helps us understand the Food Processing Industry in India• It also helps us understand Nestle India expansion plans to

diversify its product range to attract wider range of customers• It also helps us to know the future growth prospects of the

company• It also helps us to know how Nestle India is placed amongst its

competitors and their strategies for the various modes of competition

• Next we will be focusing on the SWOT analysis of the company

REPORT II

Financial Information and Ratio Analysis

Ratio analysis

The following ratios are considered by us for the analysis,• Profitability Ratios :Net profit margin:

It measures profitability after considering all the expenses ( Net income/ Net sales)

Return on capital employed:It gives the profit earned from the investments of shareholders

( Profit for the year/ Equity SH funds)

Ratio analysis contd..

• Liquidity and Solvency ratios:It specifies the firms ability to repay the debts

Current ratio: Current Assets/ Current Liabilities Quick ratio:

Current Assets – ( Inventories + Prepayments)Current Liabilities

Debt Equity ratio:Long term Debt + Value of LeasesAverage Shareholders Equity


• Management Efficiency ratio: Inventory turnover ratio:

It measures the management and selling of inventories ( Net Sales / Inventory )

Debtors turnover ratio:It measures the velocity of debt collection of a firm ( Total Sales/ Debtors)


Investments turnover ratio:It measures the return earned on the capital invested

SalesNet worth + Long-Term Liabilities

Asset turnover ratio:It measures the operating performance of the firm ( Net Sales / Average Total Assets)

Key Financial Ratios for the year 2005 Nestle India GSK Kwality Dairy Rei Agro Britannia

------------------- in Rs. Cr. ------------------- Dec '05 Dec '05 Mar '06 Mar '06 Mar '06

Investment Valuation Ratios

Face Value 10 10 10 10 10

Dividend Per Share 25 8 -- 2 15

Profitability Ratios

Net Profit Margin(%) 12.39 10.86 2.72 6.88 8.48

Return On Capital Employed(%) 127.18 34.9 25.16 13.11 34.49

Liquidity And Solvency Ratios

Current Ratio 0.66 1.89 1.27 1.08 1.07

Quick Ratio 0.28 1.25 1.67 2.76 0.47

Debt Equity Ratio 0.04 -- 0.63 2.77 0.02

Management Efficiency Ratios

Inventory Turnover Ratio 9.87 9.34 9.2 1.61 9.34

Debtors Turnover Ratio 87.32 39.35 7.39 4.99 53.85

Investments Turnover Ratio 12.02 9.34 9.48 1.61 11.79

Asset Turnover Ratio 2.76 2.2 6.13 3.51 5.43

Earnings Per Share 32.11 25.48 1.48 16.59 61.29

Book Value 36.73 112.97 9.04 73.63 229.84

Source : Asian CERC

Analysis for the year 2005

• The dividend paid is higher in comparison to its competitors which is a good sign for the investors

• The profitability ratios shows that the net profit margin and the ROCE is higher for Nestle India and it shows that Nestle India sold its products at a better profit margin and made a good return on their investments

Analysis for the year 2005 contd..

• The liquidity and solvency ratios show that Nestle India has got less assets compared to the liabilities owned by the company in comparison with its competitors

• The inventory turnover ratio is slightly higher compared to its immediate competitor which shows a better management of the inventories


• Overall the efficiency of the management is better compared to its competitors which builds the trust among the investors when they analyze the data of the company and its competitors

• The EPS and the Book value also shows a good rank among its competitors making it a good prospect for the investment




Face Value 10 10 10 10 10

Dividend Per Share 25.5 10 -- 1.5 15





Current Ratio 0.67 1.27 1.06 0.72 1.17

Quick Ratio 0.31 0.64 1.31 4.48 0.52








Book Value 40.33 129.05 11.09 93.98 257.35

Source : Asian CERC


• The dividends paid is higher compared to the last year and it is still the highest compared to its competitors

• The profitability of the company is little lesser compared to the year 2005, but remains the no 1 position among its competitors

• The liquidity and solvency ratios does not show a good improvement which makes the company still highly volatile on solvency


• Though other management efficiency ratios show an improvement , the debtors turnover ratio is much lower compared to the previous year in Nestle India

• Whereas Britannia shows a good improvement in the same

• The company should have concentrated more on debt collections in 2006


• The EPS have increased for all the companies this year with Nestle India on higher end except Britannia whose EPS have decreased drastically this year

• The book value of Nestle India increased by 10% whereas all its competitors have shown a better improvement this year




Face Value 10 10 10 10 10

Dividend Per Share 33 12 -- 1.5 18





Current Ratio 0.66 1.39 1.15 0.64 1.22

Quick Ratio 0.23 0.65 1.36 4.49 0.68








Book Value 43.4 153.69 13.63 111.46 316.37

Source : Asian CERC


• The dividends paid per share has shown a significant 33% increase this year compared to its competitors, which remains as a good sign for the investors

• The profitability ratios also shows a good increase in comparison with previous year but the net profit margin of GSK is better compared to Nestle India in 2007


• The liquidity and solvency ratios still remain in the same stage making the company highly vulnerable to solvency

• The management efficiency ratios shows a decrease in this year for Nestle India , GSK and Britannia , the major competitors in the market which implies a back log in the industry itself


• The EPS and Book Value of the Nestle India has increased but the increase in Britannia is much higher compared to Nestle India




