Nestl: Internal and External Analysis

Strategic Planning Individual Assignment

Name: Student ID: Lecturer:

Dumindu Katuwala 2948 Mr. A. C. Marcelline

Nestl: Internal and External Analysis Strategic Planning Table of Contents

Executive Summary .......................................................................................................... 2

Trends to look out for ............................................................................................................... 3

Issues faced by Nestl ............................................................................................................... 7

Nestls Response/Adaptations ............................................................................................. 10

SWOT Analysis ......................................................................................................................... 17

Porters Five Forces Analysis ................................................................................................... 18

Recommendations .................................................................................................................. 20

Conclusion ............................................................................................................................... 21

Dumindu Katuwala

Nestl: Internal and External Analysis Strategic Planning

Executive Summary

This report holds an extensive analysis of the Nestl Global Corporation. The report is targeted towards the board of directors of Nestl Global. The main goal of this report is to identify the internal and external factors which influence Nestls business strategies using appropriate theoretical frameworks and applying them into a practical scenario. The report is started off by remembering the core mission and vision statements of Nestl. This is done to give you a flashback on your companys core strategic values and for you to evaluate to yourself if the company is still under the said framework (mission, vision and values). The next focus point would be the trends that the company should look out for in the coming years. These are important factors that the company should focus on and should create suitable strategic decisions in order to adapt in the future. The issues faced by Nestl globally are brought forward to you in detail with all possible data. The actions taken by Nestl to overcome these issues will be further discussed and evaluated to justify if the necessary actions were taken. As a summary the SWOT analysis and analysis of the Porters five forces will be brought forward to you into the latter part of the report. The report would conclude with specific recommendations related to the trends and issues discussed in the report.

Dumindu Katuwala

Nestl: Internal and External Analysis Strategic Planning

Nestls Mission Nestl is the world's leading nutrition, health and wellness company. Our mission of "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.

Nestls Vision and Values Nestl is to be a leading, competitive, Nutrition, Health and Wellness Company delivering improved shareholder value by being a preferred corporate citizen, preferred employer, preferred supplier and selling preferred products.

Before moving forward with this report it is important for us to go back to the core strategies and values of your company, Nestle. The reiteration of Nestls Mission, Vision and Values is for you to read and understand if Nestle has really been able to stick to the core business strategies that it has been built upon. It is also important for us to understand that any changes or modifications that need to be done due to the developing trends and issues globally should be done within the constraints of the said core strategies of the company. Nestl has come a long way since its inception in 1867 and stands strong today as the worlds largest food company. It is our responsibility to maintain Nestl at this position and also to take the necessary strategic decisions by evolving to the different trends, issues and challenges that come up.

Dumindu Katuwala

Nestl: Internal and External Analysis Strategic Planning

Trends to look out for

Sustainable Selection The modern consumer is very complex. Consumers are not only basing their food and beverage purchases on taste and price, but they are also concerned about where their food comes from, how its production has impacted the environment, how close the final product is to its raw ingredients, and also how its purchase affects the income of the producers down the product development chain. These concerns can be summed up into five main categories of sustainable food and beverages: Organic Locally sourced Fair trade Carbon footprint Eco-packaging

The wide variety of issues under sustainability shows that it is more than just being green or making green product choices. Impact on Nestle: This new trend that is developing among the consumers is something that would directly affect Nestl as your company has had certain issues regarding sustainability which would be discussed more specifically under Issues faced by Nestle Globally (Refer pg.: 05).

Dumindu Katuwala

Nestl: Internal and External Analysis Strategic Planning

Putting Health and Wellness on the Menu The health stakes are high The obesity rate has tripled since 1960, and two-thirds of the population is overweight. An estimated 14% of all deaths have been attributed to poor diets and/or sedentary lifestyles. It is estimated that healthier diets might prevent $71 billion per year in medical costs, lost productivity and the value of premature deaths associated with these health conditions. Reasons such as this has caused an increase in overall consumer interest in selecting food and beverages geared towards wellness. Also attitudinal and behavioral analyses indicate that consumers are becoming more selective in their product and lifestyle choices. Eating healthy food is something that has been talked about for many years, however according to the latest data it seems that consumers are greatly concerned about this factor today than ever before. Impact on Nestle: As Nestl holds over 8000 brands with a wide range of food and beverage products all around the world it is a responsibility of Nestl to take action for the health issues that people go through globally.

