Case Study: Nestle in 2008

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Nestle Company

Nestle's long history began with founder Henri Nestle's infant saving formula. More than 140 years later, the company has grown into an international powerhouse centering on nutrition, health and wellness. However, the organization's recent financial success leads to a significant challenge. New CEO, Paul Bulcke, will need to ensure the company doesn't become complacent and continues to operate with a sense of urgency. This can be accomplished by taking advantage of developing and emerging markets, through the customization of recently acquired frozen pizza brands from Kraft Foods. If Nestle is ill-prepared for this, it could negatively affect their market position and profitability.

Table of Contents

Abstract

Executive Summary:

Brief Problem Diagnosis:

Analysis of the Problem:

Recommendations:

Strategic Posture:

Strategic Managers:

SWOT Analysis:

Strengths:

Weaknesses:

Opportunities:

Threats:

TOWS:

EFAS:

IFAS:

SFAS:

Financial Analysis:

General Environmental Analysis:

Five Forces Analysis:

Resource Analysis:

Value Chain Analysis:

Strategic Analysis:

Conclusion:

Appendix:

Table 1: TOWS Matrix

Table 2: EFAS Matrix

Table 3: IFAS Matrix

Table 4: SFAS Matrix

Table 5: General Environmental Analysis

Figure 1: Nestle Total Revenues (1999 -- 2009)

Table 2: Nestle Net Profit (1999-2009)

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Case Study: Nestle Company

Executive Summary:

Brief Problem Diagnosis:

Nestle's long history began with founder Henri Nestle's infant saving formula. Developed in 1867, Nestle's formula included a revolutionary drying process that allowed the formula to retain most of the nutrients found originally in the cow's milk, wheat flour and sugar of which it was comprised. More than 140 years later, the company has grown into an international powerhouse centering on nutrition, health and wellness. However, the organization's recent financial success leads to a significant challenge. New CEO, Paul Bulcke, will need to ensure the company doesn't become complacent and continues to operate with a sense of urgency. This problem affects all areas of the organization, from research and development to sales to manufacturing to customer service. Although the company is secure in the marketplace as of this moment, in an increasingly globalized and hyper-competitive business environment, this could change at any time. If Nestle is ill-prepared for this, it could negatively affect their market position and profitability.

Analysis of the Problem:

This challenge of remaining proactive and operating with a sense of urgency is a direct result of Nestle's success, coupled with their multi-national size. Nestle's success has been facilitated, in a large part, by their mergers and acquisitions over the years, beginning with their merger with rival Anglo-Swiss Condensed Milk Company, in 1905. Geographical expansion into the United States, Germany, Great Britain, and Spain, in the early 20th century, and entry into emerging markets like China, also were stepping stones to the company's current success.

With this global expansion, part of Nestle's success with the autonomy they have given to their country managers, when it comes to dealing with consumers. As the organization has often built local supply chains, often organizing the country's basic agricultural capabilities back to the farm level, this has resulted in value additions to these supply chains. Nestle's 'milk district model' began in the company's founding years, in Switzerland, and has since facilitated the organization's growth, through replication in Asia, Latin America, Africa, the Caribbean, and Inner Mongolia.

Remaining innovative in an industry that not only spans nations, but also cultural tastes is a particular challenge. Although Nestle offers 29 'billionaire' brands, brands that had revenues greater than CHF1 billion these globalized brands are not necessarily standardized from country to country. Nestle believes there are no standard tastes around the world, therefore a product's formulation may vary for each country in which it's offered. With more than 8,000 products, continued innovation is a monumental task.

Although Nestle has more than 275,000 employees, the organization's relatively flat and decentralized nature allows it to be more responsive to changing market needs. The company is organized geographically, with forty-three regions organized under three primary geographic zones. However, this decentralized nature adds to the challenge of remaining proactive and innovative. The organization becomes a multi-headed being that may each want to travel in different directions.