Face Value 10 10 10 1 10

Dividend Per Share 42.5 15 1 0.1 40





Current Ratio 0.66 2.62 0.97 0.65 1.27

Quick Ratio 0.29 1.74 1.8 3.64 0.65

Debt Equity Ratio -- -- 2.83 5.36 0.03







Book Value 49.09 180.92 17.62 19.45 345.14

Source : Asian CERC


• The dividend paid per share has shown a significant growth in terms of % for Nestle India compared to the previous year

• But Britannia has grown more than 100% in terms of dividends paid compared to the year 2007

• It is potential threat to Nestle India India as the investors might look in Britannia as a better prospect


• The liquidity and solvency ratios of Nestle India India continues to remain the same , where as GSK has shown a better growth in its current assets holding in the last two years

• The management efficiency ratios are better this year for Nestle India India where as almost all the competitors shown a little improvement compared to the previous year


• Making Nestle India well operated and maintained company among its competitors

• The EPS has shown a good increase in Nestle India and Kwality Dairy where as others shown a little improvement this year

• The Book value of Nestle India shows a steady increase of 10 % every year where as its main competitors like GSK and Britannia grows at a much higher rate




Face Value 10 10 1 1 10

Dividend Per Share 48.5 18 0.1 0.3 25





Current Ratio 0.6 1.63 4.28 20.03 0.94

Quick Ratio 0.24 1.36 3.64 7.25 0.43

Debt Equity Ratio -- -- 4.61 5.24 1.08



Debtors Turnover Ratio 93.68 53 5.04 5.18 76.35




Book Value 60.29 215.2 2.61 26.98 165.86

Source : Asian CERC


• The threat raised by Britannia in 2008 by paying a good dividend is faded of this year

• As it reduced it dividend payout by almost 40% compared to the previous year

• And Nestle India still remains to grow at each year providing a good dividend to its share holders


• The profitability ratios shows Nestle India was better profitable in this year compared to its competitors

• Britannia has come down in its profit margin ratio compared to 2008, which implies the companies sales or profit per good during the year is not met with the previous year


• The liquidity and solvency ratios have further come down for Nestle India stating that either the companies liabilities have increased or its current assets have decreased during the year

• REI Agro and Kwality Dairy ‘s liquidity has drastically increased this year compared to 2008, making them totally insolvent, but the reason for such increment has to be analyzed


• The management efficiency ratio is again led by Nestle India among its competitors and the debtors turnover ratio has seen a good 93% in the last five years showing the efficiency of the management in its debt collection

• The EPS and Book Value of Nestle India increased when its competitors have shown a decline in their Book Value

Report based on the 5 year analysis

• The analysis clearly shows that Nestle India is highly profitable and pays good dividend with better EPS compared to its competitors

• But the companies Current Assets seems to be lower than its Liabilities which is threat to the company as it is highly solvent compared to its competitors

Strategy Analysis

Nestle Strategy

• Nestle has primarily focused on the health of its customers• It generally provides products which contain nutritional

value for their customers• Since early 2000 Nestle was trying to become a ‘health and

wellness’ company• Their Milk and Milk Products primarily focus on the health

of the customers eg Nestle Nido, Slim and Fit Dahi, etc• Moreover they have also introduced health conscious

products in the Maggi segment like Maggi Vegetable Atta noodles, Dal Atta noodles, Rice noodles, healthy soups, pazzta which is made from suji

Strategy(contd…)

• Nestle focuses a lot on the brand of Maggi• It normally releases its products which come under the

category of ‘Prepared Dishes and Cooking Aids’ under the brand of Maggi

• This is known as ‘Umbrella Branding’ – introducing new variants under a successful brand

• The advantages of umbrella branding include– High acceptance level– Low advertising and promotional budget– Giving strength to the established brand name and increasing

the overall brand equity

Maggi Strategy

• Targeted the kids initially• Came out with the ‘Test bhi Health bhi’ campaign• Not only noodles but various other products are

launched under the brand of Maggi• Then they had an advertising campaign to promote

Maggi as an afternoon snack for everyone• Recently they have started a ‘Mein aur meri Maggi

campaign’ in which people get to share their Maggi experiences

Strategy(contd…)• They promoted their tea and especially coffee through vending

machines• The vending machines of Nescafe are found in various shops

throughout India• They also sold their chocolates and confectionaries in areas like

railway platforms, college canteens and other major events• They also set up ‘Café Nescafe’ and ‘Coffee Corners’ across various

cities• Such shops sell primarily Nescafe Coffee and along with it they sell

the iced tea and also the chocolates and confectionaries of Nestle India

• They have promoted their Maggi sauces by following the strategy of ‘It’s different’

What Nestle has done over the years

• 2005– Launch of Maggi health soups– Maggi Tomato Pudina Sauce– Maggi Tomato Chatpat sauce– Re-launch of Nescafe Sunrise– Launch of Nescafe 3-in-1– Coffee corners at various places

• 2006– Channel and Category Sales Development(CCSD) department– National Key Accounts Management Organization department– In store initiative Nestle Nutriworld– Launch of Maggi Atta noodles– Maggi Dal Atta noodles– Launch of Nestle KitKat lite and its Goldpack– Nestle Funbar at rs 2 in selected regions


• 2007– Introduction of Nestle Nido, Milkmaid, and Cerevita– Introduction of Nestle Fresh and Slim Dahi, Milkmaid fruit yoghurt and Nesvita– Nestle Cerelac Stage 4– Maggi Rice Noodles– ‘It’s different’ campaign for sauces was renewed– Nestle Munch Pop Chocs launch with ‘Nikalo Uchhalo Khalo’ campaign– KitKat mini at rs 2– Nescafe Mild launch

