| SWOT ANALYSIS OF THE NESTLE COMPANY | Organizational Theory and Behavior Term paper Prof. Asli Goksoy | | Nowadays the company is one of the largest consumer packaged goods company in the world with a huge range of varying products. Nestle has spread its power to different markets such as chocolate, infant foods, water, health care nutrition etc. Today it is on the markets of 86 countries with more than 283,000 employees. | Irena Zasheva and Nikolay Iliev| 4/23/2011| | SWOT Analysis of the Nestle Company Nestle is a company with headquarters in the Vevey, Switzerland, founded back in 1866 by Henri Nestle. Nowadays the company is one of the largest consumer packaged goods company in the world with a huge range of varying products. Nestle has spread its power to different markets such as chocolate, infant foods, water, health care nutrition etc.
Today it is on the markets of 86 countries with more than 283,000 employees. 1. Strengths -The Nestle logo and brand image -the unique set of associations in the minds of customers concerning what a brand stands for and the implied promises that the brand makes is defined as the brand image and logo of a company. As Nestle’s logo says “good food, good life”, it has proven with its products the superiority to competitors and haslet its products stand behind the brand name.
Thus, for Nestle we can say that the company’s corporate identity is totally associated by the very brand and logo of the company, and is a fundamental reason for their success on such a variety of markets. It is contributing for the brand recognition and loyalty building as well as for the creation of long-term customer relations. Therefore, the brand image of Nestle continues to play a crucial role for the corporation’s globalization efforts. It makes it one of the most famous and easily recognizable brands in the world.
Nestle often stands out in front of many of its direct competitors when it comes to brand loyalty and quality. – Specific path to growth- it has often been discussed that what is more important for Nestle’s shareholders is not the company to be the largest on the market, but to be the leading one, that is they are putting much more emphasis on the quality rather than on the quantity of growth. As will become clear from our later analysis the refusal to divest weak brands is associated with the negative consequences of this company’s culture. Adaptivity- another one of the strengths of the company is the fact that they are easily adapting to the differing tastes among the geographic regions as well as to the constantly changing preferences of the customers from the same regional markets. The customization process of products for different niches and markets plus the constant spreading of the company into new product lines ensures the continuous customer loyalty to the brand. This is another feature that is obligatory for the survival of every company exposed to global markets. Strong focus on research and development- in today’s changing environment it is sufficient for every company to realize the significance of the strive for continuous improvements and innovations. As we have seen in the history, many companies have failed to survive exactly because they cannot catch up with their progress-oriented competitors. However, the Nestle Company is one of those that succeeded to boasts the largest R & D budget out of all the F & B companies- $1,847. 2 million.
The constant renovation of the product line ensures keeping major brands from slipping into decline as well as the continuous profitability of the company and a competitive edge on the competition. The huge investments that Nestle is making in Information Technologies, is another step necessary for the survival in today’s innovational world. Thus, the company can keep track of all the newest cost-reducing methods as well as for all the new product development opportunities that appear on the market. Size, market share, and financial power- the strength of the Nestle Company in addition comes from the fact that through the years it has succeeded to turn into one of the largest global food producers, located in over 86 countries. We should definitely point out its high market share, its huge size and global financial power, and strong portfolio. Over the years Nestle has built a reputation that together with the financial benefits from it are now making the company so strong and powerful.
The reinvesting in keeping the brand image, expanding to different markets, and customizing products for varying tastes are the path to success that the company has been following over the years. -Low cost- Nestle is a low cost operator which allows it to not only beat competition but also to edge ahead operating excellence, innovation, renovation, product availability and communication as its major strengths. – Collectivist culture- Another one of the greatest strengths of Nestle is that it includes a culture that it is team focused and with an open door policy.
Nestle focuses on collectivism and performance orientation attitude that encourages employees to work harder. It puts a huge emphasis on the satisfaction of their employees, because the company’s leadership believes that they owe a great part of their success to their faithful workers. Companies polices in this sphere are thought to be very successful as they are reducing turnover rates and absenteeism, contributing to the employee’s devotion to the organization. 2. Weaknesses Many product recalls- it is really interesting what can be the weaknesses of such a huge, global and financially stable company. Unfortunately, the Nestle Company has had a history of some product recalls of many of its top brand products. A typical example for that were the problems with the infant milk formula that the company was using. Such recalls, shake consumer confidence in the Nestle products, destroy the brand image build over the years and show that the slightest recall from one product can also greatly affect the market positioning of all the Nestle brands. Limited presence in organic foods markets- recently, there has been an obvious trend towards more healthy lifestyle. People have turned their attention to more natural foods, made with less chemicals and artificial additions. On this point, Nestle has shown a weakness by failing to respond to that trend. Although they did introduce products such as Fitness encouraging the healthier food diet, they are still lacking an organic line in the wide range of their product lines that they keep. Those are many customers and markets that the company is failing to serve in this way. Unwillingness to divest weaker brands- there is special time in the product lifecycle, when the product starts declining. Then the two possible alternatives in front of every company turn out to be first not letting that to happen at all and second in case the product reaches its decline stage, to be able to spot the exact moment when its costs offset its profits and to divest that product. In the long history of Nestle on the markets, there has been some products in the decline stage of their lifecycle.
