NESTLÉ

ANALYSIS
WRITTEN & PRESENTED BY :

Stephanie Munson

MQM 385.07

Illinois State University – Spring 2019

TABLE OF CONTENTS
Pg. No.

INTERNAL ANALYSIS ............................................................................................... 2

STRENGTHS ....................................................................................................... 2
WEAKNESSES .................................................................................................... 5
MACROENVIRONMENT ANALYSIS .......................................................................... 8
DEMOGRAPHIC FORCES .................................................................................. 8
TECHNOLOGY FORCES..................................................................................... 9
SOCIAL FORCES .............................................................................................. 10
MACROECONOMICS ........................................................................................ 11
POLITICAL & LEGAL FORCES ......................................................................... 12
GLOBAL FORCES ............................................................................................. 13
CORPORATE LEVEL STRATEGIES ........................................................................ 15
HORIZONTAL INTEGRATION .......................................................................... 15
VERTICLE INTEGRATION................................................................................. 16
OUTSOURCING................................................................................................. 17
BUSINESS LEVEL STRATEGIES ............................................................................ 19
DIFFERENTIATION ........................................................................................... 19
FOCUS DIFFERENTIATION .............................................................................. 20
COST LEADERSHIP .......................................................................................... 21
COMPETITOR ANALYSIS ........................................................................................ 23
COMPETITOR’S STRATEGIES ......................................................................... 23
COMPETITOR’S COMPETENCIES ................................................................... 25
COMPETITOR’S RECENT PERFORMANCE .................................................... 26
RECOMMENDATIONS (4) ....................................................................................... 28
REFERENCES ......................................................................................................... 32

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1.) INTERNAL ANALYSIS
Nestlé is the world’s leading nutrition, health, and wellness company based in

Switzerland; and also currently ranked 69th on the Global Fortune 500 (“Fortune,” n.d.).

The company began in 1867 when founder, Henri Nestlé, created one of the first infant

foods as a response to a healthier and affordable product need for mothers who could

not breast feed their babies (Nestlé, 2017).

Today, the company sells over 2,000 different brands and over seven food and

beverage categories. Their main products include powered and liquid beverages, milk

products, ice cream, confectionary, and pet care products (“Nestlé Brands,” 2019).

Various strengths and weaknesses are as follows :

STRENGTHS WEAKNESSES

 Unrivaled product and brand  Product recalls

portfolio  Poor brand reputation & image

 Environmental & sustainability  Criticism over unethical business

efforts practices

 Strong geographic presence – best

geographically diversified revenue

sources in the world

STRENGTHS

1. Unrivaled Product and Brand Portfolio

Nestlé’s product portfolio is one of the widest among rivals in the industry. As

mentioned earlier, the company offers over 2000 different products choices in 7 main

categories. Some brands the company offers throughout this large portfolio include:

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1.) INTERNAL ANALYSIS
o Powder and Liquid Beverages : Nescafé, Nescafé Dolce Gusto, Nespresso, &

Nestea

o Milk and Ice Cream : Nestlé, Dreyer’s, & Movenpick

o Prepared Food and Cooking Aids : Maggi, Chef, Buitoni, Stouffer’s, & Wagner

o Nutrition : Wyeth, Nan, S-26 Gold, Beba, & Lactogen

o Petcare : Purina, Friskies, Pro Plan, Felix, & Gourmet

o Confectionary : Nestlé, KitKat, & Cailler

o Water : Pure Life, S. Pellegrino, Vittel, & Perrier (“Nestlé Brands,” 2019).

Although Nestlé’s rivals may also have broad-range brand portfolios, none of

them are as diverse or as large as Nestlé. This is a strength because by providing a

wide product portfolio, it allows Nestlé to better satisfy a broad range of consumers’

needs and target a wider consumer segment greater than its’ competitors. In other

words, having a large variety of brands and products available to consumers, Nestlé is

able to keep customers satisfied and returning.

2. Environmental & Sustainability Efforts

Nestlé takes a lot of pride in using recycled materials and choosing materials

from renewable sources whenever possible to help reduce waste and keep the

environment clean. Because Nestlé redesigned the outside materials of their products

to using recycled materials, they have been able to save over 500 million kilograms of

packaging a year since 1991. In fact, 182 of Nestlé’s factories reached zero waste

production by 2016 – one of the best results in the industry (Jurevicius, 2017).

Being environmentally conscious has become an important global concern in the

recent years. Because Nestlé is environmentally conscious, their consumers are more

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1.) INTERNAL ANALYSIS
likely to buy their products and continue to support them. Very few competitors have

been able to match Nestlé’s sustainability efforts, resulting in lower production costs,

cleaner environment, and happier communities. Having environmental and sustainability

efforts as a strength will help Nestlé gain and maintain their competitive advantage.

3. Strong Geographic Presence / Geographically Diversified Revenue Sources

Nestlé operates and sells their products in 189 countries – meaning the company

does not rely on a single country or a few different countries to generate most of its

revenue. In fact, due to this wide spread, the company has divided its operations into

three geographic areas : (1) America, (2) Europe, Middle East, North Africa, and Asia,

(3) Oceania and sub-Saharan Africa (Nestlé, 2017). [Note: None of the regions earn

over 50% of the company’s total revenue.]