• 2008– Milk with Omega 3 Nestle Nesvita Pro-Heart– Nestle Nan 3 for older infants– Introduction of Maggi Cuppa Mania– Introduction of Maggi Bhuna Masala– Introduction of Maggi Pichkoo– Nestle KitKat and BarOne mini at rs 3– Nestle KitKat Chunky at rs 15– Continued initiatives in out of home segment


• 2009– Me aur meri Maggi campaign– Maggi Nutri-licious Pazzta introduction– Maggi Rasile Chow Introduction– Maggi Masala ee Magic Introduction– Launch of Nestle Kit Kat at rs 5– Nestle Munch Guru at rs 10 and chotu munch at rs 2– Introduction of Nestle Milky Bar Choko choo and

crispy– Focus on nutrition of nutrients

Heinz Strategy

• Heinz primarily focuses on its marketing strategy• It promotes its ketchup as a thick ketchup• It’s advertisements also focus on the thickness of

the ketchup• It’s tag line is ‘Redder. Thicker. Tastier’• It has also launched a squeeze bottle where you

can squeeze out the ketchup easily• Small sachets of Heinz ketchup are also available

at various food joints, coffee shops and in airlines

HUL Strategy

• HUL has various brands of tea• First is the Taj Mahal tea which HUL promotes

as a premium brand of tea• They say that it is not a tea but a sensory

experience• Then next is the Taaza brand of tea• They target women in this brand• They promote this brand through the latent and

inner talent of the women

HUL Strategy(contd…)

• Next is Lipton brand of tea• Lipton is tea for everyone and is promoted

accordingly• Red Label is another brand of tea for HUL• They promote Red Label as a family tea• They focus on a traditional house wife who is

trying to get the family together over a cup of tea and this tea is red label

• Major advertising is done to promote these teas

HUL Strategy(contd…)

• HUL has Bru as the brand of the coffee• They promote the coffee as a drink which will

bring joy and happiness to you• They promote it as ‘Bru se hoti hai khushiya

shuru’• Heavy marketing is done to promote Bru

brand of coffee

Top Ramen-Strategies

• The brand had positioned itself as Smoodles. This created a lot of anxiety among consumers. This was the reason for the initial success of Top Ramen but they could not hold their consumers for long.

• Top Ramen was always perceived as a premium brand compared to the affordable Maggi. They have lowered their prices. But in the process, they have lost the consumer base.

• Top Ramen lost out when Maggi repositioned itself in the health platform(atta noodles and rice noodles).

• Top Ramen had its share of innovations. This brand is credited with innovating a new category of cup-noodles in Indian market.

• Unlike instant noodles where the brands are targeting kids, Cup-Noodles is targeting adults.

• Top Ramen is also credited with the launch of curry-noodles in India.

Cadbury-Strategies

• They have advertisements which appeal emotionally to the consumers.

• The packaging of Cadbury chocolates is much more colorful and attractive than Nestle chocolates.

• They are trying to substitute sweets with chocolates in India.

• They package their chocolates for various special occasions and festivals(Diwali, Rakhi, etc.)

• They tap the sentiments of people-In India, people start off any task by having something sweet.

• Chocolates are not only meant for children. It is a way to celebrate.

Britannia-Strategies

• The word 'flavoured' was dropped from the milk range, as research had shown that in India, the word 'flavoured,' connoted 'artificial' to consumers. This was to create goodwill among consumers. But seeing the success of flavoured milk in Indian market, they have launched flavoured milk-TigerZor Choco Milk. The company is trying to create a new niche of micronutrient fortified drinks.

Kwality Dairy-Strategy

• The company follows a strategy for the procurement of milk on a daily basis and is investing in setting up village level milk collection centres. This helps in reduction of wastage. The setting up and operational costs in villages is low. This also helps the local milk men in villages. They get better prices for their milk.

SWOT Analysis

Strengths

• Parent support - Nestle India has a strong support from its parent company, which is the world’s largest processed food and beverage company, with a presence in almost every country.

• It has a vastly diversified product portfolio.

• Brand strength - In India, Nestle has some very strong brands like Nescafe, Maggi and Cerelac. These brands are almost generic to their product categories.

• Product innovation - The company has been continuously introducing new products for its Indian patrons on a frequent basis, thus expanding its product offerings

• Wide distribution channel

• Effective advertising strategies

Weakness

• A major portion of export comprises of Coffee• Supply chain - The company has a complex supply

chain. • The food industry requires high standards of

hygiene, quality of edible inputs and personnel. • The fragmented nature of the Indian market place

complicates things. • The immense diversification portfolio of the firm

makes it impossible to run every division smoothly

Opportunities

• Expansion - The company has the potential to expand to smaller towns and other geographies. Existing markets are not fully tapped.

• Product offerings - The company has the option to expand its product folio by introducing more brands which its parents are famed for like breakfast cereals, Smarties Chocolates etc.

• Due to the high intensity of the health conscious awareness in the society, more health based products may be required.

• Global hub - Since manufacturing of some products is cheaper in India than in other South East Asian countries, Nestle India could become an export hub.

• In India, consumers are mostly price conscious than health conscious. Nestle may have an opportunity to have extensive strategies implemented to gain the market in such countries.