Technology Faced with the task of feeding 9 billion people in the not too distant future, there is a massive shift of the use of technology in the production of food and beverages. We are at the beginning of the most radical transformation of our food industry since the Green Revolution. Until now, food innovation including agricultural production, processing, distribution and retail happened in the laboratories and strategy shops of a few select multinationals. These approaches to innovation have been proprietary, consolidated and designed to maximize shareholder interests. But as the Internet democratizes virtually every industry, like healthcare, media and education, its becoming increasingly clear that a more holistic future is possible. The new trend of using technology would be to level the playing field between Dumindu Katuwala

Nestl: Internal and External Analysis Strategic Planning

industrial and sustainable food by leveraging information, technology and multidisciplinary design. A future thats decentralized, collaborative and designed to maximize the interests of producers, eaters and the environment is not far away.

Dumindu Katuwala

Nestl: Internal and External Analysis Strategic Planning

Issues faced by Nestle Globally

Nestl: Global Water Predator? Thats right; Nestl is now starting to be known as the Global Water Predator by different factions around the world, especially in the States. This is a major issue for your company as it would certainly impact the brand image of the company. There are also certain sites that have been put up against your company such as StopNestlWaters.org which are creating an entirely bad image of Nestl. The said website (StopNestlWaters.org) and other factions are making many claims as to why they are going against Nestl. A few of them are quoted as follows: Nestl takes water from US communities on the cheap, bottles and sells it for billions of dollars in profit and dumps the environmental and other costs onto society. Nestl's predatory tactics in rural communities divide small towns and pit residents against each other. Another comment by an actual consumer quoted: I drank water today from a Poland Spring (Nestle) bubbler at work that I personally opened and replaced, knowing I was the only one that handled the bottle I knew the problem came from the distributor. After a short time after drinking some of the contaminated water, I noticed the water smelled VERY strongly like GASOLINE! I saved my water bottle for testing, my union is investigating. SCARY SCARY who will hold these major companies liable? These are not baseless comments; they are backed by a certain degree of evidence. Let us try to understand the necessary actions taken by your company (Nestl), in dealing with the water issue which has escalated largely in the recent times under Nestls Response/Adaptations (Refer pg.: 08). Issues such as this would cause ripple effects to the consumer loyalty as consumers are now going more towards sustainable selections (Refer pg.: 03). Dumindu Katuwala

Nestl: Internal and External Analysis Strategic Planning

Child Labor A year ago an article titled Nestle Audit Finds Child Labor Violations in Cocoa Supply was published in the Bloomberg. As members of the director board you should be aware of this issue. However it is important for us to recollect the results of the audit last year and also evaluate the necessary actions taken by Nestl to overcome the problem (Refer Nestls Response/Adaptations pg.: 08). Nestle buys about a 10th of the global cocoa production and more than a third of that comes from the Ivory Coast, the worlds biggest producer. About 89 percent of Ivory Coast children were involved in growing cocoa, according to a 2008 government survey. According the President of the FLA (Fair Labor Association) Van Heerden the root causes of child labor in the cocoa industry include poverty and a lack of schools. Issues such as this are external supply chain issues which would directly affect the brand image of the final customer (before going to the consumer) Nestl.

