Sei sulla pagina 1di 55

Nestle India: Economic analysis of the brand

Submitted by: UDITA DASGUPTA

Acknowledgement and declaration:

The project shows an extensive economic analysis of the brand nestle. The study mainly focuses on the demand analysis of the nestle products. The brand holds some huge range of products from the milk products, chocolates and confectionary to beverages and many more. The study discusses about the fmcg line of products and their demands in various parts of the world. The study has mainly considered the secondary data. The study has considered the total fmcg chain and it is not restricted to any market or product. In case of any limitations, author solemnly seeks for the forgiveness of the reader. Moreover a lot of research and hardwork is been invetsed in this report and is completely a work of individual effort and no other report ahs any resemblance with this report.

The author would like to snatch the opportunity to thank the people without whom this project would have been a distant dream. Heartiest thank to my teacher Dr. Renita Dubey who has always been with her students to help out with the project when ever required.

sincerely: udita dasgupta

Table of contents

Vision of nestle:
Nestl's aim is to meet the various needs of the consumer everyday by marketing and selling foods of a consistently high quality.

Mission of nestle:
We strive to bring consumers foods that are safe, of high quality and provide optimal nutrient to meet physiological needs. Nestle helps provide selections for all individual taste and lifestyle preferences.

Introduction of the organization:

Nestle is the world's largest food and beverage company. ]Nestle owns several major consumer brands such as Stouffers, Nescafe, Kit-Kat, Carnation, Nestle Water, and many others.[2] All in all, 30 of Nestle's products earned 1 billion CHF or more during 2010, making Nestle a major force in the global food and beverage industry.[3] Nestle competes with companies such as Uniliver NV(UN),Hershey Foods(HSY),Kraft Foods(KFT),Cadbury Schiweppes(CGS), and GROUPE

DANONE(DA) in the packaged food market. With only 42% of its food and beverage sales coming from North America, Nestle is one of the most geographically diverse of the major food and beverage companies. In FY 2010, Nestle generated revenues of CHF 104.6B ($121.1B USD) and net earnings of CHF 9.05B ($10.5B USD).

Although it already occupies the top spot in terms of sales, Nestle is attempting to continue sales and margin growth by increasing the nutritional value of its products and expanding into new areas of therapeutic foods for people with various illnesses. The company's stated goal is to transform itself from a food manufacturer to the world's leading nutrition, health, and wellness company.[ In 2010, Nestle created a subsidiary that will create food-based products meant to help prevent and treat various medical conditions such as heart disease and diabetes

Nestl India is a subsidiary of Nestl S.A. of Switzerland. With seven factories and a large number of co-packers, Nestl India is a vibrant Company that provides consumers in India with products of global standards and is committed to longterm sustainable growth and shareholder satisfaction.

The Company insists on honesty, integrity and fairness in all aspects of its business and expects the same in its relationships. This has earned it the trust and respect of every strata of society that it comes in contact with and is acknowledged amongst India's 'Most Respected Companies' and amongst the 'Top Wealth Creators of India'. The Company continuously focuses its efforts to better understand the changing lifestyles of India and anticipate consumer needs in order to provide Taste, Nutrition, Health and Wellness through its product offerings. The culture of innovation and renovation within the Company and access to the Nestl Group's proprietary technology/Brands expertise and the extensive centralized Research and Development facilities gives it a distinct advantage in these efforts. It helps the Company to create value that can be sustained over the long term by offering consumers a wide variety of high quality, safe food products at affordable prices. Nestl India is a responsible organization and facilitates initiatives that help to improve the quality of life in the communities where it operates.

History of the organization:

Nestls relationship with India dates back to 1912, when it began trading as The Nestl Anglo-Swiss Condensed Milk Company (Export) Limited, importing and selling finished products in the Indian market. After Indias independence in 1947, the economic policies of the Indian Government emphasized the need for local production. Nestl responded to Indias aspirations by forming a company in India and set up its first factory in 1961 at Moga, Punjab, where the Government wanted Nestl to develop the milk economy. Progress in Moga required the introduction of Nestls Agricultural Services to educate advice and help the farmer in a variety of aspects. From increasing the milk yield of their cows through improved dairy farming methods, to irrigation, scientific crop management practices and helping with the procurement of bank loans. Nestl set up milk collection centres that would not only ensure prompt collection and pay fair prices, but also instill amongst the community, a confidence in the dairy business. Progress involved the creation of prosperity on an on-going and sustainable basis that has resulted in not just the transformation of Moga into a prosperous and vibrant milk district today, but a thriving hub of industrial activity, as well. The Company started milk collection in Moga in 1961 with a collection of 511 Kgs of milk from 180 farmers. It has substantially expanded its operations with over 85,000 farmers in its own milk district. Nestl uses local raw materials and

develops local resources wherever possible. Milk Collection Centers with farm cooling tanks to preserve the quality of milk were established by the Company. After nearly a century-old association with the country, today, Nestl India has presence across India with 7 manufacturing facilities and 4 branch offices spread across the region.

Nestl Indias first production facility, set up in 1961 at Moga (Punjab), was followed soon after by its second plant, set up at Choladi (Tamil Nadu), in 1967. Consequently, Nestl India set up factories in Nanjangud (Karnataka), in 1989, and Samalkha (Haryana), in 1993. This was succeeded by the commissioning of two more factories - at Ponda and Bicholim, Goa, in 1995 and 1997 respectively. The seventh factory was set up at Pantnagar, Uttarakhand, in 2006.

The 4 branch offices in the country help facilitate the sales and marketing of its products. They are in Delhi, Mumbai, Chennai and Kolkata. The Nestl India head office is located in Gurgaon, Haryana.

Nestl has been a partner in India's growth for over nine decades now and has built a very special relationship of trust and commitment with the people of India. The Company's activities in India have facilitated direct and indirect employment and provides livelihood to about one million people including farmers, suppliers of packaging materials, services and other goods.

