Nestle Market Analysis - Case Study Example

NESTLE MARKET ANALYSIS Student’s name Course code + name Professor’s name University name City, State Date of submission Introduction Nestle suffices to be one of the world’s largest companies in the food and nutrition sector. Having its headquarters in Vevey, Switzerland, the company has expanded its operations beyond the Swiss boundaries. Currently, the company operates in 115 countries (Nestle 2010). It employs approximately 280,000 employees. The company offers a variety of product categories such as bottled water, baby foods, coffee, chocolate, healthcare and sports nutrition and dairy products. Some of the company’s global brands encompass Nescafe, Kit Kat, Movenpick, Nespresso and Haagen-Dazs. Ice cream and milk products are the firm’s greatest product brands since they account for one-fifth of the total turnover of the company by 2009. The development of the Nestle business has capitalized on the ability of the company to form significant partnerships with organisations including development boards and business enterprises. The management of the Nestle Group is in accordance with the geographical position of its outlet firms categorised into zones to integrate the cultural aspect into its marketing operations. The report discusses the marketing environment of the company including its strengths, weaknesses, opportunities and threats. The report also covers the proposed re-introduction and re-branding of the Maggi Magic Meals product in India with regard to the market’s cultural attributes. Nestle: Brand and Product Mix The diversified range of product categories produced by Nescafe include baby food, bottled water, cereals, chocolate and confectionery, coffee, and chilled, culinary and frozen foods. The other product categories encompass dairy, drinks, food service, healthcare nutrition, ice cream, pet care, sports nutrition and weight management (Nestle 2010). Figure 1 below shows the organic growth, sales volume and sales percentage by product category. Figure 1: Nestle: Organic growth, sales volume and sales percentage by product category Operations by Country and Region The company realises the majority of its sales from Europe. By 2009, the sales that the company realised from Europe were worth €33,121,000. The high sales realised from the region emanated from the fact that the company has 159 factories (33.9%) in the region. During the same year, Nestle realised sales worth €29,043,000 from its North American market. The sales realised from Latin America and the Caribbean was €13,548,000. By 2009, there were 168 factories (38.0%) in the Americas region. The sales realised from Asia, Africa and Oceania in 2009 was worth €13,373,000, €2,726,000 and €2,485,000 respectively. There were 123 factories (28.1%) located in the Asia, Africa and Oceania region. The top ten principal markets of the company include the United States of America, France, Germany, Brazil, Italy, United Kingdom, Mexico, Spain, Greater China Region, Japan, Switzerland and the rest of the world (Nestle 2010). Partnerships and Joint Ventures Nestles’ improved global image and performance depends on the several partnerships and joint ventures that the company has formed with other organisations (Nestle 2014). The Dairy Partners Americas (PDA) between Nestle and Fonterra established in March 2002 is one of the important partnerships that have catalysed the growth of the company in the Americas region. The two firms established the partnership on a 50/50 basis with Nestle handling the branding, distribution infrastructure and product development exercise. On the other hand, Fonterra handled the large scale procurement of milk including its processing and associated technologies. The Cereal Partners Worldwide S.A established in 1989 is the other partnership established on a 50/50 basis between General Mills Inc. and Nestles S.A (Nestle 2010). Nestle also entered into the Beverage Partners Worldwide (BPW) with the Coca Cola Company to produce ready-to-drink tea and capitalise on Coca-Cola’s distribution expertise. Finally, Nestle also established the Laboratoires Inneov with L’Oreal to manufacture cosmetic nutritional supplements. SWOT Analysis Strengths The high diversification of Nestle in various markets suffices to be one of the fundamental strengths of the company (Nestle 2011). The firm also produces different brands thereby having the potential of weathering economics bearing in mind the fact that it serves different market segments. The established global partnerships with established brands such as General Mills and Coca Cola have played a pivotal role in the global marketing of Nestles’ product brands. Furthermore, it is evident that Nestle owns some of the most trusted and greatest brands in the world such as Nescafe and Gerber. In fact, there are families that have used the company’s brands for generations. Moreover, the company’s research and development capabilities are strong (Stevens et al. 2012). Besides, they continue to grow thereby enabling the company to introduce new brands that attract customer preference. The