On the shareholder’s insist, the brands keep on functioning, struggling for their market share. Thus, we can point out this as another weakness of Nestle’s, for which the company has been losing money in an attempt to revive declining brands. -Slow recovery after the 2009 crisis- Nestle like many in the industry has been struck by the global economic crisis of 2009. The reduced consumer spending on confectionary goods have contributed to the relatively slow recovery of Nestle. Another reason is the “overdiversified” portfolio at first glance.
Although the company has its portfolio build from shares of all different niches and brands that it is serving, they all fall into the group of the beverage and foods market, that was among the most heavily shaken ones from the crisis. -Very small exposure in emerging markets- Another one of the weaknesses of Nestle is that the company owes only a third to its profits from the economies of emerging markets unlike its competitors (Danone-40%, Unilever- 50%). The small exposure to the Indian and Chinese markets for example, presents a substantial loss to the company.
In addition, Nestle is invading in already developed markets, therefore lacks the opportunity of becoming innovator or a total monopolist brand on the market. 3. Opportunities – Due to the high intensity of the health conscious awareness in the society, more health based products are required especially with incompromisable quality. The trends in the European and North American food markets are clearly shifting to healthier more nutricious foods. People from Western Europe and the US form some of the more health-conscious societies nowadays because of the ever growing danger of obesity associated with trans-fat rich foods.
Essentially people in the more well-to-do countries are willing to pay more for a guanrateed nutricional value. Therefore, as we already pointed the absence of Nestle on this market is a weakeness and at the same time a new opportunity for the company to growand develop in this field. – Can go into the anti-allergy products that are very common, such as peanut free or gluten free products. Gluten is a protein found in wheat (including kamut and spelt), barley, rye, malts and triticale.
It is used as a food additive in the form of a flavoring, stabilizing or thickening agent, often hidden under “dextrin”. Continuing the healthier trend, some of the most popular diets nowadays exclude additive-supported and peanut-based foods from the menu as a means of reducing obesity, heart decease, stomach disorders and so on. Essentially, removing additives and conservants will reduce the product life-span but will increase its nutricional value and sell at a higher price. – They can also invest in snacks that would further diversify its product portfolio.
Although Nestle is one of the major players in the snack industry, especially when concerning dairy products and soft drinks, the company has yet to expand to the potato-based and nuts niches. Although there is heavy competition especially within the chips business coming in from leading brands life Ruffles, Lay’s and Pringles. However, potato chips are a predominant part of the snack food market in English-speaking countries and numerous other Western nations. The global potato chip market generated total revenues of US$16. 4 billion in 2005.
This accounted for 35. 5% of the total savory snacks market in that year (US$46. 1 billion). (en. wikipedia. org) – A greater impact in Germany (2 years had them go for 60% of the market share), and being the established,market leader they can establish more brands in the market. As a leader in the largest ecoonomy in Western Europe, Nestle should definetely increase its investments in Germany. After Switzerland and France, Germany is the third largest consumer of chocolate in Europe and appreciation for the products of Nestle is not uncommon.
In 5-10 years depending the situation in the European and World Markets stays the same, Nestle should have close to monopilistic, price-setting powers over the dairy and soft-drink industries in Germany. Since the company is not in competition with any of the leading German beer, automobile and technological companies, it should not face any serious competition apart from local brands and international such as Coca Cola. – Nestle India may hold the position of being the export hub due to the low cost of labour comparatively to developed countries.
As one of the world’s largest developing markets, next to China, India presents an incredible opportunity for Nestle to spread in the region. Because of the cheap labour, underdeveloped competition and affordable prices, Nestle has the opportunity to take a large share of the Indian market and become a dominant player in the industry. However due to the large investments in the Europena and North American markets the brand still remains largely unknown and impopular amongst the people in the far east and if that trend doesn’t change the company is sure to fall to its competitiors there in a few years time. In Asian countries like India, Pakistan, Bangladesh; consumers are mostly price conscious rather than health conscious. Nestle has an opportunity to have extensive strategies implemented to gain the market in such countries. Because of the substantially low GDP per capita in the far east and the enormous levels of poverty, the people there are less pretentious to what they are presented on the market and more inclined to purchase western-european products as luxury items. In this market Nestle should concentrate on a low-price, easily attainable, easily produced and mass distributed product.