Product line of the fmcg

Nestl India manufactures products of truly international quality under internationally famous brand names such as NESCAF, MAGGI, MILKYBAR, MILO, KIT KAT, BAR-ONE, MILKMAID and NESTEA and in recent years the Company has also introduced products of daily consumption and use such as NESTL Milk, NESTL SLIM Milk, NESTL Fresh 'n' Natural Dahi and NESTL Jeera Raita. Nestle is divided into eight units, of which at least four contributed more than 10% to annual sales. This speaks to not only the company's diverse interests, but also its strength in each of the respective markets. The four units are as follows.



Nestl India has a wide portfolio for Milk Products and Nutrition. Nestl has a very clear Charter of ethics and responsible behavior in selling infant nutrition products. Milk Products, Nutritional, and Ice Cream was Nestle's largest segment. It includes the Carnation, Coffee Mate,Dreyer's, and Edy's brands among many others. Nestle's milk and ice cream brands compete with products such as Brever ice and store brands. Their nutritional products include Gerber Brand baby food and Nestle brand yogurts. Nestle's nutritional products compete against brands such

as Dannon Yogurt and store brands. The company's Nutrition segment became part of Nestle HealthCare Nutrition in early 2011 and will report under this wholly owned subsidiary in the future. Nestl India follows this Charter and also complies with The Infant Milk Substitutes, Feeding Bottles and Infant Foods (Regulation of Production, Supply and Distribution) Act, 1992 that guides the sale of infant nutrition products in India. Nestl India does not advertise its Infant Nutrition products.

List of the dairy products is as follows:

NESTLE EVERYDAY dairy whitener NESTLE milk NESTLE slim milk NESTLE dahi NESTLE EVERYDAY ghee NESTLE slim dahi

NESTLE bhuna jeera raita NESTLE NESVITA Dahi NESTLE real fruit yoghurt NESTLE creamy vanilla NESTLE MILKMAID NESTLE NESLAC NESTLE ACTIPLUS NESTLE stay healthy


Beverages is the second-largest segment after Milk Products, Nutritional and Ice Cream. Nestle owns several international beverage brands includingNescafe, Nesquick, Nestea, and Nestle Waters, each of which generated more than 1 billion CHF in 2007. With more than 400 factories around the world, Nestle is able to formulate each product to local tastes; "Nescafe" in Switzerland has a different recipe to the same product sold in the USA. Nestle's strong brand recognition helps them compete with other brands such as Maxwell house,lipton, and evian as well as various store brands. The combination of the recession and upper class consumers' increased environmental consciousness has lead many customers to cut back on bottled water in favor of tap water and reusable containers. Industry experts don't expect

bottled water to bounce back anytime soon, and the trend may expand beyond the US. Beverages include the very famous NESCAFE instant coffee. NESCAF CLASSIC has the unmistakable taste of 100% pure coffee and is made from carefully selected coffee beans picked from the finest plantations, blended and roasted to perfection. Tag line being 100% coffee.. 100% pleasure.... However the other products among the beverages of nestle are: NESCAFE CLASSIC NESCAFE SUNRISE premium NESCAFE SUNRISE special NESCAFE CAPPUCCINO NESCAFE ICED TEA WITH GREEN TEA NESCAFE ICEDTEA NESCAFE instant hot tea mixes NESCAFE 3in1

Prepared dishes and cooking dishes: This product line includes the very popular MAGGI. MAGGI 2minutes noodles is one of the largest and most loved food brands in india. The 2-MINUTE Noodles range is now available in 6 delectable flavours : Masala, Chicken, Tricky Tomato, Thrillin Curry, Romantic Capsica, and the all New Guess the Taste Noodles. Each Pack of MAGGI Noodles also provides Protein & Calcium which are essential nutrients at all stages of life. 85g of MAGGI Masala Noodles meets 13% RDA* of Protein and 21% RDA* of calcium for adults.

Nestle's Prepared Dishes and Cooking Aides segment consists mostly of products that are designed to be ready to eat very quickly, such as microwave lasagna.[14] Nestle owns brands such as Stouffer's, Lean Cuisine, Hot Pockets, andMaggi. Nestle has increased the nutritional value of its prepared dishes in order to compete with products such asDiGiorno, Bertoli, and Kraft Macaroni and Cheese.[15] In 2010, Nestle bought Kraft's frozen pizza business for $3.7 billion.[16] The purchase added the DiGiorno, Tombstone, Jack's and Delissio brands to Nestle's stable of products, as well as the license to sell California Pizza Kitchen frozen pizza. With this acquisition added to Nestle's existing product line, the company increased its market share to 33% of North American frozen foods

Chocolates and confectionery: Nestle's Confectionery segment includes confectionery brands include Kit-

Kat and Nestle chocolate. The Nestle Chocolate brand produces famous products such as Baby Ruth and Nestle Crunch.Nestle's confectionery products compete with chocolates and candies from by Kraft Hershey Foods foods (KFT) and and Cadbury from

schweppes (recently



manufacturers such as Kraft Foods (KFT), as well as various store brands. With Kraft Foods (KFT)' purchase of Cadbury in January 2010, Nestle dropped to the third largest chocolatier.Nestle has its huge range of products in chocolates and confectionery segment.they are as follows:


Demographic trends:
The market for nestle is targeted nearly all age from young to old people in the entire six continent. Nestle has served with products like baby products, coffee, dairy products, boiled water, ice-cream, etc. So the products are very basic in nature and serve the people from a child to an old man on death bed. The nestle brand has emerged out to be such a trusted brand, that people all the continents has faith in this and nestle thus serves worldwide.

Five force model:

Let us consider the five force analysis model of this brand nestle.



The market is completely open and there are so many multinational companies and domestic companies those who joins the market and exits the market. Thus there always remains the high pressure in the market and constant monitoring of the market should be done.