Threat

• Competition –strong presence of regional competitors

• Indian Government has reduced the import duty of food segments thus intensifying the battle.

• Changing consumer trends.

• Sectoral woes - Rising prices of raw materials and fuels, and inturn, increasing packaging and manufacturing costs.

• Competitive pricing eg. Top Ramen

• Competitors like Cadbury, HUL etc. are well established. It’s a tough market with a tougher competition for gaining market share.

Growth• Introduced value-added product variants in

competitive categories like Prepared Dishes and Confectionary

• Nestle has successfully implemented Low-Unit Packs (LUP) and Low Price Points strategy by launching products SKUs in small packs

• Nestle has developed a long-term relationship with farmers and milk suppliers to combat volatile prices of raw materials

• Availability of Nescafe enhanced through an expansion of the vending machine network

• Consumption opportunities for chocolates and confectionery were identified and developed in areas like railway platforms, college canteens and major events

• Nestle set up ‘Café Nescafe’ and ‘Coffee Corners’ across metros and mini-metros

• Reduction in the finished goods inventory pipeline to improve freshness of stocks and reduce working capital

• Culture of Innovation and Renovation and benchmarking of consumers’ tastes and products by the unique ‘Experimental Kitchen’ and ‘Sensory Laboratory’ at the Head Office

• Nestle India is in the process of implementing the GLOBE project through the implementation of SAP, which will enable the company to maintain its competitive advantage

REPORT III

Porter's Five Forces A MODEL FOR INDUSTRY ANALYSIS

• Success of any company depends not only on its competencies and competitive strategies but also on the structure of industry in which the company operates.• Michael Porter provided a framework that models an industry as being influenced by five forces.

DEGREE OF RIVALRY

The intensity of rivalry is influenced by the following industry characteristics:• A larger number of firms increases rivalry because more firms must compete for

the same customers and resources. The rivalry intensifies if the firms have similar market share, leading to a struggle for market leadership.

• Slow market growth causes firms to fight for market share. In a growing market, firms are able to improve revenues simply because of the expanding market.

• High fixed costs result in an economy of scale effect that increases rivalry. When total costs are mostly fixed costs, the firm must produce near capacity to attain the lowest unit costs. Since the firm must sell this large quantity of product, high levels of production lead to a fight for market share and results in increased rivalry.

• High storage costs or highly perishable products cause a producer to sell goods as soon as possible. If other producers are attempting to unload at the same time, competition for customers intensifies.

• Low switching costs increases rivalry. When a customer can freely switch from one product to another there is a greater struggle to capture customers

• Low switching costs increases rivalry. When a customer can freely switch from one product to another there is a greater struggle to capture customers.

• Low levels of product differentiation is associated with higher levels of rivalry. Brand identification, on the other hand, tends to constrain rivalry.

• Strategic stakes are high when a firm is losing market position or has potential for great gains. This intensifies rivalry.

• High exit barriers place a high cost on abandoning the product. The firm must compete. High exit barriers cause a firm to remain in an industry, even when the venture is not profitable. A common exit barrier is asset specificity. When the plant and equipment required for manufacturing a product is highly specialized, these assets cannot easily be sold to other buyers in another industry.

• Industry Shakeout. A growing market and the potential for high profits induces new firms to enter a market and incumbent firms to increase production. A point is reached where the industry becomes crowded with competitors, and demand cannot support the new entrants and the resulting increased supply. The industry may become crowded if its growth rate slows and the market becomes saturated, creating a situation of excess capacity with too many goods chasing too few buyers. A shakeout ensues, with intense competition, price wars, and company failures.

BARRIERS TO NEW ENTRY

• It is not only incumbent rivals that pose a threat to firms in an industry; the possibility that new firms may enter the industry also affects competition.

• industries possess characteristics that protect the high profit levels of firms in the market and inhibit additional rivals from entering the market. These are barriers to entry.

• Falling prices, or the expectation that future prices will fall, deters rivals from entering a market.

• Firms also may be reluctant to enter markets that are extremely uncertain, especially if entering involves expensive start-up costs.

• firms individually (collective action would be illegal collusion) keep prices artificially low as a strategy to prevent potential entrants from entering the market, such entry-deterring pricing establishes a barrier.

• Government creates barriers. Although the principal role of the government in a market is to preserve competition through anti-trust actions, government also restricts competition through the granting of monopolies and through regulation.

• Patents and proprietary knowledge serve to restrict entry into an industry. • Asset specificity inhibits entry into an industry. Asset specificity is the extent to

which the firm's assets can be utilized to produce a different product. When an industry requires highly specialized technology or plants and equipment, potential entrants are reluctant to commit to acquiring specialized assets that cannot be sold or converted into other uses if the venture fails.

• Organizational (Internal) Economies of Scale. The most cost efficient level of production is termed Minimum Efficient Scale (MES). This is the point at which unit costs for production are at minimum. The existence of such an economy of scale creates a barrier to entry. The greater the difference between industry MES and entry unit costs, the greater the barrier to entry.

