Strategic Marketing at Nestle Milo, Singapore - Case Study Example

Strategic Marketing at Nestlé® Milo®, Singapore Table of Contents Introduction 3 2.SBU Situation Analysis 4 2 Review of the Internal Environment 4 2.1.1.SBU Culture 4 2.1.2.SBU Resources 4 2.1.3.SBU Stakeholders 5 2.1.4.SBU Performance 6 2.2.Review of the External Environment 7 2.2.1.SBU Customers 7 2.2.2.SBU Competition 8 3.Key Findings 9 4.Conclusion 9 References 11 1. Introduction Nestlé S.A. (Nestlé), headquartered at Vevey, Switzerland1 ranks globally number one among food companies2. The official website of the company reveals that “Since Henri Nestlé developed the first milk food for infants in 1867, and saved the life of a neighbor’s child, the Nestlé Company has aimed to build a business as the worlds leading nutrition, health and wellness company based on sound human values and principles3”. The company is a leading player in its segment and dominates the global market with its strong as well as diversified brand portfolio. Conveying its corporate principles, the company says that “While our Nestlé Corporate Business Principles will continue to evolve and adapt to a changing world, our basic foundation is unchanged from the time of the origins of our Company, and reflects the basic ideas of fairness, honesty, and a general concern for people4”, thereby highlighting its adherence to the humanitarian tenets of corporate citizenship. The operations of Nestlé are manned by approximately 280000 employees5 and company data declare that it has “factories or operations in almost every country in the world6”. The sales revenue earned by the company in the year 2009 was a stupendous CHF 108 billion7, and this figure sufficiently describes the stature of the Swiss behemoth. This report is aimed at undertaking a comprehensive analysis of Nestlé’s business situation in Singapore with respect to its strategic business unit (SBU) Milo® which the company claims is “Singapore’s favorite energy drink8”. The internal environment of the SBU will be reviewed, while taking into due consideration its culture, resources, stakeholders and performance. Subsequently, the external environment will be reviewed through the analysis of the customers as well as the competition that it faces. The report will be concluded on the basis of the key findings generated through the review. Extensive literature review will be undertaken in order to augment the research. 2. SBU Situation Analysis 2.1. Review of the Internal Environment 2.1.1. SBU Culture Nestlé emanates youthfulness through its Milo® brand. By virtue of having a wide customer base in five continents, Milo® has a commendable exposure in the global market. The culture at this SBU can be understood to a certain extent from the fact that “Nestlé Singapore has been championing youth sports development in Singapore since the 1950s through its MILO brand9”. A 2009 media release says that the company has “unveiled its latest community service campaign, MILO® Play More Learn More™, a theme to encourage a sporting culture amongst our children10”. As a continuation of its attempts to reinforce its culture, the brand has been taking major initiatives to promote sports among the Singaporean youth. It has been reported that Milo® and the Singapore Sports Council, through a memorandum of understanding (MoU) that has been signed on February 19, 2010, have officiated “a year-long agreement between both organisations in championing youth sports development and learning through play to our young in Singapore11”. 2.1.2. SBU Resources The upgraded version of Milo® that is manufactured in Singapore contains extra milk and extra malt. The company uses the finest ingredients procured from all over the world to produce this brand. Nestlé’s website says that “The malt is derived from the very best quality malted barley of Europe, Canada, and Australia while the milk used comes from Australia and New Zealand12”. Additionally, Milo® contains Actigen-E® - an assemblage of vitamin B and Magnesium – that “aids the release of energy from carbohydrates, fats and protein found in consumers’ daily diet13”. The other components that are present in this upgraded product are vitamin C, iron and calcium. It has been reported that the primary business of Nestlé entails “the transformation of perishable raw materials into high quality, safe and wholesome food products that meet the needs of consumers throughout their lives14”. In order to accomplish its core business, Nestlé blends environmental considerations with its global supply chain. The raw materials as well as other ingredients are bought either from the open markets or straight from producers15. 