There are so many diversified products of nestle that each segment has its own substitute. Nestle however is such a brand and the brand positioning of nestle has been done in such a good manner that it is tough to give nestle a jerk. However there is always an average pressure on the firm since the market has a free entry and exit point. However there are so many competitors who create substitutes to nestle products. They are Britannia, Kohinoor foods, vadilal Ind, Kwality dairy, ADF foods, and many more.

Nestle has an fmcg product line. Hence whenever the suppliers are concerned, the few factors that remain very conventional are the contracts with the farmers, stable suppliers and the other raw material suppliers.

The customer demand is something that always needs to be addressed with full sincerity as any business stands high in the market only on the basis of the customer strength. The demand issues must be addressed immediately. The taste and preferences of the customers should be on the priority list of the company. customers. Innovative ways should be modeled to attract more and more

Swot analysis:

strength : Their first is that they have a great CEO, Peter Brabeck. Brabeck emphasizes internal growth, meaning he wants to achieve higher volumes by renovating existing products, and innovating new products. His explanation of renovation is that to just keep pace in the industry, you need to change at least as fast as consumer expectations.(Hitt, 2005) And his explanation of innovation is to maintain a leadership position, you also need to leapfrog, to move faster and go beyond what consumers will tell you. Brabeck has led Nestle into a position to better achieve the internal growth targets with his. Another strength that Nestle has is that they are low cost operators. This allows them to not only beat the competition by producing low cost products, but by also edging ahead with low operating costs.

Weakness: The main weakness of the LC-1 division of Nestle is that they were not as successful as they thought they would be in France. The launch in France was in 1994, but since the late 1980s, Danone had already entered the market with a health-based yogurt. The second weakness is that LC-1 was positioned as too scientific, and consumers didnt quite understand that LC-1 was a food and not a drug. Nestle also has multiple critical resources. They have a great research and development team. James Gallagher and Andrea Pfeifer were the masterminds behind the research on the La-1 cultures in the LC-1 yogurt. They were also the two that decided on selling LC-1 as a functional food. This enabled Nestle to position the product in a way that differentiated it among the other products in the market. They also have four pillars that Brabeck, Nestles CEO has identified he believes will help their internal growth worldwide. These are operating excellence, innovation and renovation, product availability, and communication. One opportunity that Nestle has is that health-based products are becoming more popular in the world, including in the United States. Consumers are becoming more health conscious, and realize that living longer isnt only by luck and genetics. LC1 has not been introduced in the United States yet. Nestle also has an opportunity of being even a larger market leader in Germany with LC-1. Within two years of launching the product in Germany, they had captured 60% of the market. This was due to the fact that they differentiated the product, and Germans simply preferred the taste. Another opportunity of LC1 is that, because

they are a market leader, they can introduce more health-based products in Germany. A threat to Nestle is the fact that some markets they are entering are already mature. Danone had an established leadership position in the yogurt market in France. Since Danone was the first to arrive in the market, they have always been the market leader there. Also consumers in France liked the taste of LC-1, but researchers believe they did not repurchase the yogurt because they preferred the taste of Danone products better. Another threat to Nestle is that there is intense competition in the United States yogurt market. General Mills Yoplait division is the leader in the yogurt market in the United States. Yoplait has been the leader for years and is constantly innovating new health products. General Mills has been a strong competitor of Nestle and they are not short of experience and strength. One strength that they have is their brand recognition. One of their main goals has been to deliver brands that consumers trust and value and they have succeeded. Another strength they have is their distribution. Yoplait is distributed to more stores in the United States than any other brand of yogurt. This is one of the reasons why they have been the market leader in yogurt for so long. Another strength that General Mills has is the fact that consumers simply know Yoplait is healthy. Yoplait is the only leading brand of yogurt to offer vitamin D and this vitamin is especially important for adult women.( It is not just a coincidence that Yoplait has vitamin D, but they have purposely added this vitamin to target female consumers.

General Mills also has some weaknesses. They fact that they are the market leader in the United States may be hindering them from innovation. They have been producing Yoplait yogurt for many years, and have offered a series of new products in the past few years in the nutrition department. Most of these products however, are very common, and are widely offered in the United States. The health food industry in the United States has been booming and General Mills does not offer enough products in the smaller niche markets. They have not entered into many unknown areas because of their success in the yogurt market. An opportunity General Mills has is that its Yoplait division is so successful. Yoplait is the only division of General Mills that is currently earning a profit. They have a large market share over their main competitors in the yogurt market. Another opportunity that they share with Nestle is that the health-based and nutritional food market is booming. They are continually releasing and marketing new products in these markets and they will continue to do so while the market continues to yield profits. The main threat that challenges General Mills is that there is intense competition amongst the top players in the yogurt and related markets. Nutrition and health is becoming more and more important to consumers in the United States, and worldwide. Along with this comes increased competition to gain market share. Simple supply and demand theories are prevalent in these markets. Another threat General Mills has is that smaller companies are producing similar products with the same or added nutritional benefits.



Nestl describes itself as a food, nutrition, health, and wellness company. Recently they created Nestl Nutrition, a global business organization designed to strengthen the focus on their core nutrition business. They believe strengthening their leadership in this market is the key element of their corporate strategy. This market is characterized as one in which the consumers primary motivation for a purchase is the claims made by the product based on nutritional content. In order to reinforce their competitive advantage in this area, Nestl created Nestl Nutrition as an autonomous global business unit within the organization, and charged it with the operational and profit and loss responsibility for the claim-based business of Infant Nutrition, HealthCare Nutrition, and Performance Nutrition. This unit aims to deliver superior business performance by offering consumers trusted, science based nutrition products and services. The Corporate Wellness Unit was designed to integrate nutritional value-added in their food and beverage businesses. This unit will drive the nutrition, health and wellness organization across all their food and beverage businesses. It encompasses a major communication effort, both internally and externally, and strives to closely align Nestls scientific and R&D expertise with consumer benefits. This unit is responsible for coordinating horizontal, cross-business projects that address current customer concerns as well as anticipating future consumer trends.



