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NESTLE-ROWNTREE
GLOBAL STRATEGY COURSE

2010 October 29 Mantas Juknevicius

Friday CEMS Exchange
 Key Success Factors in Confectionery
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 Ability to source and produce within proximity

 Sustain the size and ability to differentiate the
product
 Historical presence of the brand, liked by
consumers, related to a country of origin
 Capabilities to compete in a tight market

Rowntree had all those prerequisites, therefore they emerged as the

potential target for acquisition
 Confectionery is on the verge of globalization
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Strategic Mode
Global Strategy Dimensions Chocolate Industry
Globalization drivers pressurizes major players to expand
Market Participation more Global
market participation; consolidated industry
Worldwide acceptance, but local adaptation is important,
Product Global/multi-domestic
because of in regional differences in tastes
Value chain is still to a big extent reproduced in several
Location of Activities more Multidomestic
countries, multi-domestic approach
Brand names, packaging globally uniform, but ads
Marketing more Global
sometimes localized
Major producers make competitive moves with regard to
Competitive moves
less Global
what happens in other countries, but not so consistently

 Chocolate industry has globalization potential, but to the moderate extent:

 Market Drivers (customer preferences, transferable marketing) are strong incentive to
become global
 Cost drivers (logistics of bulky raw materials, expensive downstream) are weak
 Rowntree’s attractiveness
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Potential Strategic For Jacobs For Nestlé

Benefits
Related diversification would
develop a strong unified Global
brand
Improvement in distribution
Suchard
RT’s stronger position in countlines and boxed chocos
would complement Nestlés main product line. Building for
the long run is a cornerstone of Nestlé
RT is better established in non-grocery outlets

Acquisition of new Brands and Wider and stronger presence in the UK. Nestlé would go
Markets from being number six worldwide to number two
By pooling skills and RT’ s brands and skills are unique
competences, the risks is lowered
Advantages of economies of Potential synergies achieved could be in R&D,
scale and scope administration, sales force, incl. cost savings of 5-15%
Acquirer can keep the closest N already holds 15% of RT and can increase their
competitor away position if another bidder enters the picture
HOWEVER:
 RT is not attractive because of hostility of the management and the UK community
 Integrating the ambitious and old brand into a foreigner-run co. might be complicated
 Raising capital in debt markets might damage the financial health, especially Suchard’s
 Organizational Fit – a New Matrix
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Nestlé HQ
(Switzerland)

Zone 1 Zone 2 Zone 5

Nestec S.A.
GLOBAL Confectionery Brands Finance,
Control &
Other GLOBAL Brands Admin
R&D
More More More
local local local
Technical
brands brands brands
 Strategic Business Units (SBUs) are created to manage the international product lines across the regions and
enhance lateral communication, linking producers and distributors of the international brands
 They also take the decisions about global strategies and are responsible for global profitability of their
brands
 Market strategies are centralized for the international brands. These strategies are initially defined by the
SBUs and formalized in an international brand and this needs to be approved by HQ

A green light for the more effective Performance Management System to be established, given RT’s wish to be
independent and influential
 Conclusions
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 Other Options might (but not likely) be pursued :

 If Suchard outruns Nestlé in the purchase of RT, then Nestlé might consider divesting out of the
confectionery chocolate industry completely and invest money in more productive assets
 Nestlé can grow with smaller acquisitions, because Nestlé’ s confectionery division is capable to strongly
compete in the market due to the corporation’s financial strength and size
 E.g. Mars is private and probably too large to purchase at once
 Matrix structure allows better integration and eliminates need to convince executives in every
country about the launch of a new product
 Even though marketing (branding, advertising) efforts across brands cannot be combined, the
synergies can be extracted upstream
 Acquisition is the most immediate means to capture the economies of scale and scope in the
industry where the revolutionary innovation is limited

Suchard and Nestlé confectionery almost perfect competitors, thus if Nestlé does not
purchase Rowntree now, it will lose the opportunity to Suchard