Marketing essentials: case study of Nestle - Essay Example

?Introduction Nestle is a Swiss Company that is globally present and has touched the hearts of millions of consumers. It is also known as the world’slargest food-and-nutrition company. It is a packaged food company that came into being in 1866 and was formed by Henry Nestle. It started off with an infant food product and diversified by introducing products such as chocolates (such as Kit Kat), water and its world famous coffee brand; Nescafe.95 brands (such as Maggi) come under the Nestle family with thousands of products (Nestle, n.d.). The following is the operating segment of Nestle by geographic area (Zones, Waters and Other) and management responsibility: Zone Europe Zone Americas Zone AOA (Asia, Oceania and Africa) Nestle Waters Nestle Nutrition Other Food and Beverages Pharma The Nestle Group manages its Food and Beverages business through Nestle Waters, Nestle Nutrition and Other Food and Beverages. Its products are divided into six segments: Beverages, Milk products, Nutrition and Ice Cream, Prepared dishes and cooking aids, Confectionary, PetCare and Pharmaceutical Products (Nestle Group, 2009). Mission Statement Nestle has a wide network across the globe but it makes sure that it adheres to the local legislation, cultural and religious practices of the countries in which it has its operation. Its business objective is to market the company’s products in a way that creates value for all its stakeholders like consumers, employees, shareholders and business partners. Long term business development is more important to Nestle than short-term high profits. It also values the trust that consumers place in its products, actions and beliefs. It adheres to legislation as it keeps Nestle on track and makes it more committed to protecting consumer interests. In all countries that Nestle operates, it follows laws because it believes adhering to laws is a sign of professionalism (Nestle, n.d.). Financial Summary There was a fall in the sales of Nestle during 2011 probably because of a loss of sales from its discontinued operations. During 2010, the sales from its discontinued operations were 7543 million GBP. On 17th November 2011, the Nestle Group acquired a 60% share in the Yinlu Foods which sells ready-to-drink peanut milk and ready-to-eat canned rice porridge in China. The benefit of this acquisition is that it will complete Nestle’s portfolio in China. There will be an improved goodwill but Nestle will also experience synergies, complementary market share and competitive position. Besides that, the Group also acquired 60% shares of Hsu Fu Chi, a leading Chinese manufacturer and distributor of confectionery products. Nestle’s current portfolio in China includes culinary products, coffee, confectionary, bottled water, milk powder and products for the food service industry. So the Hsu Fu Chi acquisition complements the current Nestle portfolio in China. This acquisition has had a significant impact on the sales and profits for the year and has increased its goodwill greatly. As a result the goodwill is tax deductible. Alcon is a discontinued operation of Nestle and on 4th January 2010, Novartis exercised its call option to acquire the remaining 52% of Alcon outstanding capital from Nestle at a price of GBP 111.91 per share. GBP 18,752 million was the cash inflow from the disposal of Alcon. During 2011 the greatest sales (GBP 18,123 million) came from Nestle’s Zone Americas and the lowest sales revenue came from Nestle Waters (CHF 4416). Powdered and Liquid Beverages accounted for the greatest sales among the product categories of Nestle. As of December 2011, there was no single consumer who accounted for 10% or more of the Group’s revenue. Nestle’s sales were greatest in the USA for the year 2011 and Switzerland accounted for the lowest sales among the list of companies that Nestle operates in. The Earning per Share (EPS) also fell as it was GBP 6.88 in 2010 and GBP 2.01.This is not a good indication for the company and the shareholders. This sharp fall can deter prospective shareholders from investing in Nestle. The Net Profit was GBP 23,187 million in 2010 and fell to GBP 6425 million in 2011. This can be due to demand slowdown in Nestle’s major markets such as Europe and North America. Joint ventures have increased current assets from GBP 525 million to GBP 626 million. Similarly the current liabilities have also increased from 2010. The current liabilities are a lot greater than the current assets. So between 2010 and 2011, there was a fall in the current ratio, which means Nestle needs more cash and currents to provide a cover for its