Nestl: Baby Killer? A boycott was launched in the United States on July 7, 1977, against Nestl corporation. It spread in the United States, and expanded into Europe in the early 1980s. It was prompted by concern about Nestl's "aggressive marketing" of breast milk substitutes, particularly in less economically developed countries (LEDCs), which campaigners claim contributes to the unnecessary suffering and deaths of babies, largely among the poor. Groups such as the International Baby Food Action Network (IBFAN) and Save the Children claim that the promotion of infant formula over breastfeeding has led to health problems and deaths among infants in less economically developed countries. There are a few problems that can arise when poor mothers in developing countries switch to formula: Formula must normally be mixed with water, which is often contaminated in poor countries, leading to disease in vulnerable infants. Because of the low literacy rates in developing nations, many mothers are not aware of the sanitation methods needed in the preparation of bottles. Even mothers able to read in their native language may be unable to read the language in which sterilization directions are written. Dumindu Katuwala

Nestl: Internal and External Analysis Strategic Planning

Although some mothers can understand the sanitation standards required, they often do not have the means to perform them: fuel to boil water, electric (or other reliable) light to enable sterilization at night. UNICEF estimates that a formula-fed child living in disease-ridden and unhygienic conditions is between 6 and 25 times more likely to die of diarrhea and four times more likely to die of pneumonia than a breastfed child. Many poor mothers use less formula powder than is necessary, in order to make a container of formula last longer. As a result, some infants receive inadequate nutrition from weak solutions of formula.

Dumindu Katuwala

Nestl: Internal and External Analysis Strategic Planning

Nestls Response/Adaptations
Nestl on Sustainability With the increased global trend towards sustainability, your company (Nestl) had to adapt fast and Nestl really was able to make a difference. Nestl started off by making its own definition of sustainability which is "the process of increasing the world's access to higher quality food, while contributing to long-term social and economic development, and preserving the environment for future generations". Nestl also took the steps in creating the Sustainable Agricultural Initiative with other food manufacturers. The group defines sustainable agriculture as "a productive, competitive and efficient way to produce agricultural raw materials, while at the same time protecting and improving the natural environment and social/economic conditions of local communities". Nestle is also attempting to improve the performance of its suppliers of agricultural commodities to raise quality, lower costs, and contribute to sustainable development. Its initiatives focus first on coffee, cocoa, and milk. Nestle managers assert that the initiatives deliver both private benefits (better quality and reduced costs to the firm) and social benefits (higher incomes for farmers, better environmental quality in farming regions, improve brand image). Achievements Nestl is the leading food products company in the Dow Jones Sustainability Index for the first time with a score of 88%, double the industry average. The company has also achieved the maximum score for the second year running in the CDP Climate Disclosure Leadership Index and the CDP Climate Performance Leadership Index, both of which are published in the Global 500 Climate Change Report 2013. Nestls leading positions in all three indices recognize its strong performance against a number of benchmarks that measure the environmental and the social impact of its operations and the transparency of its information disclosure.

Dumindu Katuwala

10

Nestl: Internal and External Analysis Strategic Planning

Nestl on water Nestl has been working immensely on producing water efficient products for many years now with all pressure from different factions. Over 10 years to 2008, the company reduced its waste use per kilogram of product by 49%. The Nestl Waters business reduced the amount of additional water needed to produce 1 liter of bottled water to 0.76 liters, a fall of 26% since 1999. At the beginning of last year, Nestls factory in La Penilla, which makes chocolate, confectionery, milk and infant formula, was using 72 cubic meters of water per tonne of product. Now, after introducing changes such as a water efficiency program, and investing one million euros (CHF 1.2 million) it has reduced this by 60% without increasing energy consumption or greenhouse gas emissions. Response by Nestl chairman on water Nestl Chairman Peter Brabeck makes the astonishing claim that water isnt a human right. He attacks the idea that nature is good, and says it is a great achievement that humans are now able to resist natures dominance. He attacks organic agriculture and says genetic modification is better. Water is a foodstuff like any other, and should have a market value.

Evaluation of Nestls response on Sustainability Nestls efforts towards sustainability have been promising. The idea to collaboratively work with other multinational organization by forming the Sustainable Agricultural Initiative is a positive sign for the future of sustainable development in the food and beverage industry. The achievements reached by Nestl clearly show that Nestl has been successful in helping with the necessity of sustainable development. The steps taken to reduce the water consumption in their production, clearly reduces the costs of production and also it positively affects the environment. However it should be evaluated if the necessary issues that are raised by people are addressed by Nestl (Refer pg.: ). The

Dumindu Katuwala

11

Nestl: Internal and External Analysis Strategic Planning

different pressure groups that are developing against Nestl should addressed fast as they are growing and their growth would affect Nestls brand image in the long run. The response made by your chairman is questionable. Statements as such would never conform to be positive socially, politically and even economically. It is your responsibility as the distinguished board of directors to advice your chairman to refrain from making statements as such, as it would affect the companys image and also lose its credibility as a eco-friendly and sustainable company. All efforts by the various sectors in improving sustainable development and such would all be a waste with statements of that nature.