strong relationship that exists between Nestle and its retailers has also played a significant role in marketing the company’s products. Finally, the inclusion of well-established brands that command a large share of the market in already established markets such as the USA and the UK is also Nestle’s strength. Weaknesses Nestle depends on a few well-recognised brands for a substantial proportion of its sales (Nestle 2011). As a result, any changes in consumer behaviour about the established brands may impact negatively on the sales realised by the company. Moreover, a few giant retailers such as Kroger and Walmart in the USA control grocery sales. In the UK, Tesco controls grocery sales. As result, the giant retailers have the power of imposing price reductions on their products or substituting the company’s products with more profitable items to increase their profits thereby impacting negatively on the profitability of the company. Moreover, traditional products such as carnation milk do not meet modern lifestyles since customers consider them to be out of fashion. The company depends heavily on advertising to market its traditional products and shape the opinion of its consumers. Consequently, there is a high likelihood of increased advertising costs for the company. Finally, the launching of new brands as supplements to the less fashionable brands requires high costs thereby increasing Nestle’s expenses. Opportunities The introduction of online retailing has the potential of opening new distribution channels for the company thereby eliminating the need for traditional retailers. Secondly, the transition of consumers in emerging markets such as India and China into the middle class category has broadened Nestle’s market in such markets. Emerging markets like China and India have also portrayed an increase in the disposable income thereby implying higher spending power for the consumers that enables them to purchase luxury items such as bottle water, pet food and ice cream. There is an increase in the demand for pre-packaged foods by working consumers following the increase in working hours, single person households and more women in the workforce. Car ownership and increased mobility has also increased the demand for snack foods, bottle water and candy in countries such as China. Finally, the global market presents increasing interest in nutrition and health thereby promising an increase in the demand for certain Nestle products such as energy drinks (Nestle 2006). Threats The decision of giant retailers such as Kroger, Walmart and Aldi to stock house brands due to the guaranteed increased profitability threatens the continued success of Nestle’s products in the market dominated by the retailers. The threat on the firm’s products emanate from the fact that house brands are more visible than traditional brands and they sell at comparatively lower prices as compared to the traditional brands (Nestle 2011). Moreover, Walmart and other retailers are pressurising Nestle to lower the prices of its products. The emergence of online retailing also poses a challenge to the traditional retail products. New players such as online retailers and Whole Foods Market have disrupted the traditional grocery market especially in the USA that stands out as one of the major market destinations of the company’s products. New video advertising such as video streaming of the brands of companies have yielded the ineffectiveness of traditional advertising. The propensity of other consumers to eat at restaurants rather than at home has also reduced the demand for some of Nestle’s products. Increasing health concerns have also raised the suspicion that pre-packaged foods are unhealthy and unnatural. In fact, the UK and USA consumers present the highest levels of suspicion. As a result, Nestle faces a reduction in the demand for its products in such markets or increased advertising aimed at streamlining consumer perceptions about its products. Other markets have also revealed the possibility of increased government oversight and regulation on the food products. For instance, the Indian Government banned the sale of maggi products on the allegations that the nodules contain excessive lead. The Success Strategy Regardless of the threats and weaknesses of the company, Nestle capitalises on its extended network of global retailers and its global image to market its products (Annual report 2013). The firm understands that the consumer market place is undergoing radical changes associated with the preference of modern advertising over traditional adverts as well as increasing health concerns that have resulted in consumer misconceptions. The competitive advantage of the company’s products emanates from Nestle’s ability to maintain its strong global brand by sustaining and improving its reputation with customers, sustaining and improving its research and development capabilities and improving its relationship with retailers. By so doing, Nestle believes that it will sustain its current market dominance as one of the greatest companies in beverage and packaged food. Reintroducing