To give a better perspective, PepsiCo (one of Nestlé’s largest competitors) earns

about 56% of their revenue from the U.S. alone (Jurevicius, 2019). Knowing this, it

helps prove that Nestlé’s strong and diverse geographic presence and provides a

stronger competitive

advantage over its rivals.

If Nestlé were to ever lose

their market in one of the

countries it operates in, the

company would still retain a

large portion of their

revenues compared to rivals

[Figure 1 : Visual of how much revenue each country contributes to
Nestlé. (Jurevicius, 2017)]

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1.) INTERNAL ANALYSIS
like PepsiCo. Knowing this, it helps prove that Nestlé’s strong and diverse geographic presence

and provides a stronger competitive advantage over its rivals.

WEAKNESSES

1. Product Recalls

Just like other food and beverage distributors, Nestlé is required to follow the

Food and Drug Administration’s (FDA) strict quality control measures and regulations

due to selling tens of thousands of different food products daily. However, even with

these regulations in place, the company has had to recall several of its products on the

market due to some form of contamination. For example – in 2014, Nestlé had to recall

and destroy 37,000 tons of contaminated Maggi noodles in India (Andrei, 2017).

Because of this recall, the company lost millions in sales and damaged their brand

reputation for the future. More recently, on March 29, 2019 Nestlé announced that their

product, Purina Pet Care, is recalling a limited amount of Muse wet cat food Natural

Chicken Recipe in Gravy, in three-ounce cans, due to be contaminated with rubber

pieces which could be a potential choking hazard (Medicine, 2019).

Overall, Nestlé’s history of product recalls is not only damaging to their sales

incomes, but it is also damaging to the company’s credibility to deliver reliable products

to their consumers. Meaning, customers will start to look for other options (if they

haven’t already) due to the fear that their Nestlé product may have been contaminated.

Having so many product recalls also puts Nestlé in a negative light and gives

consumers a reason to not purchase their products anymore. Without supportive

customers to continue purchasing Nestlé’s products, the company can lose the

competitive advantage that they have within the industry.

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1.) INTERNAL ANALYSIS
2. Poor Brand Reputation & Image

Nestlé’s brand reputation and image is rated very poorly among consumers. This

is because of several scandals the company has been involved in. One example of a

scandal Nestlé was involved in was when the company tried “hooking” new mothers in

the Global South on expensive formula with the use of misleading advertising,

representatives wearing nurse uniforms and pushing formula, and goodie bags with free

samples (Smith, 2016). This was bad because once breastfeeding women started

weaning and transitioned to the formula, they weren’t able to go back. Instead, these

women were forced to keep buying the expensive formula or else they ran the risk of

allowing their babies to starve. Other scandals the company has been involved in are

Child Labor in Cacao plantations, Union-busting, and the use of Palm Oil in their

products.

Because these made major headlines and received large amounts of criticism,

the company’s brand image has not fully recovered because consumers are still

skeptical of their business practices behind closed doors. A negative brand image can

potentially reduce company profits and profitability.

3. Criticism Over Unethical Business Practices

As is the case for many companies, Nestlé has received criticism from

consumers over several of its business views and practices across its brands. For

example, Nestlé previously stated that it supported the privatization of water – meaning

the company wanted to transfer the water from public to private ownership and control.

This concept received a large amount of backlash from consumers and activist groups.

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1.) INTERNAL ANALYSIS
Other examples of criticism that Nestlé has received as a result of unethical

business practices includes an unethical marketing campaign for baby formula,

misleading labels on products, sourcing materials from suppliers using child and forced

labor, anti-unionism, and asking for a debt repayment from a famine struck country

(Andrei, 2017).

Since receiving this criticisms, Nestlé has made changes to some and adjusted

accordingly. However, the public continues to unveil numerous other unethical practices

the company continues to practice. Until Nestlé realizes that it takes years to build a

trustworthy, positive brand image and seconds to destroy, it will be challenging for them

to acquire other brands that will want to associate their products with them. All-in-all,

Without customers, Nestlé will lose profits and potentially their competitive advantage.

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2.) MACROENVIRONMENT ANALYSIS

The macroenvironment is an important component to consider when a company

makes business decisions. A macro environment analysis can be used in order to

assess how different external forces will have an effect on business. The analysis will

help illustrate any changes within an industry, therefore the company will know what

they need to adjust in order to respond to these changes. There are five different forces

in the macroenvironment : demographic, technological, social, macroeconomics,

political and legal, and global forces.

DEMOGRAPHIC FORCES

Demographic forces placed upon a company can result from changes in the

characteristics of a population. A demographic force that many global companies have

to face is cultural adaptation. Culture can have a huge impact on consumer

consumption. In order for a company to be successful in a global environment it must

consider its consumers and adapt its products or services to each cultural region. A

company must adapt their marketing, packaging, and other elements of their business

(Markgraf, 2017).

Nestlé engages in cultural adaptation in order to please its’ consumers

worldwide. They adapt their products in respect to local, regional and national habits

and the tastes, religious backgrounds, and culture of their consumers (“Are Nestlé,”

n.d.). Since Nestlé is an ever-growing multinational company, this force is important to

master in order to increase consumer satisfaction. One way Nestlé has demonstrated

responding to demographic forces is by adapting their Nescafé coffee drinks from a

Western European drink into a beverage that satisfied their Thailand market. In order to

make it more of a casual drink for Thailand, Nestlé altered the traditional tastes,

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2.) MACROENVIRONMENT ANALYSIS

aromas, and advertising strategy of coffee, and presented coffee as a way to relax from

busy traffic, romance, and office pressures (Rapoport, 1994). The company even

created a dance called the Shake in order to promote their new cold coffee in

Thailand. As a result of adapting to Thai culture, Nestlé gained 80% of Thailand’s

coffee market share and increased their sales (Rapoport, 1994).