Response on Child Labor This issue needed quick response as word was spreading all around the world and it could have resulted in loss of brand image thus sales in the long run for Nestl. However your company (Nestl) was able work with the FLA (Fair Labor Association) and come up with certain strategies to minimize this issue. The FLA made 11 recommendations to Nestl, all of which the company fully supported and started acting upon, in some cases in collaboration with its partners. There were improvements done in the companys supplier code prioritizing the measures needed to tackle child labor. The company started working more closely with its suppliers, its certification partners and other bodies to ensure those working throughout the cocoa supply chain received better training on the nature of the child labor problem and how to address it. Nestl also started working with its partner, the International Cocoa Initiative, which is a foundation that works with the cocoa industry, civil society and trade unions, to set up the new monitoring and remedy scheme.

Dumindu Katuwala

12

Nestl: Internal and External Analysis Strategic Planning

A few statistics: More than 6,000 cocoa farmers in Cte dIvoire have received training in 2012 as part of the plan. Over 800,000 better quality cocoa plants have been distributed to them. In March 2013 the company opened the first school it has built for a Nestl Cocoa Plan co-operative. By 2015 Nestl aims to train a further 24,000 farmers in Cte dIvoire, and deliver a further three million plantlets.

Evaluation of Nestls response on Child Labor in Cte dIvoire The steps taken by Nestle to support with this issue looks to be a good approach. The aim of Nestl to train a further 24,000 farmers in Cte dIvoire by 2015 looks to be a positive move as the increase in skilled farmers would reduce the use of child labor. However this method would necessarily not stop child labor but it would encourage your suppliers not to use children for labor as there are more skilled individuals.

Dumindu Katuwala

13

Nestl: Internal and External Analysis Strategic Planning

Nestl on health and wellness As mentioned under Trends to look out for (Refer pg.: 04), consumers are moving towards healthier selections and as mentioned with statistics obesity is starting to be a global epidemic. What has your company done regarding this global issue? Nestl was the first company in the food industry to policies of introduce for the

comprehensive systematic

reduction

specific

nutrients considered to be detrimental to health when consumed in excess. Nestl has published a set of 30 social and environmental goals
Nestls Nutritional value chain

focused on countering the global nutrition crisis and environmental decline, to be achieved by or before 2020. In response to the growing obesity epidemic, your company Nestl plans to provide portion guidance on all childrens products by 2015 and label guideline daily amounts (GDA) on the front of the pack on more products by 2016. The most recent one is where Nestl has pledged to accelerate the reduction of salt across all its food brands worldwide to support a World Health Organization salt target of no more than 5g of salt per person, per day, by 2025. Nestl is also at the cutting edge of nutritional research into salt alternatives, collaborating with US life sciences company Chromocell Corporation to identify compounds with similar or equally pleasing tastes that could potentially be used instead of salt in a range of foods. With brands such as Maggi worldwide, Nestl also provides consumers with healthy cooking education programs, helping them to create tasty and balanced meals every day with more vegetables, less salt and less fat. Dumindu Katuwala

14

Nestl: Internal and External Analysis Strategic Planning

Connecting the technological trend with health and wellness Nestl has the largest R&D network of any food company in the world, with 34 R&D facilities including three Science & Research Centers and 31 Product Technology Centers and R&D Centers worldwide - and over 5,000 people involved in R&D. Nestl Research Tokyo focuses on fundamental research in nutrition and health in Japan while a joint research program, Food for Life, addresses a number of topics related to nutrition and health including healthy ageing and metabolic syndrome. Response for the issue on breast milk substitute products There was no proper solution brought forward by Nestl regarding this issue and it is still an issue discussed today. However in 1981 the WHA (World Health Assembly) brought forward an International Code of Marketing of Breast-milk Substitutes. This code bans the promotion of breast milk substitutes and gives health workers the responsibility for advising parents. The CEO in this year stated that it keeps on to the code but there different groups of people who state that Nestl is violating the code. Nestl however according to my in-depth research seems to be encouraging mothers to breast feed her child and only advices to use breast milk substitute products as an option at last resort.