Nestl is a global organization. Knowing this, it is not surprising that international strategy is at the heart of their competitive focus. Nestls competitive strategies are associated mainly with foreign direct investment in dairy and other food businesses. Nestl aims to balance sales between low risk but low growth countries of the developed world and high risk and potentially high growth markets of Africa and Latin America. Nestl recognizes the profitability possibilities in these high-risk countries, but pledges not to take unnecessary risks for the sake of growth. This process of hedging keeps growth steady and shareholders happy. When operating in a developed market, Nestl strives to grow and gain economies of scale through foreign direct investment in big companies. Recently, Nestl licensed the LC1 brand to Mller (a large German dairy producer) in Germany and Austria. In the developing markets, Nestl grows by manipulating ingredients or processing technology for local conditions, and employ the appropriate brand. For example, in many European countries most chilled dairy products contain sometimes two to three times the fat content of American Nestl products and are released under the Sveltesse brand name. Another strategy that has been successful for Nestl involves striking strategic partnerships with other large companies. In the early 1990s, Nestl entered into an alliance with Coca Cola in ready-to-drink teas and coffees in order to benefit from Coca Colas worldwide bottling system and expertise in prepared beverages.

European and American food markets are seen by Nestl to be flat and fiercely competitive. Therefore, Nestl is setting is sights on new markets and new business for growth. In Asia, Nestls strategy has been to acquire local companies in order to form a group of autonomous regional managers who know more about the culture of the local markets than Americans or Europeans. Nestls strong cash flow and comfortable debt-equity ratio leave it with ample muscle for takeovers. Recently, Nestl acquired Indofood, Indonesias largest noodle producer. Their focus will be primarily on expanding sales in the Indonesian market, and in time will look to export Indonesian food products to other countries. Nestl has employed a wide-area strategy for Asia that involves producing different products in each country to supply the region with a given product from one country. For example, Nestl produces soy milk in Indonesia, coffee creamers in Thailand, soybean flour in Singapore, candy in Malaysia, and cereal in the Philippines, all for regional distribution.

Within the industry of yogurt, there are many players in the market. The most dominant brand name players inside the United States are Dannon, Stonyfield Farm, and Yoplait. Yoplait, of General Mills, is the number one yogurt in the United States. They own 37% of the market share through their different brands, including the Colombo brand. Stonyfield Farm owns 6% of the market share, and Dannon is right behind Yoplait taking 31% of the market share. Yoplait is the most prominent player within the market today. General Mills, Inc. has the leading yogurt company in the United States. Competing in a $2.9 billion industry, they contain the highest market share amongst their competitors. General Mills, Inc. has become one of the worlds most trusted brands since their birth in 1860. General Mills simply began as a milling company, which began in the Mississippi River. They started with two flourmills and grew to become one of the largest, most trusted brands in the world. General Mills has become a prosperous and diverse company that has strived to provide innovative products to their customers continually throughout the years. General Mills has six different strategic business units within their company. It consists of the Big G, Meals, Pillsbury, Baking Products, Snacks, and Yogurt. The Big G is the cereal division of General Mills; they hold big name brands such as Cheerios, Chex, and Total. The Meals division has products like Hamburger Helper, Progresso Soups, and Green Giant. The Pillsbury division was acquired by General mills and is the leading company within the refrigerated dough market.

The Baking Products division is the home of Betty Crocker, Bisque, and Gold Medal products. The Snacks division, who holds the top market positions, has several brands from Fruit Roll-Ups to Nature Valley. Lastly, the yogurt division runs Yoplait, the number one yogurt within the industry and Colombo. General Mills operates internationally mainly through joint ventures, but also through acquisitions. Throughout the years General Mills has acquired Pillsbury, which is still in the works, and Green Giant. General Mills also has several joint ventures throughout the world. General Mills has a 50 50 joint venture with Nestl in the cereal division where their products are available in more than 130 countries throughout the world. General Mills also works with PepsiCo in a joint venture in the snack division. The successful joint ventures have allowed the companies to share their resources and capabilities to gain a lucrative competitive advantage. General Mills functions horizontally using the acquisitions, mergers, and alliance technique. This allows the company as a whole to gain more market power and coverage throughout the world. General Mills is a related-linked company. Out of their six separate divisions, none of them produce more than 70% of the profits. Every division runs within the food industry, where the products are sold internationally and to foodservice operators, retailers and wholesalers. General Mills profit has decreased, but Yoplait has carried the company through some rough times within the last year. Being one of the only divisions pulling through with a profit and over exceeding the companys expectations Yoplait has really made a name of itself. Yoplait has become the star brand for General Mills,

becoming the new core business for the company. In 2004, Yoplaits unit volume grew 10%, which is five times more then the Big G division, who used to be General Mills core division. Over the past decade yogurt sales have increased on average 9% per year. But studies have shown that household penetration is very low, so there is a lot more room for growth. Yoplait is a first-mover in the yogurt industry. They have offered many new innovative products to their consumers from Go-GURT to their Nouriche Smoothies. Within the last year of introducing Nouriche, the products sales have increased by 35%. Yoplait just recently began offering a yogurt that contained sterols, which is a cholesterol-lowering plant. Yoplait Healthy Heart was introduced in February of 2005 during womens heart health month. Yoplait joined with Cergill, Inc. whom manufactures the plant sterols in a horizontal alliance. Yoplait healthy heart is the latest addition to their line of yogurts. The full line of products that Yoplait offers today is wide and diverse. They offer a yogurt line that consists of the original yogurt, grande, whipped, light, and ultra light. Yumpsters is a line for younger children, which includes a spoon attached to their yogurt. Go-GURT has become the yogurt for those that are on the go and always in a rush, which is also available in smoothie form as well. Yoplait created the first ever yogurt placed in a tube. Lastly, they offer Nouriche Smoothies, which are rich in calcium, protein, and fiber. Their products come in many different flavors and sizes to satisfy their customers. Yoplait offers their customers a way to live a healthier lifestyle through their products. Yoplait is the leading brand, which has the largest amount of Vitamin D

offerings in their yogurt compared to any other yogurt brand. They also offer ways to lose weight, the lower your cholesterol, and how to keep your heart healthy. Yoplait has been successful by using the focus business-level strategy. This has allowed the division to take specific action to attack the specific segments of the market. The have found niches for each line of yogurt product they offer. Yoplait has mainly aimed their products specifically at women, children, and dieters. Yoplait, for the most part, focuses on health to appeal to their consumers, and has been successful at it. Recently, Yoplait stated that yogurt may help burn fat, to aim at the diet customers. Yoplait has effectively positioned their products as being portable and convenient, having a number of different health benefits, and the flexibility to eat yogurt any time of the day. From their healthy heart products to their ultra light yogurt to Go-GURT, Yoplait has focused each product to separate niches of the market to become the leading yogurt brand in the United States.