Easy to Enter if there is:• Common technology• Little brand franchise• Access to distribution channels• Low scale threshold

Difficult to Enter if there is:

• Patented or proprietary know-how• Difficulty in brand switching• Restricted distribution channels• High scale threshold

Easy to Exit if there are:• Salable assets• Low exit costs• Independent businesses

Difficult to Exit if there are: • Specialized assets• High exit costs• Interrelated businesses

SUPPLIER POWER

Suppliers are Powerful if: • Credible forward integration threat by suppliers• Suppliers concentrated • Significant cost to switch suppliers • Customers Powerful

Suppliers are Weak if: • Many competitive suppliers - product is standardized • Purchase commodity products• Credible backward integration threat by purchasers• Concentrated purchasers • Customers Weak

BUYER POWER Buyers are Powerful if:

• Buyers are concentrated - there are a few buyers with significant market share

• Buyers purchase a significant proportion of output - distribution of purchases or if the product is standardized

• Buyers possess a credible backward integration threat - can threaten to buy producing firm

Buyers are Weak if: • Producers threaten forward integration - producer can take over own

distribution/retailing • Significant buyer switching costs - products not standardized and buyer

cannot easily switch to another product• Buyers are fragmented (many, different) - no buyer has any particular

influence on product or price • Producers supply critical portions of buyers' input - distribution of

purchases

THREAT OF SUBSTITUTES

• A threat of substitutes exists when a product's demand is affected by the price change of a substitute product.

• A close substitute product constrains the ability of firms in an industry to raise prices, as more substitutes become available, the demand becomes more elastic since customers have more alternatives.

• Generally substitutes are the products out side the industry, which will satisfy the need of customers.

• Milk & milk products have less substitutes.• Prepared dishes & and cooking aids segment has more substitutes,

such as ready-to-serve products, etc.• Beverages segment has very high threat of substitutes. In the leisure

timings a customer may like have coffee, or tea, or fruit juice, or coke, or just water, etc.

• Chocolates segments has relatively less substitutes

RIVALRY• Milk & milk products segment is dominated mostly by unorganized players.

Organized sector occupies only 13 -15% of the market.The major competitors for the milk products are • In rural areas, organized and unorganized local vendors.• In urban and semi urban areas, the organized local players like Vijaya, Heritage,

Nandini, Mother dairy etc.• In urban areas, the major competitors are Amul, Kwality Dairy, Mother Dairy etc.• And the market is growing at 15% growth rate. • Brand identity is very less in this segment.• Fixed costs are low in unorganised sector but moderately high for organized sector. • Switching costs are very low for the customers.• All these factors show the degree rivalry is very high in milk &milk products

segment.

• Prepared dishes & cooking aids segment is growing at 20% growth rate. And is dominated by organized players (85%). There are very few players in the segment.

• But the players are competing through product differentiation and brand identity.• For the past two decades maggi played a monopoly role. But last year three

players came into the market.• The switching over costs are very less for the consumer. • All these factors make the segment competitive. i.e. the degree of rivalry is very

high.• Prepared dishes & Cooking aids

• The instant noodles market in India is of Rs 1,300 Cr., growing at a consistent 20 per cent for the last few years.

• For two decades Nestlé's Maggi played a monopoly role with more than 85 % market share. Players such as Indo-Nissin Top Ramen, Capital Foods Ching Secret and Smith & Jones and CG Foods Wai-Wai tried to make a dent but failed to take up more than 10-15 per cent of the Rs 1,300-crore market.

•Three new entrants have thrown their hats into the ring over the last one year: Hindustan Unilever (HUL), GlaxoSmithKline (GSK) and ITC with Knorr Soupy Noodles, Horlicks Foodles and Sunfeast Yippee! respectively.

•The new entrants claim market shares of 3-7 per cent in their first few months of launch in south India.

• Nestle Maggi’s overall market share, meanwhile, has dipped from 90 per cent in 2009 to 85-86 per cent in 2010.

• "The category penetration is low as well, 25 per cent of the population only. There is scope for these players to grow simultaneously.“

•ITC launched Sunfeast Yippee! instant noodles in December 2010, and differentiated it on product attributes. HUL has extended its Knorr franchise to combine noodles with soup that is often seen as healthy. •GSK is betting on its legacy of health to launch the multigrain Horlicks Foodles, pegged as a healthier alternative to maida noodles (the most popular Maggi variant). •Nestle has reacted without delay with the launch of Maggi multigrain noodles. It also

tied consumer anecdotes with a bevy of new flavours such as Curry and Capsicum.

• BEVERAGES segment is growing at 27%growth rate. • 77% of the market is organized. • Few players are there in the organized sector. HUL & Nestle are the two major

players in the instant coffee sector.• Switching over cost is less for the consumers as there are so many substitutes are

available for them. • There is no much scope for product differentiation.• Brand identity is high. • So, the degree of competition is very high.

Beverages:• The Rs 300-crore instant coffee sector will witness a lot of action as lead players

HUL and Nestle India are fine tuning their marketing operations to gain a competitive edge in this sector.

• FMCG major Hindustan Unilever Ltd (HUL) has pipped Nestle India to gain volume leadership in the branded instant coffee sector in India.

• In the September quarter of FY 2011, HUL has garnered a 51.1 % market share while Nestle India's share stood at 48%, according to data from market research firm Nielsen.

• Interestingly, in the June quarter, Nestlé's Nescafe had led the market with a 51.9% market share, while HUL's Bru was second, with a 47.9% market share.

• But the net profit of HUL came down by 2%, as it spent much on advertising campaigns.

• Chocolates & confectionary segment is growing at 14-15% growth rate. • It has very few players in the sector.• High levels of product differentiation are possible.• Brand identity is very high. • So, the degree of rivalry is very high.

