Nestle Strategy 6q2f44

Nestle Growth in Mature Markets

History & Growth • Nestle is the world's leading nutrition, health and wellness company • Founded in 1867 • Well-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 & Growth • 1997 – Peter Barbeck • Strategy – 4% organic growth in a mature market through innovation • Diversification • Outperforming the food sector • Product portfolio -19 categories

History & Growth • Pressure from growing competitors and weak profit margins (1997)-root cause: various acquisitions • Operational Efficiency – Cutting down of investment budget – Maximize existing assets – Maximizing capacity utilization

History & Growth • Efficiency programs – manufacturing, supply chain • Umbrella Branding: distribution of 127,000 products under six strategic brands • First Movers – Nutritional & Wellness Aspect • Inorganic growth for gaining market share

History & Growth • Two primary strategic goals – Introduce nutrition and wellness into mainstream – Reinforce position in nutritional products category •

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

Activity Map Organic growth

R&D innovation Growth

Diversification Nutrition initiative Strategic goals

Objectives

Operational efficiency

Product Technology center

Increasing value through nutrition

In-organic growth

Mergers & acquisition

External Environment

PESTEL ANAYLSIS

Political • Taxation policy • Foreign trade regulations • Social welfare policies

• Subsidies policy

Economic • Volatility of food price • Inflation • Disposable income

• Exchange rates

Socio Cultural • Population demographics • Changing Lifestyle • Working Women

• ments targeted to children

Technological • Globe initiative • Speed of technology transfer • Rate of obsolescence • Huge R & D spend • Clusters

Environmental • Packaging of products • Pollution • Global water crisis • Carbon emissions from factories • Use of palm oil - deforestation

Legal • Employment law • Child labor • Health and safety

• Mergers and acquisitions

5 Forces New entrants

Bargaining power of suppliers

The Industry (competitors)

Substitute products or services

Bargaining power of customers

Threat of Entry • •

Food Processing Industry – Large & Competitive New Entrants

• •

Nestle has a Brand equity – Long Presence History for quality products & Consumer Satisfaction

 MODERATE

Threat of Substitutes • Nature of industry • Arrays of similar products that compete directly with Nestlé • Innovation to improve its products • Focused on the health and wellness aspects of its products to maintain competitive edge  HIGH

Power of Buyers • Close substitutes • Nestlé has taken specific steps to meet the needs of consumers

• Incorporated health and wellness into the creation of its products

 HIGH

Power of Supplier • Nestlé prides itself on creating and maintaining positive relationships with its suppliers all over the world • Large purchasing power of Nestlé • Low cost of production • Suppliers of agricultural commodities offer a common

product  LOW

Competitors • Nestlé is a powerhouse in the food processing industry but so are Kraft Foods and Groupe Danone • Continuous battle to outperform one another • Rivalry is fierce which is good for consumers • Consumers will continue to enjoy ever-improving product

lines  HIGH

Internal Environment

SWOT

Internal Environment STRENGTHS • Strong brand name • Financial Strength & Scale • Innovation Capabilities • Localization • First Mover Advantage – Nutrition • Diversified Portfolio

WEAKNESSES • Initially Heavy reliance on M&A •Food processing Industry •Small sale exposure to emerging markets

OPPORTUNITIES

THREATS

• Transition to a ‘nutrition and wellbeing’ company • Focus on enhancing business opportunities in emerging economies • Booming eating out market

• Lucrative markets for new companies • Risk of strategically unviable reinvestments and acquisitions • Switching cost is low

Strategies

Strategies

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

Diversification Related Diversification Horizontal Integration Complementary Capabilities

Diversification Unrelated Diversification Nutritional cosmetics

Inneov

Global Expansion • Leveraging skills of global subsidiaries Idea

Managerial skills

Innovation

• Pressure for Local Responsiveness Consumer Taste & Preference

Traditional

Economic & Political Factor

Global Strategy Pressures for local responsiveness

Pressures for cost reductions

Low

High

Low

International Strategy

Localization strategy

High

Global standardization strategy

Transnational strategy

Parent Portfolio Manager (M&A)

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

Parenting Mix

Nutrition Business - Heartland

Strategy

Business Level Strategy Form basis of Competitive Advantage

Competitive Advantage • Twin objectives  Develop nutrition & wellness as a value add feature to mainstream F&B Reinforce companies leading position regarding specialized nutrition products

Bowman’s Strategy Clock Route 4 : Differentiation • Value Addition to Traditional Product • Enhanced price for better margins • Strategic Customers – Health Conscious

Price Based Advantage

• • • •

Stress on innovation & renovation Product proliferation Product development Efficiency programs

Blue Ocean Strategy • Blue ocean from within a red ocean • Created an uncontested market space for itself Nutrition & Wellness business • Created & Captured new demand “Generating Demand”

Strategy

Functional Level Strategy

Combination of Distinctive Resources, capabilities & competencies to facilitate value creation and profitability

Operational Efficiency Customer Responsiveness • Demonstrated Leadership – Top positions in 6 Brands • Customization- “ Think Globally Act locally” • Response time – Disinvest in unprofitable business Quickly, Acquire profitable segment • Local Application Centers

Innovation Capabilities

• Improve R&D and marketing Efficiencies • By cutting on Investment Budgets • Maximum Capacity Utilization, Distribution Logistics • PTC’s – Swift Link between R&D and Market

Material Management

• Generate savings by closing 165 factories all over • Regional Manufacturing Network • Benchmarking • Best Practice Transfer

Information Systems Globe 2007 Initiative • • • •

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

Marketing Efficiency • Reducing 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 - Manufacturing – Target 2004+ Regional Manufacturing Networks – GLOBE

•

Organic + Inorganic growth

Recommendation •

• • •

Hybrid/ Mixed Structure – Combines 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

Thankyou