Proposed strategy plan for nestle:

Nestl is one of the largest and most successful food companies in the world. It has successfully introduced many new products into many different segments of the food and beverage industry. Nestl possess a product, LC1, which is innovative, fairly new in the North American perspective, provides healthy benefits for the consumer, while offering a new avenue for profits for Nestl. Nestl, with its probiotic cultures found in its LC1 product, has an innovation that is ripe to be introduced into the North American market. Currently LC1 is

primarily offered in Japan and Germany in the form of yogurts, with great degrees of success. Unfortunately LC1 yogurts were unsuccessful in a number of European markets, including France and The United Kingdom. A LC1 powder was introduced into the American market around 2000. The powder was designed to be mixed into beverages and foods. It was sold at GNC stores, primarily focusing on consumers who were already health conscious about their eating habits. Nestl used print ads, a direct mailing campaign, a smaller scale campaign targeted at health practitioners, and heavy Internet advertising ( Overall Nestls LC1 powder went larger unnoticed by the US consumer, and achieved only minimal results. In designing a strategy that would effectively place Nestl at the head of the probiotic industry in North America market would require several key components. First would be to decide what areas of the Food and Beverage industry in which we would like to introduce Nestl LC1 products. Second would be to educate the North American consumers as to the benefits that the probiotics possessed in LC1 brings. A strong marketing and advertising campaign would accompany this. Third would be to quickly conduct all moves and enter into each market as quickly as possible to gain maximum market share. Fourth would be to reinvest all profits, over a predetermined amount of time, back into operations, research and design, marketing and advertising to solidify consumer trust, market power and market position. In achieving these components of success we will be employing the six principals described in the book Sun Tzu and the Art of Business by Mark McNeily.

The first principal brought forth in the book is to Win All Without Fighting or to prioritize markets and determine competitor focus. Nestl would need to figure out what areas of the food and beverage industry they are already operating strongly in and pinpoint some key products to introduce LC1 into. Nestl is one of the largest food companies in the world and offers a wide range of products across many different areas of the food and beverage industry. Nestl should choose to incorporate LC1 into one strong performing product in each one of its SBUs. For instance they could introduce it into yogurts through their Dairy SBU, cereals in their Cereal SBU, into chocolate bars in their Confectionary SBU, power bars through their Nutrition SBU, baby formulas through their Baby Food SBU, pet foods through their Pet care SBU, into ice cream through their Ice Cram SBU and into their drinks through their Beverages SBU. Nestl should choose one product in each of these SBUs to introduce to the market. This way there is wide area of products with in different areas of the food and beverage industry in which the LC1 product to bring a profit. So if the LC1 does well in certain areas of the industry, but not another, Nestl can shift its focus from the weak product to the strong product. Introducing it to many different products in many different areas of the food and beverage industry gives LC1 a better chance of achieving success. Nestl, already begin a diversified food and beverage company, has the benefit being able to explore an option such as this. Nestls primary competition in introducing these products would be General Mills. General Mills would offer competition in some areas of the industry but perhaps could be an ally in others. Nestl already has joint venture with General Mills in the cereal industry. These may prove to be beneficial to the introduction of LC1 into a wide variety of popular cereals that the two companies create and

distribute. But, it may prove to be a hindrance if General Mills wishes not help due to competition strains that result from other areas of the food and beverage industry. The second principal is to Avoid Strength/ Attack Weakness or to develop attacks against competitors weakness. A beneficial strength of Nestls attacks is that the probiotic market in North America is very small. In 1999 probiotics total sales in North America were $67.2 million

( Nestl would have the benefit of being a first mover or second mover in the industry. A primary weapon to Nestls introduction of LC1 products, with their probiotic benefits, would be high levels of education through advertising and marketing. Nestl had introduced LC1 in 2000 but to little success. According to Steve Allen, vice president, business development, Nestl USA, Nestl LC1 was too early for the U.S.; the benefits were too general and the price/value relationship Education wasnt and there



understanding as to what probiotics are and the benefits they bring is the main roadblock in LC1s success. According to Steve Allen: What is holding us back in the U.S. is that the consumer does not really have an explanation for probiotics because there is no vehicle or preexisting knowledge on which to build

( Because probiotic are a form of bacteria or a culture, trying to get the North American consumer market to agree that LC1, a form of bacteria, can help them might prove to be difficult. Nestl might first want to focus on athletes, mothers of small children, senior citizens

and any other health conscious area of the food and beverage market in which to market their LC1 products. Nestl should highlight to them the benefits of using their LC1 products, such as having an improved immune system or improved digestive system. An area that limited LC1 success in other Europeans markets was that some people viewed LC1 products as away to get better from a sickness, or as a form of medicine. LC1 products are designed to be a sort of body maintenance or even enhancement device and taken regularly. Nestl should stress the importance of LC1 products being similar to other health oriented foods like nonfat milk or diet soda, which can and should be consumed daily. In response to competitor attacks, Nestl can rely on their reputation in European and Asian markets where probiotics have being prevalent for a number of years. LC1 has been widely popular in countries such as Germany, Italy and Japan. Nestl, being a first mover in most of these markets, can highlight the fact they were hugely responsible for the development and creation of probiotic products and probiotic markets in the world. They were the ones to create an example which all other in the industry to follow. Nestl can counter attacks on LC1 products in the North American markets with advertising campaigns that highlight their success in foreign markets, using real person testimonials to bolster their positions. Nestl might also want to employee the help of professional athletes or movie stars to be spokesmen for their products, in hopes of gaining consumer support. The third principal is Deception and Foreknowledge or war gaming and planning for surprise. For this I feel Nestl should use the implication wheel as a form of war gaming. Because no other major food brand, including General Mills, has