TECHNOLOGICAL FORCES

Technological forces are changes in technology that can create new products.

Technology changes frequently, so it is vital that a company stays up-to-date with new

developments. The food industry is working to find more technologies to help with

delivering a variety of healthier and fresher food. Nestlé’s technologies are crucial to

their research and development, and they have numerous engineers that work on

research and development for their packaging, equipment, food processing

technologies, and new beverage systems (“Food Science,” n.d.).

In order to adjust their technologies to the world’s changing social values, Nestlé

has launched sugar-reduction technology to produce a chocolate bar with lower sugar

amounts. CNBC’s article talks in-depth about the new technology. The sugar-reduction

technology was launched in 2018, reducing sugars by 40% in Nestlé’s products. The

new structure of sugar was created by spraying a sugar, water, and milk powder mixture

onto warm air in which the milk stabilizes the sprayed sugar from becoming too sticky

(Reid, 2018). This new process will have the same sweetness of the chocolate before,

but it will contain less sugar.

Nestlé is also working on using healthier fats in their products, switching from

hydrogenated fats to vegetables oils (“Food Science,” n.d.).

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2.) MACROENVIRONMENT ANAYSIS

SOCIAL FORCES

Social forces in an industry include any changes in a population’s morals and

values. Companies can face a variety of social forces that will influence how to conduct

business, and one that is greatly affecting the food industry is the consumer’s desire for

healthy eating. Our society is becoming more and more health conscious, which can

have a significant impact on food companies. As the demand for healthier food products

rises, the companies in the food industry have a greater responsibility to meet those

consumer needs.

With this in mind, Nestlé is working on becoming the world’s leader for nutrition,

health, and wellness. For their health conscious consumers, Nestlé offers fitness bars

and cereals. Their fitness bars and cereals provide consumers with the energy they

need to go about their day. Nestlé’s fitness cereal contains B vitamins which help to

release energy into the body. The cereal also contains healthy ingredients such as

whole grain wheat and whole grain oats. These healthy products in Nestlé’s product

line meet the expectations of their consumers and help the company keep up with the

social forces of the industry.

Every year, Nestlé is working to reduce the salt, sugar, and saturated fats in their

food and beverage products. While doing this, they are also increasing the amount of

whole grains, fruits, vegetables, and legumes in their products. They have even worked

on adding micronutrients to food and beverage products in countries where there are

known deficiencies (“What is Nestlé doing about Obesity?,” n.d.). Nestlé is using their

new technologies and their research and development to employ numerous new healthy

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2.) MACROENVIRONMENT ANALYSIS

options for their products, and continue to do so until they are the leader in health and

wellness.

MACROECONOMICS

Macroeconomics are forces that can affect the health and the well-being of a

nation. These factors can include the growth rate of the economy, interest rates,

currency exchange rates, and inflation/deflation. Multinational companies are affected

by all of these, and Nestlé’s main concerns are inflation and currency exchange rates.

Inflation can affect a company because when prices rise, people have less of a desire to

spend their income on non-necessities. When inflation is low, consumers have more of

a desire to spend their money on goods and services. When inflation occurs,

consumers start to question whether or not they should spend their disposable income

on different products that aren’t essential to everyday living.

Inflation can affect Nestlé specifically because they would be paying higher costs

to their suppliers, in addition to raising their product costs to their consumers. The

company could also experience loss of demand in their products. Currently, Nestlé is

facing inflation in Western countries and facing pricing decisions (“Nestlé CEO,”

2018). Nestlé’s CEO, Mark Schneider, commented on the issue, saying Nestlé’s input

costs of wages, raw materials, and energy will face an increase. Prices are set to begin

rising this year, and in 2020 (“Nestlé CEO,”2018).

Nestlé is a multinational company; therefore, it can be easily impacted by foreign

currency exchange rates. For companies doing business in multiple countries, profits

need to be adjusted for the currency impact on profits. Currency exchange rates can

impact a company’s profits, therefore if a country’s currency weakens it could lead to

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2.) MACROENVIRONMENT ANALYSIS

profit losses for the company doing business there. In 2014, Europe experienced a

decrease in currency rates which had a direct effect on Nestlé’s profits for the year

(Shotter, 2014). According to the Financial Times, Nestlé had a concern that the power

of the Swiss franc would continue to have a negative impact on the company’s sales.

The currency exchange between the franc and the US dollar resulted in revenues

decreasing by 12.5%, whereas when currency rates were excluded the revenues were

up 4.1% in the US (Shotter, 2014).

POLITICAL & LEGAL FORCES

Political and legal forces are any changes in laws and regulations that can affect

the way a company conducts its business. The food industry is highly regulated in order

to inform consumers that they are consuming products that will not harm their health.