As stated before, Nestle does not have much market power and is rather unpopular in the region, however, the company’s participation in global campaigns with aims to end poverty and malnutrition can serve as an immediate ad for Nestle before its public in this part of the world. -Developing countries have a higher rate of GDP than those of developed countries. Nestle should enter in such markets as well. The markets in Latin America and Africa have marked some of the higest rates of GDP increase in the world.
Although they are still essentially part of what is called the “Third World” such markets present viral opportunities for Western brands to exploit. The risks associated with such economies are comprised to the fact that they are prone to economic and social collapse (in some cases even default) which means Nestle should chose its destinations wisely so as not to lose the substantial possible investments there( the logistics and supply chains to Africa and Latin American are strenuous at best). 4. Threats – Contamination of products should be regarded strictly.
Nestle has had an unfortunate history with contamination of its products. The most notable examples are the e-coli break-out from unsecured Nestle cookie dough and the melamine poisoned milk exported to China. The company has also had a more than few runnings in with notable environmentalist and health-concerned organizations regarding its claims over environment issues and baby formulas, leading to ongoing boycotts. – Raw chocolate prices are jumping, along with the Dairy costs; which leaves heavy cuts in the margin in order to make the customers brand loyal.
They also have to shrink the packaging which is not really noticeable, so the customers are paying the same amount for a lesser product. Because of the recent overdemand of cocoa and the sky-rocketing of the prices, Nestle has found itself in a spot where it is faced with an exponentially increasing import costs. Figures show that the consumption of chocolate has nearly trippled in the last 3 decades while cocoa production has increased by roughly 130%. Our suggestion would be to invest in more cocoa farms in Africa and South America and expand the company’s business in these regions of the world. Competitors like Cadbury, Schweppes, Hershey’s, Quaker, Heinz, Del Monte, Kellogg’s, and Kraft Foods are also well established. It’s a tough market with a tougher competition for gaining market share. Competition is what drives a market forward, lowers prices, ensures better quality of the goods and distinguishes a product. Unfortunately competition works the opposite way for conglomerates like Nestle. The company has to keep up with its name, reputation and claims and many niches in the food industry ranging from soft drinks to antibiotics and pet foods.
In each and every one of these niches the company has to battle with fierce competitors for every percent market share. The health-food market still remains largely intouched nowadays and it should it should be Nestle’s aim to take leadership in that niche. In my view the company should stick to its logo : “Good food good life” and penetrate the healthy food market with all force. Apart from that the company should stick to its strengths- soft drinks, dairy and chocolate products since they are what account for nearly 2/3 of the company’s revenues. -In most emerging markets, fresh food is preferred than ready-to-eat meals.
Especially in Eastern Europe and India, Nestle has to cope with the traditional home-grown and home-produced foods and drinks. Being one of the leading frozen food companies in the US, Nestle’s attempt to penetrate Eastern Europe and India with such foods might be an unsuccessful one as ready-to-eat meals are not that common amongst these traditional societies. The good news here is that Nestle will face very little in terms of competition when it comes to frozen and premade foods which is likely to generate enormous market power for the company in the region.
The trends do speak in Nestle’s favor as the globalization of these parts of the world are likely to cause a significant increase in premade and other goods that have previously been unsuccessful in these markets. In 5-10 years the company could be a trend settler. * Malnutrition is yet another burden faced by the developing countries. Apart from the rich countries in Europe and North American, the rest of the world is more or less faced with predicaments such as poverty, malnutrition and other troubles. In most places, in Africa and India especially, people live around or under the poverty line and have a ard time providing for themselves. Economic collapses, outbreaks of wars and deceases also add to the troubles of the Third World. These pose some of the major obstacles in the path of Nestle and such organizations, as Western European goods are often considered luxury and expensive and can hardly be marketed in poverished places. Fortunately Nestle’s involvement in the attempts of the UN to subdue malnutrition around the world have helped raise the company name up high and provide for a vital market exposure.
Exporting cheaper and easier to produce products is the way to enter such turbolent emerging markets. Nestle is a global company, with huge financial and market strengths facing the opportunities of the global markets. From the reaserch that we made, we strongly believe that the company will keep on being a leading brand, overcoming its weaknesses and driving away its threats. References: http://web. ebscohost. com/bsi/pdf? sid=5d8ad613-96e9-4aa0-b859ae80c548516c%40sessionmgr114&vid=4&hid=107 www. Nestle. com http://en. wikipedia. org/wiki/Nestle http://www. marketingteacher. com/swot/nestle-swot. html