probiotic products, the weakness that Nestl would be attacking would the lack of products that their competitors have to offer in the probiotic market. Nestls first attack should be to educate consumers to benefits of using probiotic products. This educational campaign should be backed with scientific support and with examples of success from the European market. It should be done through advertisements on television, at prime time and during popular sports events preferably, through the newspaper coupled with money saving coupons, and on the internet through links with health food websites. Nestl should highlight the fact that while such things as obesity and fast food are slowly decreasing the healthy and eating habits of North Americans, LC1 provides products that are healthy, good tasting, which also help improve the bodys functions. It would beneficial to LC1 success if popular athletes or movie stars were hired to endorse the products. Nestls competitors may respond to these advertisements with their advertisements that may down play or even deny the benefits of using LC1 products. They may play off the consumers misconception that all bacteria are harmful to ones health in an attempt to stir LC1 success. Competitors may respond with advertisements that highlight LC1 lack of success in markets like France or in the United States in 2000. The may wage an anti LC1 advertisement campaign in hopes of slowing down any market share LC1 may gain from its advertisement campaign or to support their own probiotic products. In response, Nestl should once again shift the consumers focus to their successes in European markets, along with their history in the market and the breakthroughs in research they have found to highlight the benefits of probiotic products in the course of their operations.

Nestl could use Sun Tzus fourth principal, Shape Your Competition or integrate best attacks to unbalance the competition, to throw competitors off. Because Nestl is going to introduce LC1 products in several different areas of the food and beverage industry, they could only advertise products in one or two markets. Then as competitors design their defense in those particular markets, Nestl would unleash their overall product launch across all the predetermined areas of the food and beverage industry. This should catch competitors off guard, leaving them unprepared to defend against the scope of Nestls attack. Nestl may choose not to focus a large amount of resources into the introduction of products into markets in which they tricked their competitors into defend in. Nestl should then focus their resource in to markets where they had not previously hinted they wished to enter into. These markets should be markets where Nestl already has strong performing products like their ice cream or chocolate bar products. This introduction of products should be done with Sun Tzus fifth principal in mind which is Speed and Preparation or ready your attacks and release them. All actions should be done quickly and following a schedule. Nestls initial hints of wanting to enter into the probiotic market should be made know to the industry about one year before actual product launch. Nestl, through word of mouth and small advertisement campaigns could hint at the markets and products it was going to launch with their LC1 probiotic benefits. This would be time would competitors would take notice and begin mounting defensive strategies. About six months before product launch, Nestl should increase the size and scope of their advertisements, including a specific date as to the launch of LC1 enriched products. Here is when Nestl could start employing the help of Professional

athletes or movie stars. Nestl should emphasizes, in their advertisements, the universal benefits that their LC1 products will bring to all people, along with the fact that these products taste the same as similar products in the same category. About one month to two weeks before product launch, Nestl should release advertisement revealing the full scope of the products in which they are planning to launch. Between two weeks and product launch Nestl should hold a party of sorts where they would invite consumers, retailers, distributors, and manufactures from the food and beverage industry to sample Nestls new LC1 enriched products. This would be done to create a positive word of mouth and generate interest within the industry. Nestl then should release all their LC1 enriched products simultaneously across every food and beverage sector. For at least a year Nestl should closely monitor all of its LC1 products, noting which products are performing better than others and in what market sector. Nestl should then reallocate resources from poor performers or dogs in the market, possibly abandoning certain products or markets all together, to support products that are performing well as stars in their markets. This would follow Sun Tzus final principal which deals with leadership, reinforcing success and starving failure. Smart leaders know when to put further assets into products and markets that are performing well and when it would be better to retreat from them. Nestl has a well-established management structure that is support by a strong reputation in the industry. This, along with the fact that Nestl is introducing many products into many markets gives them the edge and flexibility to fine-tune their management, production and sale of their LC1 enriched products.

(Consumption pie of the consumers)

Market statistics since2005:

Net Sales for the Quarter ended 31stMarch, 2005 increased 5.5% Reported Net Profit for the Quarter ended 31st March, 2005 increased 21.3% Focus on long term sustainable and profitable growth, market share and operational & capital efficiencies

Continued emphasis on Innovation and Renovation to increase Nutrition,

Health and Wellness across product portfolio. Launched New MAGGI Vegetable Atta Noodles to provide the benefits of health and wellness in a pleasurable manner. Health Bhi. Taste Bhi. Mr. Martial Rolland, Chairman and Managing Director of Nestl India stated, I am satisfied with the direction in which the Company is moving. Net Sales for the quarter were Rs.6135.3 Million and have increased by 5.5% compared with the same period of 2004. Net Domestic Sales have increased by 4.9% and Export Sales have increased by 11.0%.The reported Net Profit for the Quarter is Rs.780.5 Million. This has

increased by 21.3% compared to the same Quarter of 2004. After stripping out the effect of exceptional items under Other Income and Current Taxes as well as excluding Provision for Contingencies and Impairments, the adjusted Net Profit for the Quarter increased 14.7% compared to the same quarter in 2004. EBITDA as a percentage of Net Sales has improved to 22.6% from 20.8% mainly on account of the cost of milk solids being lower than that of last year, partially offset by the increase in prices of certain commodities like green coffee and sugar and higher energy costs. Price increases taken in the second half of 2004 have also improved margins. the