There are various regulations that food companies must adhere to. In short, all foods

must be safe and contain no prohibited ingredients. For the U.S. specifically, all

labeling and packaging must be truthful and detailed in the English language to inform

consumers what they are ingesting (“Food Industry,” n.d.). In order to assure consumer

safety, Nestlé has made quality and safety their top priority. Nestlé uses a Quality

Policy, which details the company’s commitment to product safety and full compliance

with quality and safety regulations and policies, both internal and external to the

company (“Quality and Safety,” n.d.).

One battle that the United States and European countries are trying to tackle is

the fight against childhood obesity. Food specialists and public health experts are

pushing for companies to try and combat obesity. There have been various policies

implemented such as calorie labeling and value sizing, but more importantly, food

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2.) MACROENVIRONMENT ANALYSIS
advertising to children is becoming more regulated (Zhang, Liu, Liu, Xue, & Wang,

2014). Nestlé itself is working to help prevent childhood obesity by adjusting their

company’s marketing. Nestlé has a strong belief that children should have a healthy

start to life, and to abide by this belief, they do not advertise to children under the age of

six. Nestlé’s marketing policy focuses on advertising a balanced, nutritional diet to older

children, ages 6-12 (“What is Nestlé doing to Restrict,” n.d.). In order to promote child

nutrition, Nestlé has a global program, Nestlé Healthy Kids, which reaches over 8

million children a year to help raise nutrition and health awareness among children. The

program not only encourages children to eat healthy, but also encourages children to be

active (“What is Nestlé doing to Restrict,” n.d.).

GLOBAL FORCES

Global forces are changes in the world’s economic system that can affect the

way a company conducts its business. Since global forces are purely external it is

important that Nestlé watches the various forces that can affect their company and

follow any trends to understand the force’s effects on the company. These can consist

of trade barriers and tariffs that a company may run into. Since Nestlé exports their

products, they face these forces.

Nestlé imports various products since it is a multinational company. Currently,

the United States is facing tariff increases for imports which is affecting many

companies. Nestlé imports products from different countries, such as China, Germany,

and Australia, to U.S. states such as California, New York, and South Carolina (Seair.,

n.d.). President Donald Trump is currently working to increase tariffs on household

items such as televisions, washing machines, and other items (Blumberg, 2018). This

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2.) MACROENVIRONMENT ANALYSIS
increase in tariffs could potentially affect Nestlé if President Trump decides to add more

imports onto the list of increased tariffs. Nestlé announced that in regard to the tariff

increases, they will implement increases on household items.

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3.) CORPORATE-LEVEL STRATEGIES
The three types of corporate-level strategies are horizontal integration, vertical

integration and outsourcing.

HORIZONTAL INTEGRATION

Horizontal integration is the process of acquiring or merging with industry

competitors to achieve the competitive advantages that arise from a large size and

scope of operations (Hill et al., 2017, p 282-283). Through horizontal integration, Nestlé

has merged with a known food processing industry, Anglo-Swiss Condensed Milk. The

merger provided the company with more resources and capital to expand their products

and later add chocolate to their product portfolio in 1905. Since then, Nestlé has

continued the chain of growth towards horizontal integration direction and acquired

several other businesses.

To continue its platform growth, the company made three important acquisitions.

The first being Jenny Craig, a U.S chain of weight loss centers in 2006, which provided

Nestlé a platform of moving into weight management. The second being Novartis

Medical Nutrition in 2007, which helped strengthen Nestlé’s position in the healthcare

and nutrition industry. The third important acquisition was of Novartis’s, Gerber baby

food, business in 2007 – thereby extending Nestlé’s leadership in all areas of infant

nutrition. These three acquisitions show Nestlé’s growing interest in the food and health

industry as a whole (“The Corporate Management,” 2018).

A more recent example of acquisition was of Merrick Pet Care in July 2015.

Merrick is one of the fastest-growing natural and organic pet food companies in the

United States. This acquisition of Merrick mirrors Nestlé’s already well-known

investment in pet food through Purina.

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3.) CORPORATE-LEVEL STRATEGIES
Additionally, another acquisition was related to a study of cow’s milk protein

allergy (CMPA) in young children. In 2015, Nestlé Health Science took the first steps in

addressing this difficulty through the Cow’s Milk-Related symptom score awareness

tool, developed by leading international experts to help healthcare professionals earlier

recognize and assess symptoms that may be related to CMPA in infants and young

children. From this, in May 2016, Nestlé’s subsidiary, Nestlé Health Science, worked

with a French company, DBV Technologies, to develop and bring innovative patch-test

tool for the diagnosis of cow’s milk protein allergy (CMPA) in infants. Under the terms of

the agreement, DBV granted Nestlé Health Science exclusive worldwide

commercialization rights of DBV’s diagnostic tool. DBV was responsible for the

development stages, including industrialization and regulatory submissions (Eisenhardt

& Martin, 2001).

VERTICAL INTEGRATION

The corporate level strategy, vertical integration, is when a company expands

their operations either backwards in an industry by producing inputs for the company’s

products or forward into an industry that uses, distributes, or sells the company’s
3.) CORPORATE-LEVEL STRATEGIES
products (Hill et al., 2017, p. 288).