Evaluation of Nestls response on health and wellness The 30 social and environmental goals published by Nestl to counter the global nutrition crisis and environmental decline is positive step forward. It is also important to note that your company has given these goals a dead line (on or before 2020). There are many organizations that come up with strategies like this but as a multi-national organization and also as the worlds largest food company Nestl sends out a positive message to the whole world. By actions such as this Nestl is able to further improve its brand image globally. Nestls plan to provide portion guidance on all childrens products by 2015 would definitely help parents understand the necessary balanced meal that should be given to their children. If this is successful it would help to reduce the obesity issue in the future as young children would be fed just right. Dumindu Katuwala

15

Nestl: Internal and External Analysis Strategic Planning

The use of technology is becoming very popular in the food and beverage industry and Nestl is best at using the modern technological aspects in its productions. By using technology Nestl is able to produce more eco-friendly and healthy products. For example the reduction of salt and having alternatives to salt is a result of research and development which eventually results in the better living standards of people in the long run. The breast milk substitute issue is something that is talked about at large even today. There is no real solution provided by Nestl regarding this issue but the stance they have taken in encouraging mothers to breast feed the child and to use the substitute as a last resort option should be greatly appreciated. There is no evidence to prove that the child deaths and illnesses are caused by this substitute but possible solutions should be brought towards the use of this product in low-income countries where the water used to prepare the substitute maybe inappropriate.

Dumindu Katuwala

16

Nestl: Internal and External Analysis Strategic Planning

SWOT Analysis
Strengths More than 140 years in the industry World biggest brand, top brand in Fortune 500 list Global reach with presence in over 86 countries An employee strength of around 328,000 people worldwide Wide product range including baby food, pet food, dairy products, confectioneries, pharmaceuticals, beverages, etc. Popular brands owned like Maggi, HaagenDazs, Boost, Kit Kat, Nescafe, etc. Largest R&D network facilitating continuous innovation Strong supply chain network C.S.R. activities for rural development, environment protection, water conservation,, etc. Mergers and acquisitions and joint ventures to increase market share Strong marketing and advertising power Strong brand loyalty and brand recall Opportunities Introduce more health based food products to tap the health consciousness amongst consumers Expand with focus on developing economies Continue with acquisitions and joint ventures to increase its market share Weaknesses Being a big global brand, Numerous controversies in different countries of operation can cause issues

Strong competition by other brands

Threats Failure of the complex supply chain Economic instability and inflation in most countries EURO zone crisis, as most of its revenue comes from Europe Increase in cost of raw materials Stiff competition in all product segments

Dumindu Katuwala

17

Nestl: Internal and External Analysis Strategic Planning

Porters five forces analysis

Threat of New Entrants As the food and beverage market is quite large (one of the biggest needs globally) many companies enter into the market every year in an attempt to gain a portion of the profitable market. Luckily for Nestle, the company has been around for over a century and boasts a long history of quality products and consumer satisfaction which has allowed the company to obtain a considerable share of the market. Threat of Substitute Goods Due to the nature of the industry, Nestle is affected by the threat of substitute goods. From bottled water, there are arrays of similar products that compete directly with Nestle. It is vital for Nestle to continuously find new ways to improve its products as there are large array of substitute products in the market. In recent years, Nestle has focused on the health and wellness aspects of its products to maintain its competitive edge in the market. Bargaining Power of Suppliers Nestle prides itself on creating and maintaining positive relationships with its suppliers all over the world. Due to the large purchasing power of Nestle and the fact that the suppliers of agricultural commodities offer a product that is far from unique, Nestle holds more bargaining power than its suppliers. Aside from this, Nestle does prefer to create and preserve long term relationships with its suppliers as this helps to ensure the quality of the raw materials being purchased. In addition, Nestle also offers useful advice to its suppliers on how to perform more efficiently to minimize unnecessary costs.