The reported Net Profit as a percentage of Gross Revenue increased to 12.6% from 11% in the same quarter last year. During the Quarter, Nestl India maintained market share in most categories and launched some new products. NESTL MUNCH Coconut, with real coconut flakes, was launched at Rs. 5/- to further enlarge the preference opportunity for NESTL MUNCH, which is the largest selling SKU in the category. The Company also launched NESTL MILKYBAR CHOO in strawberry fruit flavour also at Rs.5/-. During the Quarter, Nestl India launched MAGGI Vegetable Atta Noodles. An innovative product and the first of its kind in India, MAGGI Vegetable Atta Noodles has been developed based on consumer needs and evolving trends for more whole grain based products. Nestl India has used the Nestl Groups extensive Research and Development expertise to develop MAGGI Vegetable Atta Noodles as a new concept for the Indian consumer when they want to include health and wellness in their foods, in a convenient manner. MAGGI Vegetable Atta Noodles will provide the dietary fibre of whole wheat to facilitate good health and wellness in a pleasurable manner and will further strengthen the MAGGI brand. Progress on the GLOBE initiative was satisfactory and on schedule. Implementation is planned in the second calendar Quarter of 2005. GLOBE implementation is likely to adversely impact the cost of nestle india in short run , to reap benefits going.

Now the summary of NIs 2007 full year results below:

Net sales growth 24% Net earnings 31% ROE 99% Payout ratio 77%

A stronger rural economy, increasing disposable income, and a shift to branded products will mean higher growth rates for the FMCG industry in the coming decade. Indias population is over one billion, which means that one in every six people in the world is Indian. This population is young (70% \below 35 years) and there is a burgeoning middle class good demographic tailwinds. Demand for Nestls products has typically kicked off in a big way in countries where GDP per capita has crossed the US$1,000 threshold. Indias GDP per capita is around US$700-800 and growing at 6% per annum. In this respect the plus US$1,000 market is growing every year and is expected to continue growing for decades. The Indian consumers aspirations are changing. This can be gauged by growing urbanization, exposure to media, rising ownership of consumer durables and greater use of credit. Declining birth rates, increasing education of women, and rising per capita income are all delivering a demographic dividend. This is expected to translate into rising consumption of convenience foods and out-ofhome eating. The increasing confidence and changing lifestyle of the Indian consumer bode well for the long term growth of NI .Nestle market share growing despite the economic turn down.(2008)

In 2008, the returns of nestle was pretty high and the returns showed an increasing tend.

As the above graph shows that the turnover experienced an increasing trend since 2007 to 2008 even when the recession hit the market.

In 2009, consolidated sales were CHF 107.6 billion and net profit was CHF 10.43 billion. Research and development investment was CHF 2.02 billion.

Sales by activity breakdown: 27% from drinks, 26% from dairy and food products, 18% from ready-prepared dishes and ready-cooked dishes, 12% from chocolate, 11% from pet products, 6% from pharmaceutical products and 2% from baby milks.

Sales by geographic area breakdown: 32% from Europe, 31% from Americas (26% from US), 16% from Asia, 21% from rest of the world.

(The nestle market share in the respective year)

Joint ventures
Nestl holds 26.4% of the shares of L'Oral, the world's largest company in cosmetics and beauty. The Laboratoires Inneov is a joint venture in nutritional cosmetics between Nestl and L'Oral, while Galderma is a joint venture in dermatology with L'Oral. Others joint ventures include Cereal Partners Worldwide with General Mills, Beverage Partners Worldwide with Coca-Cola, and Dairy Partners Americas with Fonterra.

Ethical and sustainable efforts

In 2000, Nestl and other chocolate companies formed the World Cocoa Foundation. The WCF was set up specifically to deal with issues facing cocoa farmers, including ineffective farming techniques and poor environmental management (disease had wiped out much of the cocoa crop in Brazil). The WCF focuses on boosting farmer income, encouraging sustainable farming techniques, and setting up environmental and social programmes. Nestl is a founding participant in the International Cocoa Initiative (ICI), an independent foundation set up in 2002 and dedicated to ending child and forced labour in cocoa growing, and eliminating child trafficking and abusive labour practices. However, there is little evidence that Nestl has reduced any of its child labour practices in countries such as the Ivory Coast. In October 2009, Nestl announced its Cocoa Plan. The company will invest CHF 110 million over ten years to achieve a sustainable cocoa supply. On 23 October

2009, Nestl and CNRA (the Ivorian National Centre for Plant Science Research), signed a frame agreement for cooperation in plant science and propagation, with a target of producing 1 million high-quality, disease-resistant cocoa plantlets a year by 2012. The aim is to replace old, less productive trees with healthier new ones. Nestl is launching a Fair Trade-branded Kit Kat in the UK and Ireland from January 2010.[

Marketing of formula
One of the most prominent controversies involving Nestl concerns the promotion of the use of infant formula to mothers across the world, including developing countries an issue that attracted significant attention in 1977 as a result of the Nestl boycott, which is still ongoing. Nestl continues to draw criticism that it is in violation of a 1981 World Health Organization code] that regulates the advertising of breast milk formulas. Nestl's policy states that breast-milk is the best food for infants, and that women who cannot, or choose

not to, breast feed, for whatever reason, need an alternative to ensure that their babies are getting the nutrition they need.

Nestl India (NI), with a market cap of US$3.6bn, is the 62% owned listed subsidiary of Nestl S.A., the world's leading nutrition, health and Wellness Company.


Nestl may be known best for its chocolates, coffee, infant formula and condensed milk. But it's a lot more complex and sizable than that. It's the world's largest food company, with almost $70 billion in annual sales. By comparison, the largest food company based in the U.S., Kraft Foods, is less than half that size, with $33 billion in annual sales. Nestl's biggest Europe-based competitor, Unilever, has about $54 billion in sales. The real trick: Nestl gets to its huge size by selling lots of small-ticket items-Kit Kat, now the world's largest-selling candy bar; Buitoni spaghetti; Maggi packet soups; Lactogen dried milk for infants; and Perrier sparkling water.

