CASE STUDIES

Nestl Partners' Blend case study

Developing ethical business practices
Reference Code: CSCM0126 Publication Date: July 2007

DATAMONITOR VIEW CATALYST

This case study looks at the phenomena of marketing a Fairtrade product in a stable of core mainstream brands, focusing on Nestls Partners' Blend coffee. It addresses how Nestl promotes the brand's ethical credentials, despite itself facing criticisms of alleged non-ethical practices.

SUMMARY
Nestl launched its first Fairtrade product, Partners' Blend coffee, in October 2005, an event which immediately attracted criticisms that the ethical brand credentials were not in line with the company's core portfolio. However, the controversy has not halted company sales growth, with the brand recording record sales growth in 2006. Nestl had to prove that Partners' Blend would add value to the Fairtrade brand before it was given the moniker. It carried out research showing that new consumer groups would be attracted to Fairtrade with the launch of the coffee. Despite gaining Faitrade status, however and the fact that Nestl does have stakes in other companies' ethical goods consumers still potentially face an ethical dilemma whether to buy this global giant's ethical product. Partners' Blend attempts to silence its critics by utilizing informative marketing, using its packaging and website as a forum for promoting what makes it an ethical product. In particular, the brand is marketed in accordance with three key concepts; that of being worthy, quality and offering connectivity.

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ANALYSIS Nestl launches its first Fairtrade product, despite having a poor background in ethical business practices
As a leading player Nestl attracts consumer criticism
Nestl is the worlds largest food and drink company with many of the worlds leading brands across a wide variety of product categories. If the success of a company and its brands was measured on sales figures alone then Nestls brand strength might be insurmountable by its competitors. However, as consumers increasingly look behind the marketing of brands, thanks to consumer advocacy groups, Nestl is one of a number of companies to have attracted significant consumer criticism. Other companies such as Gap, Nike, and Starbucks have all suffered the same sort of criticism, much of which stems from the fact they have become so successful that consumers expect them to take a greater lead in societal issues. Nestl has also been hit by some high profile criticism relating to its business practices in the past and more recently that still haunt the company. During the 1970s it was alleged that, as part of an excessively aggressive yet subtle marketing strategy, Nestl had sent agents or employees dressed to resemble nurses into communities in Africa extolling the benefits of its baby milk formula. Critics of the alleged practice argued that if mothers had continued to breast-feed their infants they would have benefited from establishing a greater emotional bond with their child, providing safer nutrition by avoiding exposure to contaminated drinking water, and feeding their infants at a lower cost. Other more recent accusations of unethical practices include demanding too much money in compensation from the Ethiopian government in 2007; while in 20004 Forbes reported on Nestl's alleged use of forced labor in the production of its chocolate. As a result, Nestl has attracted criticism that has continued to the current day, with many consumers and consumer advocacy groups boycotting Nestl products and encouraging others to do the same. Guidelines on the marketing of such products have been in place in many countries since the early 1980s in the form of The International Code of Marketing of Breast Milk Substitutes, as originated by the World Heath Organization (WHO). Many consumer advocacy groups allege that Nestl still knowingly flouts the framework of this code.

Partners' Blend will be seen by many as just a PR excercise

Against this backdrop of consumer advocacy and boycotts, Nestl announced the launch of its Fairtrade accredited Partners' Blend coffee in October 2005. Partners' Blend is the first Fairtrade product in the Nestl portfolio. It amounts to a tiny part of the Nestl stable of brands, being one of roughly 8,500 products the company makes worldwide (not taking into account different portion sizes of the same core brands). According to the consumer advocacy organization Consumers International, Partners' Blend accounts for somewhere in the region of 0.02% to 1% of the coffee bought by Nestl from producers. Consumers International also highlights the perception that the marketing for the product launch was more noticeable and widespread than the products availability. If a significant proportion of consumers hold this same perception of mismatch between media coverage and investment in the core product, it may backfire for Nestl. Partners' Blend may end up being considered (rightly or wrongly) as more of

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a tool to improve Nestls brand strength in the eyes of demanding consumers, rather than a genuine attempt to introduce more ethical values into the companys business. The real worry is that these guys are coming in just to grab the current growth. When that's done and chewed up, they'll walk away from it and we'll be in a worse position to continue the momentum. Albert Tucker, Managing Director, Twin, (alternative trading company promoting equality)

Skepticism surrounding Nestl has not yet halted sales growth

Whilst skepticism surrounds Nestls move into Fairtrade hot drinks, recent sales growth suggests consumers have to some degree at least warmed to the idea. Nestls innovation in food and beverages has largely been successful with consumers in the past year. The company announced a record breaking 2006 with sales of CHF 98.5 billion (US$81.6bn), up 8.1% on 2005. The beverages segment has been key to this sales growth; with sales of CHF 25.9 billion (US$21.5bn) in 2006, beverages achieved 8.0% organic growth, with real internal growth of 6.9%. As a first time entry into Fairtrade products, Partners' Blend could mark the beginning of the release of further ethical foodstuffs in the Nestl portfolio in the future.