Nespresso is a coffee product developed by Nestlé that enables anyone to

create the perfect cup of coffee. In 2014, Nespresso launched its 2020 sustainability

vision – The Positive Cup. In 2015, Nespresso exceeded 450 openings of boutique

networks in Milan, Auckland, Bucharest, Dakar, and other areas. Likewise, Nespresso

introduced an innovative premium coffee shop experience in Vienna with the first-ever

Nespresso Café (“Corporate Communications,” 2016). Nestlé’s Nespresso shops and

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3.) CORPORATE-LEVEL STRATEGIES
cafes provide a perfect example of how Nestlé vertically integrated forward into their

value chain in order to protect product quality and increase profitability.

Another example of Nestlé using vertical integration was on March 25, 2019,

when Nestlé announced the inauguration of a new Research and Development (R&D)

Center in Beijing and a System Technology hub in Shenzhen. The new R&D center will

enable Nestlé to accelerate trend-based innovation in China to meet fast-changing

consumer demand (“Nestlé to accelerate,” 2019) Additionally, on April 10, 2019, Nestlé

announced the creation of the Nestlé R&D Accelerator based in Lausanne, Switzerland.

Building their business’ core competencies through vertical integration while remaining

tactical with their suppliers and sourcing of raw material, should remain part of Nestlé’s

strategic plan to increase profitability.

OUTSOURCING

The third corporate level strategy is strategic outsourcing. Strategic outsourcing

is the decision to allow one or more of a company’s value chain activities or functions to

be performed by an independent specialist company that focuses all their skills and

knowledge on just one function (Hill et al., 2017, p. 299). Nestlé outsources its IT

system to Indian company, Satyam, because they have found that outside specialists

are more efficiently able to perform this function (McCure, 2009). Nestlé’s objective with

outsourcing is cost reduction so the company can focus on the core processes it

performs the most efficiently.

Moreover, Nestlé has used OmPrompt EDI services which is automates the

processing of orders, invoices and proof of delivery documentation from any format to

any format in order to improve supply chain efficiency. In addition to the automation of

17
processing, OmPrompt also automates communication between suppliers, retailers,

logistics providers and distribution centers. (McCure, 2009). Nestlé outsources Geodis

to manage its logistics and supply chain in France. Nestlé goal was to reduce

transportation costs which accounts for 10% to 15% of finished products (ElAmin,

2006). In the beginning, Nestlé assigned Geodis to study its supply chain flow to identify

the area which will be improved. After six months, Geodis sent the result and

recommendation solutions to Nestlé. After considering the result, Nestlé appointed

Geodis as its logistics provider for three years for all it transportation flow (Analyse

Nestlés, 2018).

In conclusion, Nestlé’s long-term corporate objectives are to be recognized as

the world’s largest food manufacturer and leader in Nutrition, Health and Wellness. In

recent years, the company has pursued a policy of expansion and diversification

through acquisition and divestment to remain competitive within the industry. Nestlé

also vertically integrates in order to increase profitability and maintain product quality.

Lastly, through the process of outsourcing, Nestlé is able to focus on its core

competencies while allowing outside specialists to complete their other value chain

activities more efficiently.

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4.) BUSINESS-LEVEL STRATEGIES
The three types of business-level strategies are differentiation, cost-leadership,

and focus differentiation. These strategies revolve around the core competencies of

Nestlé, who then utilize this to obtain the highest profits possible. By adding value to

their products using these strategies, Nestlé is able to obtain a competitive advantage

over competitors. Overall, Nestlé uses these strategies to solidify their position within

the food and beverage industry, and will hope to remain competitive for many more

years.

DIFFERENTIATION

The first business level strategy that Nestlé uses is differentiation. Nestlé has

attempted to make its products unique or different from its competitors in the industry in

order to make their products more valuable to their customers. The price of its products

is not necessarily higher than its’ competitors, but the quality or attributes of the food

and other products Nestlé produces does make up for that. In addition, Nestlé also puts

efforts into brand-building and strengthening consumer loyalty for their products by

conducting research on what their customers values and needs are (Lyng, 2016). By

creating products that are of higher quality, interest, and variety than its competitors,

Nestlé encourages its customers to continue to buy their products rather than the

products of its competitors and have more market share in their industry (“Nestlé is

Criminally,” 2019).

Nestlé is accomplishing this strategy of differentiation by conducting research on

customer wants, needs, and desires, as well as by acquiring companies across a

variety of different industries and creating more products throughout (Wrubel, 2018).

One example of Nestlé utilizing a differentiation strategy is across its coffee products,

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4.) BUSINESS-LEVEL STRATEGIES
which fit into three separate brands that serve different products and customers:

Nescafé, Coffee Mate, and Nespresso. Nescafé products are the typical, every day

coffee that consumers desire. Coffee Mate products are general coffee whiteners and

have a variety of different, extremely popular flavors, with some of the most popular

being French vanilla and hazelnut. These flavors tend to be sweet and are intended to

serve a different customer profile. Nespresso, on the other hand, is mainly targeted for

at-home use and offers machines and coffee capsules of several different flavors and

prices. Nespresso offers stronger coffee types that are often served in European

markets to customers across the world (Sakamoto, 2014).

FOCUS DIFFERENTIATION

The second business level strategy Nestlé uses is focus differentiation. Nestlé’s

focus differentiation strategy focuses on creating products intended for specific, more

narrow markets. Nestlé conducts research on certain markets, especially those who

seem unsettled or unsatisfied with current products, and tailor products for them

(Wrubel, 2018). By targeting specific groups of individuals who don’t have many

alternatives, Nestlé is attempting to control large portions of smaller markets. Provided

Nestlé successfully utilizes this strategy, they can receive large profits from these

products that typically have premium prices, as the intended customers typically are

willing to pay higher prices for these hard-to-come-by goods.