Dumindu Katuwala

18

Nestl: Internal and External Analysis Strategic Planning

Bargaining Power of Customers Customers have a large amount of bargaining power regarding their consumption of Nestle products. As stated previously, there are close substitutes for Nestle products which allows for the preferences of the customer to be very powerful. Nestle understands the power of the customer and has taken specific steps to meet the needs of its products consumers. Specifically, Nestle is incorporating health and wellness into the creation of its products as society has begun to grown more health conscious. Competitive Rivalry within the Industry Nestle is a powerhouse in the food processing industry but so are Kraft Foods and Groupe Danone. These companies, among others, are in a constant and continuous battle to outperform one another. Regarding advertising alone, these companies spend hundreds of millions of dollars in an attempt to appear more desirable than the other companies. Rivalry is fierce in the food processing industry and this is a good thing for consumers. As long as these companies continue striving to one up one other, consumers will continue to enjoy ever improving product lines.

Dumindu Katuwala

19

Nestl: Internal and External Analysis Strategic Planning

Recommendations
In the social-economic point of view, the establishment of schools in Cte dIvoire which provide free education would massively help to reduce this issue of child labor. With free education parents would be keener in educating their children and not forcing them to work in farms at a young age. Nestle should try and work with the Cte dIvoire government to help tighten rules against child labor in the country. The influence of a multi-national giant like Nestl would surely impact the government to strengthen rules against child labor. There are currently small groups of people who are having various issues with Nestl due to certain actions taken by Nestl especially in the bottled water industry. It would be easier if Nestl could meet up with these different groups and come to a diplomatic solution before things escalade to a whole different level. It is important to settle these issues without delay as Nestl at the highest level globally has a lot to lose. The breast milk substitute is an issue that has been discussed for close to 3 decades now and still no proper solution is brought up by Nestl. As this issue is now centralized only on low-income countries, Nestl could target these countries and create an action plan. The main issue is that contaminated water is used to make this breast milk substitute. One recommendation would be to attach a bottle of water with the breast milk substitutes which are shipped to low-income countries. This would be a good response to the allegations set forward to Nestl. Create more social programs to build awareness about health and wellness. It is evident that not many social programs are done by Nestl to promote awareness about health and wellness. Move towards more organic products. The focus on organic products is not strong enough at Nestl. With the growing trends towards sustainable selection, it is expected that more sales would be reached by the introduction of more organic products.

Dumindu Katuwala

20

Nestl: Internal and External Analysis Strategic Planning

Conclusion
Nestl as the largest food company in the world has been able to create a valuable brand image after over a century of operations. It is important for a company as Nestl to constantly adapt to the changing environment of its industry. Nestl sits right on top of the ladder when it comes to the largest food company in the world. A company as such more often than not has a lot to lose than to gain and therefore it is important for Nestl to be alert to the different changes that are taking place in the industry The primary goal of this report was to identify the internal and external factors which influenced Nestls business strategies using appropriate theoretical frameworks and applying them into a practical scenario. In simpler sense the report tried to focus directly on the trends that Nestl has to look out for in the food and beverage industry, the issues that Nestl was facing as a global company and what responses the company took to overcome these issues. The responses were critically evaluated and were justified if it were the right decisions that Nestl took and suggestions were made on what more could have been done. The food and beverage industry is an ever changing industry that is very profitable if the right strategic decisions are made during the business operations. There are also pressure groups that come up at various instances which try to force companies to change their strategic decisions. In this report, issues as such that Nestl faced were brought forward and the solutions for these issues were discussed. As the distinguished director board of this company I believe that you are satisfied with my comprehensive analysis of your company. Various recommendations were given (Refer pg.: 19) that would help Nestl in the long run. When taking future strategic decisions it is important for Nestl to keep in mind the core values, and the core strategic values that the company is built upon.

Dumindu Katuwala

21