the Maggi Magic Meals in the Indian Market The decision of the Indian Government to eliminate maggi nodules from the shelves of its retailers on the argument that the product contains excessive amounts of lead has impacted negatively on the reputation of the brand in the market. As a result, restoring the faded reputation of the brand in the market should be an area of focus for the company. Reintroducing the product in the Indian market necessitates ensuring that the nodules contain the recommended amounts of lead within the standard requirements of the Indian Government. The new product will revolutionise the way of cooking among Indian families that purchase the product. For instance, the new maggi magic meals product will enable families to cook their favourite chicken dish and rice simultaneously in the rice cooker thereby reducing the time required to prepare meals. Contrary to fast foods that are unnatural and unhealthy, the new product makes use of fresh ingredients thereby retaining the natural and healthy statuses of the products. The chicken as well as the fresh ingredients cooks inside the pot concurrently thereby eliminating the need for oil. The sealing of the nutrients and flavour guarantees the flavourful and tender nature of the chicken. To address the previous health concern associated with the product, Nestle should introduce another variety of the product that bears positive health outcomes rather than impacting negatively on the health of the consumer. The proposed product is the Nestle Omega Plus that contains ACTICOL and plant sterols that are important in lowering the level of cholesterol (Nestle 2016). Rather than complying with government regulations, Nestle’s success in the Indian market also depends on the ability of the company to integrate India’s culture in the development and marketing of the product to guarantee its acceptance by the consumers. Apparently, India is a complex and diverse society. As a result, there are no standard guidelines for conducting business in the market. However, the major cultural aspects that Nestle should consider in re-introducing the product in the market are caste, religion and region (Ondracek et al. 2012). On the aspect of business etiquette in the Indian market, the society considers the reason for the conversation and whom one is talking to as the determinants of a business conversation. Since hierarchy is a significant aspect in the Indian market, the product marketers should ensure that they greet the older persons first in accordance with the hierarchy to guarantee a positive reception. Moreover, the official language for conducting business in India is English. However, it is important for the product marketers to use both the handshake during formal greetings and a Namatse mode of greeting that acknowledges the Indian etiquette. According to the greeting, one should bow his/her head slightly while holding both hands on the chest. Considering the Indian culture in the packaging and marketing of the new product will play a significant role towards guaranteeing the success of the product in the market. Conclusion Nestle is a leading manufacturer of packaged food and beverages in the world. Having locations in more than 197 countries and producing more than 2000 brands, Nestle will continue to perform competitively in the global market. The strengths of the company include its highly diversified portfolio of products, the well-established global relationships and partnerships with organisations and effective research and development capabilities. The dependence on few widely known brands and the retail power of a few retail giants are the major weaknesses of the company’s products. Increased demand for pre-packaged foods, the advent of online retailing and increase in disposable income are the major opportunities of the company. Finally, pressure from giant retailers to lower prices and the decision of the retailers to display house brands are the main threats to the company. Reference List Annual Report 2013 2014, ‘Nestle.com’, Available at: http://www.nestle.com/asset-library/documents/library/documents/annual_reports/2013-annual-report-en.pdf Nestle 2006, ‘The World of Nestle’. Available at: http://www.nestle.it/asset-library/documents/pdf_nostri_report/12_theworldofnestle.pdf Nestle 2010, ‘Nestle-Switzerland’, IUF Dairy Industry Research. Available at: http://www.iuf.org/sites/cms.iuf.org/files/NESTLE%20.pdf Nestle 2011, ‘2011 Annual report English’, Available at: http://www.nestle.com/asset-library/Documents/Library/Documents/Annual_Reports/2011-Annual-Report-EN.pdf Nestle 2014, ‘Annual report 2014’. Available at: https://www.nestle.com/asset-library/documents/library/documents/annual_reports/2014-annual-report-en.pdf Nestle 2016, ‘New Products’. Available at: http://www.nestle.com.my/brands/new_products/home Ondracek, J, Bertsch, A & Taft, M SC 2012, ‘Scanning the Business Environment in India: An Overview of Select Multinational Companies in the Indian Marketplace’, Viewpoint. Stevens, A, Fosness, D, Katz, J & Jeffrey, S 2012, ‘Nestle’, Robin School of Management. Read More