Nestlé is accomplishing this focus differentiation strategy by targeting specific

customer profiles with specific products. Nestlé has products that serve specific niches

in the various markets that Nestlé competes in. One example of this is Nespresso,

which serves very specific, high-end, strong coffee types for high-end customers

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4.) BUSINESS-LEVEL STRATEGIES
(Sakamoto, 2014). Another example is Lean Cuisine, which has an intended market of

those who want a fast, healthy, diet-based microwavable meal. While Nestlé owns

Stouffer’s, another microwavable food brand, it advertises Lean Cuisine as it’s healthier

brand and is meant to serve those who are more aware and particular about their

nutrition (Frey, 2016).

COST- LEADERSHIP

The second business-level strategy that Nestlé uses is cost-leadership. Nestlé

has attempted to lower costs over several areas of their business, such as IT and

ordering services, in order to have competitive pricing and maximize profits. One of the

ways that Nestlé has been able to incorporate a cost-leadership strategy into their

organization is by reducing packaging costs, and thereby allowing them to capitalize on

lower, more competitive pricing with higher profits (Bhasin, 2019). By having fair and

competitive pricing, Nestlé encourages its customers to buy its own products rather than
4.) BUSINESS-LEVEL STRATEGIES
the products of the competitors, once again increasing their market share.

Nestlé is accomplishing their position as a cost leader through outsourcing and

cost savings across multiple areas of pre-production and post-production of goods. As

stated earlier, Nestlé has outsourced its’ IT system in order to save both time and

money. In addition to this, Nestlé has an outsourced automated ordering service. In

outsourcing these activities, Nestlé has been able to save both money and time it would

have spent conducting these activities and has been able to reinvest this into perfecting

other processes. By investing more into production processes, Nestlé is able to

maintain control with overhead costs that would otherwise cut into any potential profits

that Nestlé would receive from sales. Nestlé has additionally stated that it attempts to

21
lower costs through cost-efficient operations and effective inventory management

(Chou, 2018).

Overall, Nestlé has employed a number of different business level strategies in

order to increase profits, cut costs, increase market share, build brand loyalty, and

expand its business. As stated above, the three main business level strategies applied

by Nestlé across all of its various brands are differentiation, cost-leadership, and focus

differentiation. Differentiation allows Nestlé to serve many different customer profiles

across different industries at various prices and qualities, and with various product

attributes. Cost-leadership assists Nestlé in maximizing profits by cutting costs across

various stages of development and manufacturing. Focus differentiation also assists

Nestlé in maximizing profits by charging premium prices for less common goods that

niche markets search for.

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5.) COMPETITOR ANALYSIS
COMPETITOR’S STRATEGIES

One of Nestlé’s top competitors in the food and beverage industry as of 2018 is

PepsiCo (McGrath, 2018). PepsiCo uses similar business, corporate and global

strategies as Nestlé does with small variances. To begin, one of PepsiCo’s generic

business-level approaches is a cost-leadership strategy in order to gain competitive

advantage. PepsiCo offers low prices based on low operating costs they have achieved

through superior efficiency. PepsiCo is able to offer discounts to customers due to their

objective of automating production processes in order to lower costs and compete

within the beverage and food industry (Ferguson, 2017). Nestlé also uses a low-cost

strategy, but what differs is that they achieve their lower costs through lowering

packaging costs and utilizing outsourcing.

A second business level strategy that PepsiCo implements would be broad

differentiation with unique features of some of their product offerings. PepsiCo offers an

assortment of their Lay’s chips as a healthier option to other competitors. PepsiCo’s

Lays offers oven baked and kettle cooked chips that claim to have significantly less

saturated fats than most other chips offered. Their main objective of differentiation is to

innovate their products to address health concerns (Ferguson, 2017). Nestlé also

follows a broad differentiation strategy with their assortment of coffee brands, and a

more focused differentiation strategy with their brand Lean & Nespresso. Lean Cuisine

is also targeted to address health concerns just like PepsiCo’s Lay’s chips.

PepsiCo’s corporate strategy includes an example of vertical integration. In 2009

PepsiCo announced their plans to acquire two major bottling companies in order to get

new products to the market faster and more efficiently. PepsiCo also used this

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5.) COMPETITOR ANALYSIS
backwards vertical acquisition as a bid to lower costs (Fredrix, 2009). This contrasts

Nestlé’s vertical integration approach of developing research laboratories to create

better and more innovative products as well as create better marketing strategies for

their products. PepsiCo’s corporate strategy also contrasts Nestle’s forward vertical

integration strategy with their Nespresso stores. The one way in which Nestlé and

PepsiCo are actually similar in their corporate strategy approach is by sharing

warehousing for their manufacturing facilities in countries like Belgium & Luxembourg.

They are using these facilities together for storage in general, to store their chilled food

products and contain their packaging operations within these countries (Nagurney, Yu,

& Besik, 2017).