•Chocolates & confectionary:•The size of Indian chocolate market size was estimated at approx. 30,000 tonnes in the year 2008.• Moulded chocolates like dairy milk, amul, nestle premium, truffle and nestle milky bar constitute 37% of the total market (in terms of volume).• The count segment comprising of brands such as five star, kitkat, perk, and picnic is the next largest segment, accounting for 30% of the total market. •Panned chocolates occupy 10% of the total market.•Indian chocolate industry is dominated by two companies; Cadbury and Nestle, both multinationals. •The leader is Cadbury with the biggest share of 70%. Until the middle of 90s, Cadbury had a monopoly among the chocolate manufacturers, and then Nestle made an entry by introducing its famous brands like Kit Kat and Lions, and in the process ending Cadburys monopoly.• Competition in this segment is going to increase as big international heavyweights like Hershey’s and Mars are entering the Indian market in near future.

Barriers to entry:

Government Regulations:•The Government of India has declared food processing a priority by introducing a number of progressive measures to set up and modernize food processing units, create infrastructure, support research and development and human resource development. • The National Policy aims to increase the level of food processing from 2% to 10% in 2010 and to 25% in 2025 • The level of institutional credit to be provided by banks and financial institutions has been increased from US$ 17.41 billion during 2003-04 to about US$ 23.76 billion in 2005-06 • Full repatriation of profits and capital is allowed • Automatic approvals for foreign investment up to 100%, except in few cases, and also technology transfer • The government has decided to give a boost to research and development in this sector with its decision to set up the National Institute for Food Technology and Management in collaboration with Cornell University of the US.

• Zero import duty on capital goods and raw material for 100 per cent export-oriented units. Custom duty on packaging machines reduced. Central excise duty on meat, poultry and fish reduced to 8% •Income tax rebate allowed (100% of profits for 5 years and 25% of profits for the next 5 years) for new industries in fruits and vegetables besides institutional and credit support. • The government would also set up abattoirs and dairies and will give a grant of US$ 3.1 million per ab-attoir and US$ 2.08 million per dairy. •Government policies except Prevention of Food Adulteration Act, 1954. are favouring the new entries into the industry.•If new firms enter into the industry in anticipation of the demand, •It will increase the competition. As the industry is growing the profitability of the firms may be increased. But the market share of the firms may not be increased. • And if the demand is not reached, or so many players enter into the market, On long run it leads to price war and makes the industry un attractive.

Bargaining power of suppliers•For the food processing industry the inputs are food products like fruits & vegetables, grains & cereals, milk, sugar &sugar substitutes, etc.•There are no substitutes for the inputs. •In general the suppliers in this industry are not organized. •But due to environmental factors the productivity of the agricultural products has come down leading to the food inflation. This may increase the bargaining power of the suppliers. •But to avoid this situation, generally the firms go for vertical integration. • Nestle adopted milk districted model. It helps in cost reduction and ensures the quality of the products. And it also accounts to the corporate social responsibility. •Nestle even can go for contract farming.

Bargaining power of customers.

•Changing life styles and increasing income levels, increased hygiene consciousness of Indians are resulting in the growing demand for the processed food products. •Consumers are not organized, and are not concentrated.•The firms are highly vertically integrated (especially forward integration), by having access to retail outlets. •But here the buying behavior and the price sensitivity of the consumers plays a role. •The switching over costs for the customer is very less. •And the availability of substitutes are very high. •So we conclude the bargaining power of consumer is moderate to high.

Analysis of Nestlé's strategies

Venture with Coca Cola

• Nestle is doing a joint venture with Coca Cola to produce bottled iced tea - Nestea

• This is done to broaden the product portfolio • Nestle will be competing with bottled drinks through this

venture• It will be competing in the category of functional beverages• Functional beverages are drinks which are those which are

based upon health and wellness of people• Nestle is trying to increase its value by increasing its hold

on the health related sector and also reducing cost by tying up with Coca Cola

Mein Aur Maggi Campaign

• Launched in 2009 with the 25th birthday of Maggi

• In this you associate with Maggi• It was done to promote brand awareness

among people• It was done to emotionally connect with

people and increase value

Introduction of Maggi Pazzta

• Maggi introduced Pazzta in the year 2009• This was done to compete with Sunfeast Pasta already

available in the market• This Pazzta was made from suji and was healthy• Nestle followed its principle of getting healthy products

while making the Pazzta• It was done to diversify the product portfolio• It was priced at Rs. 12 and Rs. 15 which was similar to

Sunfeast Pasta price• However they promoted it as a healthy food snack

Maggi Rasile Chow and Masala ee Magic

• Nestle launched Rasile Chow and Masala ee Magic in the rural and semi-urban markets

• They had initially launched Rs. 5 Maggi earlier in 2005• This was done while taking into consideration the

concern of malnutrition in the urban areas• The products were launched in small satchets with Rs.

4 for Rasile Chow and Rs. 2 for Masala ee Magic• This was done taking into consideration the

affordability of the people• Value increase was done through this

Launch of Nestle Proheart

• Nestle launched Nestle Proheart with omega 3 in the year 2008

• It is a healthy milk which is supposed to control the cholesterol level

• It was launched for health conscious customers• It was launched at a higher price• It was done to increase the product portfolio

and increase value amongst its customers

Nestle and Infant Nutrition

• Nestle has always focused majorly on the infant nutrition

• It has been the market leader having a market share of 85% in the world

• It has products like Cerelac, Nestum, Lactogen for the infant nutrition

• It has also introduced Nestle Nan for older infants

• It has launched Nestle Development Nutrition Plan to meet the right physical needs of the infants

• Nestle is also planning to launch Neslac in India• It is done to strengthen lead in the infant food

market• It is done to increase its margin and create

value amongst the customers

Strategy – Mergers and Acquisitions

Nestlé India Board Approves Proposal To acquire Healthcare Nutrition Business of Speciality Foods:

This will add value to Nestle products by adding nutrition, health and wellness.