2.1.3. SBU Stakeholders Milo® being a part of Nestlé has the same stakeholders as that of the latter. Being a progressive organization that it is and “To understand the environment in which the Company operates, Nestlé experts throughout the Company engage with consumers, investors and NGOs to inform the actions the company takes, the products we produce and the information we communicate16”. Apart from these, the company also has internal stakeholders in the form of its employees and board of directors. From the shared value report of the company it is apparent that it works in close association with its stakeholders to deliver unmatched value through it’s globally accepted products. According to 2004 data, the company had more than 250000 shareholders and the shares were “broken into country of origin, Swiss investors held 42% of the stock, US citizens 22%, British 10%, French 8% and German 5%17”. However, it was found that Nestlé was unaware whether any shareholder held a stake of more than three per cent in its share capital. Girard (2005) had reported that “Information on which investment firms hold large numbers of Nestlé shares is unavailable18”. 2.1.4. SBU Performance Figure 1: Global Sales Figures for Powdered and Liquid Beverages19 Through the product category mentioned in the figure appended above, Nestlé had earned CHF 19.2 billion in the 2009 fiscal, and it may be observed that organic growth and real internal growth (RIG) were 9.5 per cent and 5.6 per cent respectively. The company has defended the decline in its earnings before interests and taxes (EBIT) through the explanation that “The EBIT margin fell by 40 basis points to 21.7%, due to increased levels of brand investment in soluble coffee and powdered beverages, raw material cost pressure and the investment in the continuing successful roll-out of Nescafé Dolce Gusto, now in 24 countries20”. Availability of financial data specific to Milo® being a constraint, this report relies heavily on the Nestlé Annual Report 2009 that has mentioned that “Powdered beverage brands such as Milo and Nesquik also grew well around the world21”. The following figure suggests that Milo® being a vital member of the powdered and liquid beverages has gained increased preference among consumers in the zone comprising Asia, Oceania and Africa. Figure 2: Nestlés Performance in the Zone comprising Asia, Oceania and Africa22 2.2. Review of the External Environment 2.2.1. SBU Customers Nestlé has been producing Milo® in Singapore for over 25 years and being the preferred energy drink of Singaporeans the brand “is a staple of many Singaporeans’ diet and is popular across generations23”. Its popularity may be estimated from the fact that “Many fondly remember waking up to a hot cup of MILO® prepared with love and affection by their mothers in their childhood or the ever popular MILO® van, at sporting events24”. The history of this product says that “MILO was developed in the 1930s during the depression when many children were not receiving enough nutrients from their daily diet25”, thereby suggesting that this hugely popular brand along with its extensions – such as “MILO® FUZE™ with High Calcium Milk26” and “MILO® FUZE™ with Cereals27” are positioned to primarily target the children across the world. However, its composition makes it equally acceptable among adults too. Milo® also caters to the nutritional as well as energy needs of health conscious individuals that live life on the fast track by virtue of “containing just 2% fat and 8% sugar per serving28”. A significant portion of its consumer profile comprises sports enthusiasts and that the brand has a firm association with them “through great partnerships with the Singapore Sports Council, Singapore Sports School and the Co-Curricular Activities Branch of Ministry of Education29”.  2.2.2. SBU Competition Les Pugh – Analyst, Solomon Brothers – while commenting on the marketing acumen of Nestlé had said that “Nestle is the best- positioned food company in the world30”. It has been observed that Nestlé prefers to customize its brands according to local tastes. In order to do so the company hires regional employees. However, Nestlé makes use of technology that is globally standardized. The Swiss behemoth excels at rapid market capture, following the accomplishment of which it adapts to the local conditions, and subsequently it focuses on repelling its rivals. After entering new markets, Nestlé “uses brick and mortar shrewdly to build both a manufacturing and a political presence31”, and its maneuvers are rewarded due to its extraordinary patience as well. Review of various sources has revealed that the key competitors of Nestlé are Kraft Foods, Inc.32, The Hershey Company33 and Ferrero34. The figure appended below throws light upon the relative market share that Nestlé enjoyed in the 2008 global pie and hence helps in understanding the competition faced by it. Figure 3: Global Market Shares of Leading Confectionaries (2008)35 Owing to the fact that Kraft Foods, Inc. has recently acquired Cadbury36, there is a high probability that Nestlé will face a stiff competition from the Illinois based giant. However, it is most likely that Milo® will remain unaffected because of the sole reason that it has achieved unmatched popularity among Singaporeans. 