Consumers still face an ethical dilemma despite the product's Fairtrade status
Nestl had to prove Partners' Blend would add to the overall value of the Fairtrade segment
The problem for branded producers is that the Fairtrade accreditation process takes into consideration the impact of potential cannibalization on other existing Fairtrade products. The hope is that each newly accredited product will add to the overall value of the Fairtrade segment in each product category, assuring that a bigger slice of the cake goes to Fairtrade producers rather than pit one Fairtrade brand against another. For this to happen, each newly accredited Fairtrade product must offer something different from existing ones. Research carried out by Nestl prior to accreditation and launch research showed the product would appeal to a new consumer group predisposed to Fairtrade and/or sustainable products while not being current purchasers of Fairtrade products. It was therefore able to carry the Fairtrade moniker.

Nestl's stakes in other Fairtrade products show a slight commitment to ethical consumerism, which may not be enough for consumers
Nestl is a late entrant with regard to Fairtrade goods considering its global reach, corporate scale and dominance in categories such as chocolate and coffee. It is possible to argue that if the company was committed to Fairtrade and ethical issues it would already have a greater range of Fairtrade products in a category where it already has such high brand share and brand awareness. Nestl does, however, have a stake in the Day Chocolate Company (the makers of Divine and Dubble chocolate bars all of which carry the Fairtrade mark) both from a direct investment and through its partial equity stake in L'Oreal, which in turn had acquired equity in Day Chocolate from its purchase of the Body Shop chain. Partners' Blend coffee forces consumers who are informed and who care about ethical consumerism into making a difficult decision. The choice is between supporting a Fairtrade product that further expands the reach and validity of a concept they fervently believe in, while contributing to the bottom line of a company that has allegedly indulged in

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unethical practices in the past. This is in addition to accusations that Nestl is making a token gesture, given that most of its products are not sourced via Fairtrade.

Partners' Blend attempts to silence critics through informative marketing

Nestls marketing focuses on themes of quality, worthy and connectivity
Nestl attempts to dispel critics of its business practices by marketing Partners' Blend in accordance with three key concepts; that of being worthy, quality and offering connectivity. Nestl has reported that its research led it to the conclusion that a Fairtrade offering would not cannibalize current Fairtrade coffee sales but would reach a wider audience yet to be tuned in to Fairtrade a key worry of some critics. Ultimately Nestl combines these three themes in an effort to communicate with these consumers in the strongest manner possible: Worthy - Nestls marketing heavily focuses on the cause of Fairtrade and how the product is worthy. Simple traditional packaging designs also cue perceptions of being worthy. The companys website

www.growmorethancoffee.co.uk describes many case studies on how Fairtrade is beneficial to people in the developing world. Quality - Nestls marketing focuses on the quality of the 100% Arabic beans used in the product. They are described as world renowned and the king of coffee beans. Classic packaging colors of coffee and cream have connotations of quality. The price positioning of Partners' Blend is more expensive that the companys basic offerings (10% higher than Gold Blend) yet is not high enough to be considered a super-premium offering. Connectivity - The product aligns itself with the consumer mega-trend of connectivity which refers to consumers desire for a life rich in relationships and belonging, be it with other people or wider causes. The name Partners' Blend resonates with connotations of connectivity as do frequent uses of terms such as community in its marketing prose. Pictures on the packaging of the farmers on the product will ultimately help to create a connection between the consumer and cause.