• Over the last three years, Nestle India spent huge sums on capital investment.

• The funds will further be invested for expanding facilities and also setting up new Greenfield facilities.

• Nestle India Ltd to make domestic acquisition investments

• This helps to reduce cost through economies of scale and also diversify its portfolio.

• Nestlé to establish an R&D Centre in India. The facility will be built in Manesar and will be operational in 2012

• This will further strengthen Nestlé's R&D capabilities in emerging markets and hence increase the value of the products.

• Nestle has primarily focused on the health of its customers:

• By introducing milk and milk products like Nestle Nido, Slim and Fit Dahi etc, they target the consumers who are highly particular about their diet.

• Adding such value in products was greeted very well by consumers.

• The launch of their campaign ‘Test bhi Health bhi’ also goes in sync with their strategy.

• In today’s world, people take health very seriously. • Hence people prefer healthy products. Increasing

nutritional value is of prime importance and Nestle has done just that.

• Maggi Vegetable Atta noodles, Dal Atta noodles, Rice noodles, healthy soups, pazzta which is made from suji etc are products which were Nestlé's innovations and have become household names now.

• Nestle successfully implements ‘Umbrella Branding’: Maggi is a highly successful brand.

• Nestle has launched many products under the banner of Maggi. • Association with a highly trusted brand increases the value that

the products promise to deliver. • Noodles, atta noodles, cuppa mania, healthy soups, ketchups,

pichkoo ketchups, pizza mazza, magic cubes, multi grain noodles, bhuna masala, pasta, coconut milk powder, sanjeevani cup soups are the set of products under the banner of Maggi.

• This strategy also saves considerable amount of advertisement and promotional costs.

• They place their vending machines and outlets at the places where there was maximum need for them

• They opened their outlets in college campuses, company premises, railway stations, airports etc where people need their products on the go.

• This increases the value of the products because the value of the Nestle products largely depends upon the timing of their need and the fulfillment.

• Through innovation, Nestle has consistently increased the value of its products:

• Maggi had introduced Maggi Hot and Sweet tomato chilli sauce which became a huge hit.

• The “Its Different” campaign was also very successful.

• Nestle has successfully implemented Low-Unit Packs

• Launching low unit packs expands the reach of the product. Be it the small packs of Maggi or the Chotu Munch.

• This helps them to increase sales in rural market where people prefer such packs.

Analysis of competitor’s strategies

GlaxoSmithKline

• GlaxoSmithKline Consumer Healthcare Ltd. (GSKCH) is an Indian associate of GlaxoSmithKline plc, UK. GSKCH is one of the largest players in the health food drinks industry in India

• The company with its manufacturing plants located in Nabha, Rajahmundry and Sonepat, has a total workforce of over 2700 people, each driven by a spirit of enterprise. Its, flagship product, Horlicks, is highly respected brand which is over 100 years old in India.

• The company also manufactures and markets Boost, Viva, Maltova, Biscuits and in addition promotes and distributes a number of products in diverse categories, including prominent brands such as Eno, Crocin, and Iodex.

• GSKCH has a strong marketing and distributing network in India compromising over 1800 wholesalers and direct coverage of over 4,00,000 retail outlets. The business is based on scientific innovation.

• The company has dedicated consumer healthcare R&D centres and takes research as seriously as marketing excellence, offering cutting-edge capability in both.

• The company's product portfolio is grouped under three heads; viz nutritional, vending and over the counter (OTC) products. The segment offers a number of health food drinks, catering to different needs of consumers.

• Available in four flavours, viz; vanilla, toffee, elaichi and chocolate, its flagship malted food brand, Horlicks, is present in India for more than last 100 years.

• Over the years, the company has introduced different variants of Horlicks drink. Leveraging upon its popularity, the company has extended the Horlicks brand to biscuits.

GSKCH strategy

GSKCH is diversifying from malt based food drinks to other segments and also align with parent’s goal of driving growth in emerging markets. Its parent’s strategy is focused on emerging markets, which are growing

faster than developed markets. It is investing in Bric (Brazil, Russia, India and China) and satellite markets, launching its global portfolio in these markets and fine tuning its strategy to suit these markets—offering products at various price points and improving availability.

The alignment of strategy between GSKCH and its parent is good as it

enables the company to have a more diversified portfolio

• The company tackles the challenge at three levels Investing in new science on the original Horlicks and keeping the promise relevant.

• Expanding the brand’s footprint into new health drink extensions where they tap consumer segments who may not be using the category (Junior Horlicks, Women’s Horlicks, Mother’s Horlicks, Asha, Horlicks Lite etc)

• Expanding the brand to new categories like cereal bars (Horlicks NutriBar), ChillDoodh,biscuits and now instant noodles.