Finally, Nestlé and PepsiCo also have similar global strategies. Nestlé is well-

known for its diverse acquisitions from all around the world. Nestlé acquired majority

interest in Ecuadorian company, Terrafertil, a natural and organic healthy snack based

company in February of 2018. Terrafertil is a prominently known company throughout

Latin America which Nestlé hopes to use to expand its presence within the region

(“Nestlé acquires,” 2018). Nestlé also acquired Atrium Innovations, a Canadian

company that produces nutritional health products in December of 2017. Nestlé made

this acquisition to not only expand its global scale, but to further pursue its goal of

having healthy brands (“Nestlé extends,” 2017). PepsiCo follows a similar strategy in

that it also makes acquisitions to diversify on a global scale. PepsiCo acquired the

Israeli based company SodaStream in 2018, to further push its purpose of health and

wellness globally just as Nestlé has (“PepsiCo buys SodaStream,” 2018). Both

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5.) COMPETITOR ANALYSIS
companies are focused on expanding their geographic presence while maintaining their

pursuit for healthy brands in different regions of the world.

COMPETITOR’S CORE COMPETENCIES

Nestlé and its main competitor, PepsiCo, can be argued to have very similar core

competencies. One of the similar competencies that the two companies share are its

brand strength and product portfolio. Both companies have many well-known brands

within the food and drink industry. Nestlé’s most popular brands are Gerber, Nestlé

Pure Life, Tollhouse, Nescafé and Lean Cuisine. On the other hand, PepsiCo’s

important brands are Lays, Gatorade, Cheetos, Tropicana, Aquafina and Tostitos

(Jurevicius, 2019). Even though PepsiCo and Nestlé both have very strong brand

presence within the market, PepsiCo does have a lot less diverse products and offering

than Nestle does. Nestlé offers products in baby food, pet food, and all types of human

food and drinks categories with various options available within each category. PepsiCo

mainly focuses their energies on food and drinks for kids and adults like chips and

sodas. So even though the two brands have a lot to offer and are both popular, PepsiCo

remains a less diverse company in terms of product offerings.

Another core competency that Nestlé and PepsiCo share (but in a different way),

is their geographic presence. Both companies are globally well-known within the food

and drink industry. Nestlé sells their products in 189 countries as of today with offices in

116 of those countries (“Nestlé Worldwide,” n.d.). On the other hand, PepsiCo sells their

products in over 200 countries but with only 31 offices within those countries (“Global

Sites,” n.d.). Both of these companies are all over the world in terms of product

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5.) COMPETITOR ANALYSIS
offerings, but Nestlé does have the upper hand because of the greater amount of offices

it has on a global scale.

COMPETITOR’S RECENT PERFORMANCE

Nestlé and PepsiCo have recently performed similarly within the beverage and

food industry. PepsiCo's revenues in 2018 were $64.661 billion, falling just below

Nestlé’s revenues of $91.439 billion. On the other hand, PepsiCo’s profits were $12.515

billion which was greater than Nestlé's profits of $12.991 billion. PepsiCo’s return on

equity of 86% varies drastically from Nestlé’s 22%. This is most likely different due to

the fat that Nestlé takes on less debt and instead, has more equity financing than

PepsiCo. Unlike return on equity, PepsiCo’s return on sales of 16% is a lot closer to

Nestlé’s 15%. PepsiCo’s earning per share as of 2018 is at $8.84, which is significantly

higher than Nestlé's earnings per share of $3.36. This difference can also be attributed

to the fact that Nestlé most likely has more shares outstanding to finance the

organization than PepsiCo (“Nestlé Group,” 2018; PepsiCo, 2018).

The final aspect to PepsiCo’s recent performance can be shown through their

stock price of $126.55 as of April 17, 2019. This is different from Nestlé’s stock price of

$94.13 as of April 17, 2019. Although Nestlé’s competitor, PepsiCo, has similar recent

performance to their own company, there are still some significant differences to the

organization’s financial information.

(Below is a table that highlights the above information in comparing the key differences

and similarities between Nestlé and its key competitor PepsiCo.)

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5.) COMPETITOR ANALYSIS

NESTLÉ PEPSICO

 Low Cost- Outsourcing & production cost

 Low Cost- Lower operating costs
Business Level savings
 Differentiation- Healthier Lay’s
Strategies  Focus Differentiation- Lean Cuisine
chips options
 Differentiation- Coffee brands

Corporate-Level  Vertical Integration- R & D and Nespresso  Vertical Integration- Bottling

Strategies stores manufacturers

 Acquisitions- Terrafertil & Atrium

Global Strategies  Acquisition- SodaStream
Innovations

 Product portfolio, brand strength &

Core Competency  Product portfolio & brand strength
geographic presence

RECENT PERFORMANCE

Revenues $91,439,000,000 (2018) $64,661,000,000 (2018)

Profit $12,991,000,000 (2018) $12,515,000,000 (2018)

Return on Equity 22% (2018) 86% (2018)

Return on Sales 15% (2018) 16% (2018)

Earnings per Share $3.36 (2018) $8.84 (2018)

Stock Price $95.79 (4/29/2019) $126.69 (4/29/2019)

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6.) RECOMMENDATIONS
In light of the above five answers, our group has come up with four

recommendations Nestlé could implement in order to help strengthen their business.

1. HIRE AN ETHICAL DIRECTOR :

The first recommendation for Nestlé would be to hire an ethical director. Because

Nestlé has had poor ethical practices in the past, this would help correct future ethical

decisions and steer the company away from repeating past unethical mistakes.