3. Key Findings It has been found that Milo® has a rich heritage as well as strong market presence both globally and in Singapore. The brand has gained unparalleled popularity among the Singaporeans and it is an integral part of their daily diet. It is also a part of the highly profitable powdered and liquid beverages segment of Nestlé and it has been observed that this segment has exhibited positive trends in 2009 in terms of organic growth (OG) as well as real internal growth (RIG). Moreover, in the operational zone comprising Asia, Oceania and Africa (AOA), the RIG and OG of this segment have been 5.2 per cent and 8.7 percent respectively in the 2009 fiscal, thereby indicating that Milo® has remained a profitable SBU of Nestlé in the Singapore market. 4. Conclusion After being developed during the Great Depression of 1930, Milo® has come a long way and currently it is one of the most favorite non-alcoholic beverages of the Singaporeans. During the course of the research it has been observed that this brand belongs to one of the most profitable product groups – powdered and liquid beverages – of the Swiss food behemoth Nestlé. Milo® has a devoted consumer base that includes children as well as adults. Moreover, it shares a ‘healthy’ association with sports enthusiasts and athletes by virtue of its ability to cater to their energy and nutritional requirements. This particular SBU of Nestlé does not have any major rival in the Singapore market; although chances are there that the recent acquisition of Cadbury by Kraft Foods, Inc. may force it to redefine its competences in the near future. References 1. CNN. January 19, 2010. Cadbury Accepts $21.8B Takeover by Kraft. Business. [Online]. Available at: http://edition.cnn.com/2010/BUSINESS/01/19/kraft.cadbury/index.html [Accessed on May 13, 2010]. 2. Girard, R. October 2005. Coffee, Water and Kibble: A Profile of the Food and Beverage Giant Nestlé. Polaris Institute. [Pdf]. Available at: http://www.polarisinstitute.org/files/Nestle%20October%20update.pdf [Accessed on May 12, 2010]. 3. Jones, D. January 26, 2010. Nestle Waits for Market Pressures to Soften Hershey. Reuters. [Online]. Available at: http://www.reuters.com/article/idUSTRE60P31A20100126 [Accessed on May 13, 2010]. 4. Leroux, M. November 24, 2009. Nestlé Looms Large Over Battle For Cadbury. Times Online. [Online]. Available at: http://business.timesonline.co.uk/tol/business/industry_sectors/retailing/article6928925.ece [Accessed on May 11, 2010]. 5. Nestlé-a. No Date. Contact Us. [Online]. Available at: http://www.nestle.com/Common/Header/ContactUs.htm [Accessed on May 11, 2010]. 6. Nestlé-b. No Date. About Us. [Online]. Available at: http://www.nestle.com/AllAbout/AllAboutNestle.htm [Accessed on May 11, 2010]. 7. Nestlé-c. No Date. Introduction. [Online]. Available at: http://www.nestle.com/AllAbout/AtGlance/Introduction/Introduction.htm [Accessed on May 11, 2010]. 8. Nestlé-d. No Date. MILO®. Our Brands/ Products. [Online]. Available at: http://www.nestle.com.sg/Our+Brands/Beverages/Milo.htm [Accessed on May 11, 2010]. 9. Nestlé-e. No Date. Milo Youth Sports Development Programme. Nutrition in Singapore. [Online]. Available at: http://www.community.nestle.com/nutrition/asia/singapore/Pages/milo-youth-sports-development-programme.aspx [Accessed on May 11, 2010]. 10. Nestlé-f. August 18, 2009. Media Release – Milo® Play More Learn More™. [Pdf]. Available at: http://www.nestle.com.my/NR/rdonlyres/BAA1B83F-9312-4CAE-A9C3-F42B2DBBD574/185659/Milo_PMLM_PRelease.pdf [Accessed on May 11, 2010]. 11. Nestlé-g. 2000. Environment – Progress Report 2000. [Pdf]. Available at: http://www.nestle.com/Resource.axd?Id=F3D57766-6E90-4539-867C-5A507FD4D219 [Accessed on May 11, 2010]. 12. Nestlé-h. March 2008. The Nestlé Creating Shared Value Report. [Pdf]. Available at: http://www.nestle.com/Resource.axd?Id=F76BDCDB-F78C-432D-81BE-D56638952E1F [Accessed on May 12, 2010]. 13. Nestlé-i. 2010. Nestlé Annual Report 2009. [Pdf]. Available at: http://www.nestle.com/Resource.axd?Id=585806D1-BC1B-404B-A03F-F7A68A68F436 [Accessed on May 13, 2010]. 14. Nestlé-j. 2009. MILO History. [Online]. Available at: http://www.milo.com.au/all-about-milo/milo-history.html [Accessed on May 13, 2010]. 15. Rapoport, C. & Martin, J. T. September 19, 1994. Nestlé’s Brand Building Machine. Fortune Magazine. CNN. [Online]. Available at: http://money.cnn.com/magazines/fortune/fortune_archive/1994/09/19/79744/index.htm [Accessed on May 13, 2010]. 16. Singapore Sports Council. February 19, 2010. Singapore Sports Council and Nestle Milo Ink Partnership to Champion Youth Sports Development. [Online]. Available at: http://www.ssc.gov.sg/publish/Corporate/en/news/media_releases/2010/SINGAPORE_SPORTS_COUNCIL_AND_NESTLE_MILO_INK_PARTNERSHIP_TO__CHAMPION_YOUTH_SPORTS_DEVELOPMENT.html [Accessed on May 11, 2010]. 17. Wearden, G. & Wachman, R. January 5, 2010. Warren Buffett Weighs into Krafts Battle for Cadbury. Guardian News and Media Limited. [Online]. Available at: http://www.guardian.co.uk/business/2010/jan/05/krafts-sweetens-cadbury-nestle-out [Accessed on May 13, 2010]. 18. York, B. E. November 19, 2009. What Landing Cadbury Would Mean for Kraft, Ferrero, and Hershey. Advertising Age. [Online]. Available at: http://adage.com/article?article_id=140648 [Accessed on May 13, 2010]. Read More