liabilities (Nestle, 2011). Analysis of the Company Situation In the past few years, Nestle has focused on developing its knowledge management systems and also invested a lot of money and efforts into it. This has improved the company’s efficiency and revenues. Nestle has a customer-centric philosophy and lays great emphasis on gathering customer feedback and complaints. This is information gathering from outside but Nestle internal information gathering is not very advanced. Techniques like cognitive mapping are used in small departments only and not in the whole organization. Nestle is not a laggard in terms of technology as it uses a codification based strategy (which means all knowledge of the company is stored within a huge central database) for using and sharing information. It uses a central codification system called GLOBE which connects departments in every part of the world and all its 250,000 employees can access information within no time. This system has removed the bottlenecks that existed because of employees being irreplaceable. Now no employee is irreplaceable. However it is very difficult for a huge central repository to remain efficient and this is a very big challenge for the information department. There are also very high costs associated with maintaining and updating such a huge central repository (Nestle, n.d.). But there are chances that the company will lose out on knowledge acquisition as it mainly focuses on usage and sharing of knowledge. The company will also find it very difficult to achieve its innovation goals as a result. Innovation is important for every country nowadays as it gives a sustainable competitive advantage. Companies that fail to innovate suffer a lot financially and lose out their market share to competitors. Besides the updation and maintenance of the central repository there is a need for knowledge acquisition from outside sources. Not only that but also the codification-based strategy poses another problem on Nestle which is data mining. The databases are huge and thus the employees face a lot of problems while working with them. The information system at Nestle is also dependent on humans as it can search results fast but does not know what it has to do unless instructed by a user (Nestle, n.d.). Analysis of Market Situation In other parts of the world or in older markets of chocolate companies such as Europe (UK particularly), the demand for chocolate has decreased because of the economic downturn.. Nestle is facing a demand slowdown in North America and Europe but it expects a big chunk of its revenues to come from markets such as China, Indonesia and India. As per Nestle’s current CEO Paul Bulcke, the increasing incomes from developing-market consumers (like those in India, China and Indonesia) will offset the falling demand in Europe (Bellman, 2012). Quite recently the Swiss Food Company also stated in its annual report that the total compensation for its Chief Executive Paul Bulcke fell 7.4% in 2011. His pay package for the year fell from 7.16 million GBP to 6.63 million GBP. This is can be attributed to various factors such as the demand slowdown in Nestle’s European markets (Revill, 2012). SWOT Analysis Strengths: The most important strength of Nestle is that it has appointed visionaries such as Paul Bulcke and Peter Brabeck as CEOs. They have ably fulfilled their responsibilities at the strategic level and maintained cohesion with other operations of the Group globally. Besides that, Nestle also has great Research and Development teams. James Gallagher and Andrea Pfeifer were the people who did thorough research on the La-1 cultures and came up with the LC-1 yoghurt (Castelarhost, 2005). Nestle UK is the third largest player in global Health and Wellness. So it has gained clout with consumers because of its size and reputation. Nestle has also built a strong position in soft drinks owing to its bottled water profile (Euromonitor International, 2011). Weaknesses Nestle’s weaknesses surface as it is exposed to fierce competition in the frozen yoghurt industry as it has to compete with globally famous brands. Nestle is also a laggard in terms of technology and it has to make sure that it updates it technology more frequently. Positioning of yoghurt is quite family-based and so Nestle needs to make an effort to position and promote Nesyoghurt as a brand for all age groups like children, teenagers and adults. Opportunities UK is the highest consumer of confectionary within UK and this implies that Nestle’s frozen yoghurt has a lot of scope for growth in UK. There is also a high demand for confectionary items that are consumed immediately. So a