Moreover, having an ethical director can help avoid criminal acts of omission and lower

fines by identifying any potential ethical dilemmas the company may face and making

an effort to correcting them instead of just ignoring the issue (McNamara, 2016).

Ethical directors can also act as an ‘insurance’ policy to ensure company policies

are legal. As mentioned earlier in this report, Nestlé has faced criticism over utilizing

manufacturers in other countries that practice child and forced labor. An ethical director

would be able to decide if those labor practices are legal and if this aligns with the

company’s values. It would also help Nestlé’s employees feel comfortable at work and

assure them that they are being treated fairly (McNamara, 2016).

This recommendation also provides a stronger public image, teamwork, and

productivity. An ethical director will be able to make sure that the values the company

say they practice and the values the company actually practices are aligned to eliminate

any grey area on how to handle situations (McNamara, 2016).

2. ACQUIRE PAMPERS – A BABY DIAPER COMPANY :

Our second recommendation for Nestlé would be to acquire Pampers, a baby

diaper company, in an attempt to venture into unrelated diversification. Pampers is

currently the leader in the diaper industry with 50% of the diaper market share. Many

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6.) RECOMMENDATIONS
companies are weary to create their own diaper brands because of Pampers’ high

success within the industry (Pinto, 2018).

One of the reasons this acquisition would benefit Nestlé is the fact that the baby

diaper industry has high barriers because of this intense rivalry that Pampers has

created. If Nestlé acquired Pampers, they wouldn’t have to worry about high competition

within the industry and can instead just focus on the profitability that the company brings

them.

The other reason this acquisition would make sense for Nestlé is because it

mirrors past acquisitions Nestlé has made. After Nestlé divulged into the pet food

industry, they acquired Merrick Pet Care in 2015. These two go hand in hand just as

their already existing baby food subsidiaries would with Pampers. Nestlé would be able

to combine their marketing approach with their baby food products such as Gerber with

Pampers since they both fall within baby care products.

3. AQUIRE SPECIAL K TO CONTINUE THEIR HORIZONTAL PURSUIT :

A third recommendation for Nestlé is to acquire Special K cereal to continue their

pursuit of horizontal integration. To acquire this company, Nestlé needs to buy Special

K from Kellogg’s by approaching the board of directors and making a tender offer to buy

the company by purchasing their controlling interest. Special K is marketed as a healthy

low-fat product that has a lot of protein. Nestlé claims to have built a nutritious, health,

and wellness strategy that aims to provide the healthiest choices (Nestlé Strategy,

2019).

Since Special K already fits the image that Nestlé encompasses of health and

wellness, this acquisition would only benefit Nestle’s organization. Nestle already owns

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6.) RECOMMENDATIONS
a few cereal brands, so this would also in a way help increase the range that they offer

within its healthy cereal product offerings. This recommendation should be implemented

because Special K is already profitable and well received, so it will of course bring

profitability to Nestle as well (“Kellogg Revenue,” n.d.).

4. OFFERING MORE VEGAN OPTIONS TO SUPPORT EFFORTS TOWARDS A

HEALTHIER BRAND :

Finally, the fourth recommendation that would help Nestlé improve their

competitive advantage would be to work towards offering more vegan options in order

to support their efforts towards becoming a healthier brand. The company should also

aim to adapt to other diets that are becoming more prevalent in their consumer market,

such as the Ketogenic diet.

As previously stated throughout this report, Nestlé is working towards becoming

a health and wellness brand by creating healthier options to help adapt to the changing

social forces affecting the food industry. In order to further their health efforts, Nestlé

should work towards satisfying their vegan customers’ needs. There is also an

increasing number of vegetarian and vegan consumers in the world. In the United

States alone, the number of consumers who identify as vegans have increased by

600% in the past four years (“Why the Global Rise,” 2018).

Nestlé is currently working on a meat-free burger, but in terms of their current

products they have not started to change or adapt them to the vegan lifestyle. One way

the company could change their current products to make them vegan is by

incorporating more soy or almond milk, into their products instead of whole milk. Two of

Nestlé’s most popular candy bars, the KitKat and the Crunch bar, contain milk.

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Q6.) RECOMMENDATIONS
Adapting these products to fit a growing consumer market would help them increase

their profits and would help increase market share as well.

Another health adaptation that Nestlé could make is to work on lowering the

carbohydrates in their products in order to fit the Ketogenic diet. Many health-conscious

consumers are switching over to a low-carbohydrate diet and Nestlé should be adapting

their products to fit this trend. A single KitKat bar contains 26.1 grams of carbohydrates

(“4 Finger Bar Calories,” n.d.). Decreasing the amount of carbohydrates in their

chocolate products and other food products, Nestlé would better support their fights

against childhood obesity. A way to produce a healthier, low-carb option, Nestlé could

work to increase their fiber count in their products to offset the total carbohydrates

(McKnelly, 2018).

We believe these recommendations could offer Nestlé room to grow and gain an

even stronger competitive advantage over their current competitors. If these

recommendations were implemented successfully, they would give Nestlé even more

product differentiation, quality and ethical control, and consumer satisfaction then they

currently have. These recommendations could also help turn some of their weaknesses

into strengths, helping Nestlé become a powerhouse company.

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