This problem of remaining proactive and innovative, while being a leader in the industry that has experienced great success, affects all areas of the Nestle's business. Although innovation may be seen as a primary research and development function, innovation across all business units is needed to remain competitive in today's increasingly competitive world. If complacency sets in, in any of Nestle's busines units, this will lessen the organization's competitiveness as a whole. It is only through proactive strategies that take advantage of emerging opportunities, such as those strategies that have helped garner the market share the organization already controls, that Nestle can hope to continue to be a world leader in their industries.

Recommendations:

Nestle is well positioned to remain a leader in the food and beverage industry. Their focus on nutrition and health and well-being is perfectly timed with the emerging consumer trend of focusing on healthier eating and drinking options, as well as healthier options in every area of the consumer's life. However, Nestle's 140 years of success could lead the company to become complacent. Their position in the marketplace is not bulletproof. Although there are not current competitors that pose a serious threat to the organization, if the company doesn't implement strategies that are proactive they may slowly allow competitors to erode at their market share. For this reason, the recommended course of action centers on proactive innovation.

Emerging and developing markets offer such a significant amount of potential for Nestle. These markets offer almost twice the growth potential as the mature markets, including the United States, Japan, and Western Europe. However, Nestle has a significantly less market presence in these high-growth areas. Not only does this mean Nestle isn't taking full advantage of the growth in these areas, but they are also more impacted by the economic downturns that are faced by the mature markets, such as the recent economic recession. For these reasons, further expansion into emerging and developing markets is an important strategic recommendation for Nestle.

The organization has also had historic success with customizing products for specific geographic regions. Their country managers are charged with understanding the unique culture, tastes, and needs of their areas and developing products to address these traits. This needs to be an integral part of the company's strategy as they continue their expansion into developing and emerging markets. Even within a country, there are often regions with different tastes and cultures that require different formulations, in order to effectively enter that market.

The company's process of transformation into an organization that focuses on nutrition and health and well-being can be applied to this recommended strategy. Entering developing and emerging products with healthier food and beverage options takes advantage of these high-growth markets, while also capitalizing on the healthier eating consumer trend. Although the company has already made significant strides in transforming many of its products into healthier options, but removing trans fatty acids, salt and sugar, while adding whole grains, vitamins, minerals, Omega-3s, and antioxidants, they still have thousands of products to still reformulate. In addition, recently acquired Kraft Foods' frozen pizza business unit includes well-known American brands that could be reformulated into healthier options while also be reformulated for expansion into emerging and developing markets. For instance, the California Pizza Kitchen restaurants have already expanded into a variety developing countries. This expansion has already begun to build the brand name that Nestle can use for the expansion of their California Pizza Kitchen brand pizzas. By reformulating these pizzas to meet the cultural tastes of these markets, and also reformulating them to provide healthier eating options, Nestle can maximize the effectiveness of their expansion.

By expanding into developing and emerging markets, with healthier reformulated versions of the brands of frozen pizza Nestle recently purchased from Kraft Foods, this addresses the major threats facing the organization, while also countering a primary weakness. In addition, it takes advantage of a significant opportunity, in the developing and emerging markets, while utilizing the company's strengths. It eliminates the problem of Nestle's relatively lesser market positioning in these markets. It also helps eliminates the potential threat of the possible unviability of the company's recent acquisition, from Kraft Foods.

This plan will involve first determining which developing and emerging markets into which Nestle would like to expand. Likely, this would lead to expansion of the California Pizza Kitchen pizzas into the countries where the restaurant has already entered the market, pre-building the brand name for Nestle. Research and development will then need to develop reformulations of the existing products, for those unique markets, while country managers build local supply chains and develop marketing campaigns appropriate for the local culture. The cost of the plan will depend on the market the company enters; however, the remaining cash on the books from the sale of the interests in Alcon can be used to finance this expansion.

The risks of this plan primarily involve the failure of consumers in accepting the product lines. Competitors may imitate… [END OF PREVIEW]

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