frozen yoghurt brand from a renowned company like Nestle will look promising to customers. For years people have trusted Nestle with confectioneries and chocolates. Also the demand for chocolates has fallen in Europe and UK because people are becoming more health conscious. This can give a huge opportunity to Nestle to promote its fat free and healthy yoghurt (coursework, 2003) Threats Nestle faces competition from parlor based yoghurt companies like Pinkberry and SNOG as well as retail based brands like Activia. So Nestle needs to come up with a strategy to differentiate its coffee from competitors. Also these brands of frozen yoghurt are old compared to Nesyoghurt and they have an established customer. Pinkberry is globally famous and endorsed by celebrities and due to this it outshines Nestle. In order to successfully penetrate the market Nestle should also use celebrity endorsement. There are some people who like the experience of a parlor and enjoy eating yoghurt out. So here Nestle will have to struggle and compete with parlor based yoghurt brands. A New Product for the Company Frozen yoghurts have hit the Western markets quite successfully and brands like SNOG and Berrylicious are available in developing countries like Pakistan as well. During 2010, demand for frozen yoghurts like Pinkberry and SNOG heated up in all parts of UK and USA (Wilcox, 2010). The Frozen Yoghurt industry is in the mature phase of its lifecycle. The demand for frozen yoghurt is expected to stay stable over the next five years (IBIS World , 2011). Nestle has experienced falling sales in UK. If it comes up with its own frozen yoghurt brand, it will be able to regain its lost profits in the two areas. This brand can be called Nesyoghurt and it will be positioned as a brand that is 99% fat free, healthy and caters to all age groups that want a healthy substitute for ice cream. However there will be a range of yoghurt such as flavored yoghurt, 99% fat free yoghurt, cereal yoghurt and yoghurt with fruit chunks. PESTLE Analysis 1. Political Factors: involve government policy such as the degree of intervention in the economy. The goods and services that a government wants to provide are also political factors. To what extent to which the government subsidizes firms is also essential. The UK government priorities in terms of business support and political decisions can impact on many vital areas for business such as the education of the workforce, the health of the nation and the quality of the infrastructure of the economy such as the road and rail system. Some important factors in the UK political scenario are EU enlargement, the Euro, international trade and taxation policy. 2. Economic Factors: These include interest rates, taxation changes, economic growth, inflation and exchange rates that prevail in a country. There are some implications of economic factors for example high interest rates make borrowing and investment very expensive. Similarly increases the cost of living Nestle’s employees and the cost of production for Nestle. The cost of living in UK is very high and so Nestle needs to take into account to price its yoghurt range reasonably. If it is priced high then Nestle will struggle with competitor yoghurt brands. 3. Social Factors: A change in social trends affects demand for a firm’s products and also the willingness of employees to work. The UK population has been ageing and this has increased pension costs for Nestle UK. This is a burden on the organization and it will have to cut other costs and achieve cost efficiency. Nesyoghurt should also come up with a range for the elderly people only. For instance the cereal based yoghurt will appeal more to the elderly people. The ageing population forms a large part of the UK population and so paying attention to its needs will help Nestle capture a large part of the market for frozen yoghurt. 4. Technological Factors: Result in reducing costs and new products are created through new technology. As compared to its competitors, Nestle UK is lagging behind in terms of technology. To be at par with Frae and SNOG, Nestle will have to update its technology more often. 5. Environmental Factors: These include weather and climate change. Environmental issues like global warming also come under this. UK weather is cloudy all the time and there are incessant rains almost throughout the year. People have different food preferences in different weathers. But even in the cloudy and rainy weather of UK there is a high demand for frozen yoghurt. 