Nestle MILO

• Could not compete against Boost& horlicks• Nestle India has discontinued the production of its energy

drink Milo because of dropping sales.• According to company sources sales have not picked up

despite heavy discounting and aggressive sales push. "We have tried Milo for a long period with limited success in the crowded and competitive market and have decided to exit this particular product from our current portfolio," according to a company spokesperson.

• The product has been losing its market share to competition from Boost& horlicks, a GlaxoSmithKline brand.

Strengths of GSK products-horlicks Depth of brand awareness

• Ease of recognition & recall• Strength & clarity of category membership

Product reliability, durability, and serviceability

• The product is trustworthy, never failed in terms of taste, quality and followed consistent taste throughout the country since inception

• The product is has a longer shelf life if stored properly in air-tight containers

Style and design

i. The new Horlicks formulation is accompanied by contemporary packaging in hues of bright blue and orange.

ii. Junior Horlicks comes with a cute elephant design and is something every child would like to play with.

iii. Women’s’ Horlicks comes in a curvy bottle with attractive red colour.

Price • par with the other health drinks.

Cadbury India

• Began its operations in 1948• From 1965, Cadbury India has also pioneered the

development of cocoa cultivation in India• Currently it operates in four categories

Chocolate confectioneryMilk food drinksCandyGums

Cadbury’s strategy

• Cadbury India being in the matured phase keeps its products attractive and continues to grow by innovation and new launches

• Cadbury India used the media to improve its sales and franchise base for Dairy Milk chocolates

• They focused on celebrating joyful moments with Cadbury’s chocolates

• Which is mainly a move to replace sweets with its chocolates• The media campaign was so powerful that they covered all

the modes of media like radio, television, internet and even outdoor campaigns

Cadbury’s strategy contd…

• Cadbury’s also made a tie up with Reliance Webworld

• When students access Rworld to check their results, a Dairy Milk chocolate would appear if they passed their examinations

• This strategy of Cadbury increased its customer base and franchises


• Cadbury Dairy milk is the highest selling chocolate in India, and their second best seller is 5 Star

• 5 star sales declined due to Nestle Bar-One which was much more good in taste and was priced at the same range

• So Cadbury came up with 5 Star Crunchy making the nougat-caramel chocolate a crunchy one


• And again Cadbury used media to campaign promoting the change which they made in the 5 Star chocolate

• Cadbury 5 Star regained its market as a result of the change brought in by the company

• Cadbury’s picnic was another chocolate bar with peanuts, biscuit and puffed rice

• It received a major threat from nestle munch which was priced at Rs.5 and much was successful mainly because of its pricing


• Eventually picnic lost its share in the market in that sector and to counter attack the Munch, Cadbury launched Perk which was also priced at the same range and provided a similar taste

• But Perk couldn’t take over the market share occupied by Munch, currently there are many flavors available in perk, yet it couldn’t overtake the market share held by Nestlé's Munch


• Nestle also launched “Munch Pop choc”, a move to increase its customer base

• Cadbury countered the same by launching Cadbury Bytes, which is much different from the Pop-Choc of the nestle

• And it brought down the sales of the Pop-choc as it provided a different taste

• Thus Cadbury India has been following the product development strategy by launching various types of products in the same industry

BRITANNIA• Britannia was started in 1892 in Calcutta with an initial investment

of Rs.295• In 1910, it mechanized its operations with the advent of electricity• In 1921, it used imported gas ovens (first in India)• In 1978, it went public by issuing of shares• In 2002, Britannia launched joint venture with Fonterra, the world’s

second largest dairy company• In 2006, it acquired 51% stake in Daily Bread ( a Bangalore- based

bakery foods retailer)• In 2007, formed a joint venture with the Khimji Ramdas Group and

acquired two companies (one in Dubai and the other in Oman)

Products of Britannia

• Dairy whitener• Ghee• Actimind• Tiger Zor Choco Milk• Cheese• Butter• Milk • Dahi

Britannia’s Strategy• Fresh marketing strategies, Brand exercises, diversified portfolio and

healthy lifestyle positioning led to Britannia’s sales doubling in five years • Innovation in their product line led to growth of company• Acquiring new capabilities and new technologies built has led to Britannia

enter the market with dairy products• Building stronger product portfolio by adopting an intensive healthy life

positioning• Line extension of its brands – for example, introducing smaller Rs. 5 packs

for one-time consumption and expanding the distribution network• Creation of personal packs with just 3-4 biscuits for people ‘on the go’ –

leading to wider consumer base

Britannia’s Strategy contd…• Limited edition packs for festive seasons has led to increase in creating

value and appeal amongst its customers• Energy integration through new energy efficient ovens has led to

minimizing of cost• Has put up system and processes in place which facilitates decision making

to improve operational efficiency and effectiveness • Workflow systems are deployed across key business processes to integrate

sales and replenishment• Concentration on three priorities – accelerating top-line growth,

increasing cost effectiveness and building capability – of people and infrastructure

• Launched ActiMind – first of its kind milk-based health drink

Britannia’s Strategy contd…• Britannia the only company in India to remove transfats from its biscuits –

eating healthy• Flavored milk drinks and Tiger Zor has been launched in unique and easy

to carry and use bottles• Britannia competes with nestle in its dairy products• The main success of Britannia is providing milk biscuits as a replacement

for milk products• Targeting the age group of 4 to 16, its biscuits has proved to be a

replacement of dairy products and chocolates

nestle india

Documents

food processing sector

foodprocessing sector

food items

introduction food processing

food retail

processed food industry

food infrastructure

packaging of food products