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Figure 1:

Nestl combines 3 key elements in its marketing of Partners' Blend

QUALITY

CONNECTIVITY
The product aligns itself with the consumer megatrend of connectivity. The name partners blend resonates connotations of connectivity as do frequent uses of terms such as community in the marketing prose. Pictures on the packaging of the farmers on the product will ultimately help to also create a connection between the consumer and cause

Nestles marketing focuses on the quality of the 100% Arabic beans used in the product. They are described as world renowned and the king of coffee beans Nestles marketing heavily focus on the cause of fair trade and how the product is worthy. Simple traditional packaging designs also cue perceptions of being worthy

WORTHY

NESTLE POSITIONS ITSELF HERE

DATAMONITOR

Source: Datamonitor analysis

Partners' Blend website encourages user participation, providing valuable data

Nestl launched a partner website to promote its Partners' Blend brand in November 2005. The website was designed to educate consumers and to communicate an ethical image. Visitors to the site are encouraged to leave their details in order to receive regular emails, which will update them on the progress of the individuals and communities involved in Nestl's projects in El Salvador and Ethiopia and also give Nestl valuable consumer data.

Figure 2:

Nestl targets online information seekers

To coincide with its launch of Partners Blend coffee Nestl launched a Web-based customer relationship management programme. The initiative centers around website www.growmorethancoffee.co.uk, which has been developed by Chemistry Communications. It will explain to users how Nestl is aiding coffee farms suffering hardship in El Salvador and Ethiopia. Customers will be directed to the site through on-pack promotions and advertorials. Visitors to the site are encouraged to leave their details in order to receive regular emails, which will update them on the progress of the individuals and communities involved in Nestl's projects in El Salvador and Ethiopia.

Source: Datamonitor / www.growmorethancoffee.co.uk

DATAMONITOR

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Packaging branding and design will be key to the brands success

The pack branding of Nestls Partners' Blend is a clear example of a leading consumer packaged goods (CPG) marketer using its years of combined expertise to brand a Fairtrade product in an appealing manner. In accrediting this product, the Fairtrade Labeling Organization (FLO) recognized the difference between this product and those already existing in the market. The fact that it is obviously a Nescaf product was appealing to the FLO as it did not cannibalize sales of other Fairtrade products and may even take sales from existing Nescaf customers. It could also promote the sales of Fairtrade, so that such products take a greater share of the overall coffee market. The new brand name is wisely chosen as it evokes the mutual partnership spirit of the product while maintaining some idea of a quality blended beverage that is a sensory delight. The pack also bears the Fairtrade mark as it is compelled to do and does so in a prominent place on the front of the packaging, so consumers potentially buying the product know why it is positioned at a higher price point. In addition to the Fairtrade mark, both designs of the pack (shown in Figure 3) give a pictorial link to the products provenance. In both instances it shows not only the people who benefit form the Fairtrade association but their commitment to the quality of the product, which it portrays as meaning so much to them as farmers. Passion for a product is one of the key narratives that are attractive to consumers. The design of the Partners' Blend packaging is also in tune with the overall Nestl brand value of quality. The prominent display of the Nescaf brand helps reassure mainstream consumers that while they are buying Fairtrade, they are still buying from an established brand with a commitment to consistent quality. It is this latter point which could potentially attract consumers to the product, who would not usually purchase Fairtrade goods. The Fairtrade sector could therefore benefit from associations with global consumer giants, bringing the category into mainstream acceptance.

Figure 3:

Partners' Blend packaging will be key to brand success

Prominent display of master Nescaf brand Coffee and cream colorscheme Universal Fairtrade Mark Pictorial link to country of origin and Fairtrade producers who benefit

Source: Datamonitor analysis / Productscan Online Database

DATAMONITOR

Nestl Partners Blend case study

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APPENDIX Case study series

This report forms part of Datamonitor's case studies series, which explores business practices across a variety of disciplines and business sectors. The series covers a range of markets including food and drink, retail, banking and insurance, pharmaceuticals and software. Each case study provides a concise evaluation of a company that stands out in some area of its strategic operations, highlighting the ways in which the company has become one of the best in its field or how it deals with different problems encountered within that sector.

Methodology
A variety of secondary research was carried out for this case study. This included researching Datamonitor's Interactive Consumer Database and the Productscan Online Database of new products, alongside an extensive review of secondary literature and other in-house sources of information.

Secondary sources
Is global business hijacking the Fairtrade bandwagon; The Guardian (January 2006)

Further reading
New Developments in Global Consumer Trends (Datamonitor, DMCM2468, April 2007) Authenticity in Food & Drinks: New Insights Into Consumers' Attitudes & Behaviors (Datamonitor, DMCM4582, September 2006) Capitalizing on Natural & Fresh Food & Drink Trends (Datamonitor, DMCM4149, September 2006)

Ask the analyst

The Consumer Knowledge Center Writing team

askcm@datamonitor.com

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