Nestle

NestleGrowth in Mature MarketsHistory & GrowthNestle is the world's leading nutrition, health and wellness companyFounded in 1867Well-coordinated mergers , Innovative food products

Mission: "Good Food, Good Life" is to provide consumers with the best tasting, most nutritious choices in a wide range of food and beverage categories and eating occasions, from morning to night

History & Growth1997 Peter BarbeckStrategy 4% organic growth in a mature market through innovationDiversificationOutperforming the food sectorProduct portfolio -19 categories

History & GrowthPressure from growing competitors and weak profit margins (1997)-root cause: various acquisitions

Operational Efficiency Cutting down of investment budgetMaximize existing assetsMaximizing capacity utilization

History & GrowthEfficiency programs manufacturing, supply chain

Umbrella Branding: distribution of 127,000 products under six strategic brands

First Movers Nutritional & Wellness AspectInorganic growth for gaining market share

History & GrowthTwo primary strategic goalsIntroduce nutrition and wellness into mainstreamReinforce position in nutritional products category

Focused on strengthening innovation One-fifth of entire product range had to be innovated or renovated every yearCreation of PTC, LAC, Clusters

Activity Map

DiversificationOrganic growthNutritioninitiativeGrowthIn-organic growthR&DinnovationOperationalefficiency Product TechnologycenterIncreasing value through nutritionMergers&acquisitionStrategic goalsObjectivesExternal EnvironmentPESTEL ANAYLSIS

PoliticalTaxation policy

Foreign trade regulations

Social welfare policies

Subsidies policy

EconomicVolatility of food price

Inflation

Disposable income

Exchange rates

Socio CulturalPopulation demographics

Changing Lifestyle

Working Women

Advertisements targeted to children

TechnologicalGlobe initiative

Speed of technology transfer

Rate of obsolescence

Huge R & D spend

Clusters

EnvironmentalPackaging of products

Pollution

Global water crisis

Carbon emissions from factories

Use of palm oil - deforestation

LegalEmployment law

Child labor

Health and safety

Mergers and acquisitions

5 Forces

Threat of Entry Food Processing Industry Large & CompetitiveNew Entrants

Nestle has a Brand equity Long PresenceHistory for quality products & Consumer Satisfaction

MODERATE

Threat of SubstitutesNature of industryArrays of similar products that compete directly with NestlInnovation to improve its productsFocused on the health and wellness aspects of its products to maintain competitive edgeHIGH

Power of BuyersClose substitutesNestl has taken specific steps to meet the needs of consumersIncorporated health and wellness into the creation of its products

HIGH

Power of SupplierNestl prides itself on creating and maintaining positive relationships with its suppliers all over the worldLarge purchasing power of NestlLow cost of productionSuppliers of agricultural commodities offer a common productLOW

CompetitorsNestl is a powerhouse in the food processing industry but so are Kraft Foods and Groupe DanoneContinuous battle to outperform one anotherRivalry is fierce which is good for consumersConsumers will continue to enjoy ever-improving product linesHIGH

Internal EnvironmentSWOT

Internal Environment

Strategies

Strategieswhat makes the whole company greater than the sum of its business units.

DiversificationRelated Diversification

Horizontal Integration

Complementary Capabilities

Dominant business firt - 95% revenues from f&b (related)2 business units wellness ( adding nutritional functionalities as a value add to existing products) 700 products modified, ice creams etc Nutrition product nutritional value was of core importence whereas taste was a value addNestle research centre & 1/5 of R&D budget to nutritional research 25DiversificationUnrelated Diversification

Nutritional cosmetics

Inneov

JV with loreal , nestle combined knowledge with loreal esxpertise in beauty products26Global Expansion Leveraging skills of global subsidiaries

Pressure for Local Responsiveness

IdeaManagerial skillsInnovationConsumer Taste & PreferenceTraditionalEconomic & Political Factor100 local variations of Nescafe around the world 27Global Strategy

Pressures for local responsivenessPressures for cost reductionsLowHighLowInternational StrategyLocalization strategyHighGlobal standardization strategyTransnational strategy

Parent Portfolio Manager (M&A)

Synergy Manager ( Capabilities Manager)Parental Developer (Value add)

SM- Seeks to enhance value across BUs by managing synergies across BUs Share resources/activitiesCommon skills/competencesParental developer-Seeks to employ its own competences as a parent to add value to its businessesClarity about the relevant resources or capabilities they have which can enhance the potential of BUs

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Parenting Mix

Nutrition Business - Heartland

Heartland business units: parent can add value without danger of doing harm core of future strategy

30 StrategyBusiness Level StrategyForm basis of Competitive Advantage

Competitive AdvantageTwin objectives

Develop nutrition & wellness as a value add feature to mainstream F&BReinforce companies leading position regarding specialized nutrition products

Bowmans Strategy ClockRoute 4 : Differentiation

Value Addition to Traditional Product Enhanced price for better marginsStrategic Customers Health Conscious

Price Based AdvantageStress on innovation & renovation Product proliferation Product development Efficiency programs

Renovation for market penetration and innovation for NPD , 1/5 of the product base to be renovated every year 34Blue Ocean StrategyBlue ocean from within a red ocean

Created an uncontested market space for itself Nutrition & Wellness business

Created & Captured new demand Generating Demand

StrategyFunctional Level StrategyCombination of Distinctive Resources, capabilities & competencies to facilitate value creation and profitability

Operational EfficiencyCustomer Responsiveness

Demonstrated Leadership Top positions in 6 Brands Customization- Think Globally Act locally Response time Disinvest in unprofitable business Quickly, Acquire profitable segmentLocal Application Centers

Innovation CapabilitiesImprove R&D and marketing Efficiencies By cutting on Investment Budgets Maximum Capacity Utilization, Distribution Logistics PTCs Swift Link between R&D and Market

Material ManagementGenerate savings by closing 165 factories all over Regional Manufacturing Network BenchmarkingBest Practice Transfer

Information SystemsGlobe 2007 Initiative

Integrate Companies business on Global Scale Align data standards Common IS Clusters improve communication & knowledge sharing

Marketing EfficiencyReducing marketing expenditure & Strengthen product Identity ( Piggybacking)

Exploiting synergies between the brands Most products under 6 strategic brands

Key Success Factor Intended Strategy organic growth more sustainable path of growth R &D Nutrition

Logical Incrementalism Resource Allocation

Key Success Factors Supply Cost Optimization -Operational Excellence 2007

Operational Efficiency MH97 - ManufacturingTarget 2004+ Regional Manufacturing NetworksGLOBE

Organic + Inorganic growth

Continous monitoring of non performing brands/products/mergers43Recommendation Hybrid/ Mixed StructureCombines advantage of Centralized & Decentralized achieve economies of scale

Identify market niche Creation of market intelligence and analysis units

70% sales coming from mature market- Untapped emerging market

Niche creation of new segments for net allergic people

44Thankyou