Nestl operates in some 200 nations, including places that are not yet members of the United Nations. It runs 511 factories and employs 247,000 executives, managers, staff and production workers worldwide.


For Nestl, nothing is simple. The closest product it has to a global brand is Nescaf; more than 100 billion cups are consumed each year. But there are more than 200 formulations, to suit local tastes. All told, the company produces 127,000 different types and sizes of products.

Out of this complexity, Brabeck, Nestl's CEO since 1997, wanted to bring some order, at least in how the company operates the businesses that support the marketing of its vast array of brands, products and factories. Keeping control of its thousands of supply chains, scores of methods of predicting demand, and its uncountable variety of ways of invoicing customers and collecting payments was becoming ever more difficult and eating into the company's bottom line. From 1994 to 1999, the amount spent on its information systems went up by a third, from approximately $575 million to $750 million a year. Those costs were escalating, while the company was shrinking. Nestl, under Brabeck, had been selling off some properties, such as Carnation, that it no longer felt were strategic. As a percentage of sales, keeping track of what Nestl was selling, how it got to market and how it got paid had risen from 1.2% of its $48.1 billion in sales in 1994 to 1.6% of $46.9 billion in 1999. One of the culprits, according to Olivier Gouin, at the time chief information officer for the company's business in France, was uncoordinated introductions of planning and management systems from SAP, the progenitor of enterprise resource planning software. In 1984, Nestl introduced its first SAP system. By 1995, 14 countries ran their businesses on SAP. And each implemented the same software, known as R/2, in a different way. Data was formatted differently. Forms were handled differently. As a result, the company's costs to maintain the system were going up, and the process of consolidating reports-to determine overall financial results-was becoming more difficult, not easier.

Enough was enough. By April 2000, Brabeck, then-chief financial officer Mario Corti-who a year later would move to Swissair in an attempt to rescue that company-and Nestl's entire executive board would back a $2.4 billion attempt to force its confederation of global businesses to operate as if they were a single unit. DEMAND FUNCTION OF NESTLE:

The price of raw foods such as corn, wheat, and dairy can change due to factors such as weather and demand from other industries. Nestle's ability to pass cost increases on to consumers will play a big role in their ability to maintain their current profit margins. Commodity prices have not yet stabilized and continue to rise. The company has been gradually increasing prices since 2005, foreseeing the major rise in commodity prices, however it has been combating higher input costs by reducing the cost of packaging, increasing efficiency, and introducing high-end products with higher price points.

Nearly all of Nestle's revenues come from sales of food and beverage items. Thus, changing consumer demand for different types of food and beverage items can have an impact on Nestle's sales. These changes can be seasonal; for example, consumers tend to demand more hot beverages such as coffee during the colder winter months.Long term trends also affect consumer demand. For example, the National Restaurant Association says that consumers have been demanding healthier food options when dining out, which reflects the larger trend of growing

public concern for health and wellness in general. Nestle is attempting to take advantage of trends such as these by putting the "Nutritional Compass", which prominently displays nutritional information, on over 90% of its products' packaging, and repositioning itself as a nutrition and health company. Nestle's creation of the Nestle Health Science company illustrates their commitment to nutrition, health, and pharmaceutical foods. This wholly-owned subate food-based products meant to help prevent and treat various medical conditions. The company will also oversee the Nestle Institute of Health Sciences which will undertake research aimed at bridging the gap between pharmaceuticals and food and unraveling the web of connections between food, drugs, and disease. Nestle's existing Healthcare Nutrition segment will now become part of the new subsidiary. Nearly all of Nestle's sales happen outside of Switzerland, but the company reports its income in Swiss francs. As such, changes in the exchange rates between the Swiss franc and other world currencies can greatly impact Nestle's revenue. When foreign currencies depreciate relative to the Swiss franc, any transactions denominated in those currencies will convert to a smaller number of francs, meaning less revenue for Nestle. The opposite is true as well, with a weak franc boosting Nestle's international sales. In order to help minimize the effect of fluctuating exchange rates, Nestle purchases currency

futures, swaps, forwards, and options. Recognizing the important of emerging markets, Nestle is investing heavily in production capacity in new markets, such as South Africa, Brazil, Russia, and India. Nestle's expects emerging markets to account for 60% of future

growth. Additionally, company has introduced its "Popularly Positioned Products." These products are lower cost and are priced at a level where poor consumers in the developing world can purchase them every day. With the explicit goal of having emerging market sales account for 45% of revenues by 2020, Nestle is heavily investing in Brazil, Russia, and India from 2010-2012, and encouraging local acquisitions by their geographic subsidiaries. The company has also expanded its manufacturing facilities in Africa with new/expanded factories in Kenya, Zimbabwe, Angola, Mozambique, and other countries. The company plans to increase sales of locally made products in Africa to 52% in 2012 and 76% by 2016. Thus the demand function can be given by:

Demand of nestle =function of( weather , demand of raw materials from other companies, price of the raw materials, substitution effect by the product of the other company products, competitors pricing strategy, and many more)

(Market share of NESTLE compared to the other companies in competition)

The food processing business in India is at a nascent stage. Currently, only about 10% of the output is processed and consumed in packaged form thus highlighting huge potential for expansion and growth. Traditionally, Indians believe in consuming fresh stuff rather than packaged or frozen, but the trend is changing and the new fast food generation is slowly changing.At Rs 604, the Nestle stock trades at nearly 25 times annualized 9mCY04 earnings and market cap to sales of 2.4x. The stock trades at a premium valuation over peers owing to its superior growth and quality product profile. Nestle is a leader in food processing in India and given the opportunity of growth along with the parents keen interest in developing its Indian subsidiary, the company is likely to continue being a dominant force in the Indian FMCG space.

(nestle market all round the world)

Bibliography: ges/SuppliersHome.aspx