6. Legal Factors: competition law, health and safety, and employment law come under this. UK laws regarding monopoly, competition, and unemployment benefits also come under the legal factors (OUP, 2007). Generally UK government discourages monopoly so Nestle has to be competitive to remain in the market otherwise competitors will drive it out. Competitors of Nesyoghurt There are various frozen yoghurt brands in UK such as Frae, Pinkberry, SNOG and Activia. Pinkberry came to London (Selfridge) in early August last year after much anticipation and excitement (Costello, 2011). London’s best frozen yoghurt shops are Frae, Itsu, Moosh, SNOG, Yog and Yuforia (Smith, 2009). But now Pinkberry is also present in UK and since it a brand endorsed by celebrities, it is becoming very popular in UK in a short span of time. These are established brands in UK and Nesyoghurt will have to make sure it stays ahead of competition and win customers from these existing frozen yoghurt companies. Nesyoghurt should bring something new to the customer’s plate in order to differentiate itself from competitors and also to win customers. Future Marketing Strategy Nesyoghurt will be positioned as a brand that is for all age groups ranging from children (under 12 years of age), teenagers, tweens (people in their twenties), middle aged people and older generations as well. It is so healthy that it will only include fresh fruits’ flavors as opposed to artificial flavors such as chocolate. Nesyoghurt will first penetrate the some main cities of the UK market and if the consumers respond positively to it, then Nestle can introduce it in other markets such as in Birmingham and Manchester. The pricing of Nesyoghurt will be done in a manner so that it does not sound too scientific and serious. It will have a colorful package of red, pink and white colors. Another advantage that Nestle will have is that most of its frozen yoghurt competitors are parlor based companies. Nesyoghurt will be a retail based yoghurt brand so it will have a greater reach and will be available in all leading stores of UK. An everage cup of Pinkberry costs GBP 3.4 and cup having three toppings is sold for GBP 6.18. Nestle can keep aside some part of its profits from last year for advertising of Nesyoghurt. Most of the Frozen Yoghurt brands in UK are franchises and they have to live up to the names of the franchise but Nestle does not need a franchise. It is an established name and will come up with its own frozen yoghurt. There will be a range of yoghurt from normal frozen yoghurt to 99% fat free yoghurt, frozen yoghurt with cereal and frozen yoghurt with fruit chunks. Financial Forecasting Like Pinkberry, an average cup of Nesyoghurt will be sold for GBP 3.4. In the first year, the expected sales unit will be 1000,000 and 1% of revenues will be set aside for advertising. It will advertise for the first three years. The variable cost is assumed to be GBP 1.85 per unit and the sales are expected to increase by 0.001% each year. Year 2013(GBP) 2014 (GBP) 2015(GBP) Sales 3400, 000 3435,000 3468, 870 Variable cost (1854,000) (1873,000) (1892,110) Contribution Margin 1545, 000 1561, 147 1576, 759 Fixed Costs: Advertising (144,718) (144,718) (144,718) Net Profit 1400, 972 1414,982 1429,131 The financial forecast table above paints a rather rosy picture and there certain practical aspects that Nestle’s will only discover once it starts producing frozen yoghurt. The above mentioned financial analysis is rather theoretical and the actual variable costs and the fixed costs involved can be accurately measured with the help of financial experts and accountants. Since Nestle is a well established company that is well reputed it can go ahead with the frozen yoghurt range called Nesyoghurt. Its existing customers for its other products will also be attracted to its frozen yoghurt range because they trust Nestle with quality. But Nestle cannot compromise on promotion and advertisement of its frozen yoghurt as once again it has to prove itself in an entirely different area. Nestle’s confectionery business employs 1,800 people in York and it grew market share slightly from 16 per cent at September 10, 2010, to 16.6 per cent for the same period in 2011. This is an opportunity yet again for Nestle to discover the frozen yoghurt market and benefit. How well Nestle promotes its yoghurt brand will determine the success and customer response. With the quality management at Nestle and reputation it has the launch of a frozen yoghurt brand is promising. Bibliography Bellman, E., 2012. Nestle Projects Growth From Emerging Markets. The Wall Street Journal. Bisserbe, N., 2012. France Fines Pet-Food Makers Over Pricing. The Wall Street Journal. Castelarhost, 2005. Nestle LC-1. 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