Essay on Nestlé: Industrial and SWOT Analysis

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“Nestlé” is the largest food and beverage manufacturer in the world, it is founded at 1866 by Henry Nestlé. They promised to offer ‘GOOD FOOD, GOOD LIFE’ to all customers. The firm’s headquarter placed at Vevey, Switzerland (Nestle, n.d). Nestlé also a firm of nutriment and health which undertake in produce, supply, and production of prepared dishes and cooking aids, baby foods and cereals, medicines and ophthalmic supplies, and dairy products. Moreover, their output are in certain types which included confectionery, beverage in liquid or powdered, pet cares, water, dairy products and ice cream, prepared dishes and cooking aids, nutrition and health science (CNN Business, n.d). Nestlé have been nourishing Malaysian by their goods and quality brand such as MILO, MAGGI, KITKAT, and NESCAFÉ, simultaneously maintain Halal excellence and integrity since 1912.

The main purpose of Nestlé Company is improve quality of life and create better and healthy world. They encourage people to live in healthier live, this is how Nestlé Company dedicate to the society and ensure their long-term successful. Besides, they set 3 primarily goals for 2030 which instruct their job and support the achievement of the UN Sustainable Development Goals (Nestle, n.d). Diagram below shows the 3 goals:

Furthermore, Nestlé Company also strictly follow on the principle of policies and commitment (Nestlé, n.d):

Nutrition, health, and wellness Nestlé’s kernel target is provide delicious, healthier food and beverage to improve the quality of customer.
Quality assurance and product safety Nestlé guarantee to produce safety and high standard of outputs through the world.
Consumer communication Nestlé’s respect on customers’ privacy.
Human rights in Nestlé’s activities Nestlé’s support the UNCG (United Nations Global Compact) guiding the principle on human rights and labour.
Leadership and personal responsibility Nestlé’s respect on their employee and recruit people is capable and motivated.
Safety and health at work Nestlé has the responsibility to protect employee from the accident and injuries.
Supplier and customer relations Nestlé hope their employee expression in honesty, integrity and fairness to their non-negotiable standard.
Agriculture and rural development To ensure the environmental sustainability, Nestlé determine to engage the farming product.
Environmental sustainability To ensure the environment sustainability, Nestlé try hard to use natural resources.
Water Nestlé manage the usage of water since the world are faces growing water challenge.

Nestlé Performance:

Progress against commitments-Nestlé disclose their performance every year since their commitment. Their commitments related to their ambitions on 2030 and most of commitments support the UN’s sustainable development goals.

External assessment-Nestlé feel proud while their result recognized by the world’s leading rating and ranking agencies.

Breast-milk substitute marketing: Compliance record-Nestlé guarantee their breast-milk substitutes (BMS) complies with the Nestlé Policy and Instructions for Implementation of the WHO International Code of Marketing of Breast-milk Substitutes

Assurance-Nestlé hire third party to provide independent assurance for the data.

Environmental performance indicators-Help Nestlé to gauged their progress and illustrate compliance.

Corporate Responsibility Reporting Awards 2018-Nestlé’s shared value report 2016 gain 2 CR Reporting Award 2018 which include ‘Credibility through Assurance’ and ‘Innovation in Reporting’ (Nestlé, n.d).

Moreover, there also challenge faced by Nestlé. The executors state that Nestlé are facing the resk of having supply chain that cause by the climate change. Pascal Gréverath said that, climate change can make the food sector in European faced a serious risk on supply on agricultural raw materials (Frédéric Simon, 2015).

SWOT

Strengths, Weakness, Opportunities, and Weaknesses (SWOT) analysis is a tool where organizations use it to further understand their strengths and the weaknesses, and the opportunities the organization has, and the threats faced by the organization. Therefore, organization that uses SWOT analysis to understand and be more aware of the organization’s environment. When an organization understands their weaknesses, they can minimize or eliminate the threats that can damage the organization in the long run. SWOT analysis allows Nestle Malaysia to look at the new business directions, where they can take advantage of the internal strength and opportunities, at the same time reducing their internal weakness and threats.

Strengths

Firstly, in terms of internal analysis is Strengths and Weaknesses. For strengths, it assesses what does the strengths that Nestle possess, what are the unique features of Nestle, and what does Nestle has that provides them a competitive advantage. Nestle has to consider their strengths through both internal and external perspective. For internal, Nestle Malaysia has to look into the strategies and their operations. For external, customer’s point of view also must be considered. Nestle Malaysia has to look into their competitors in order to do comparison on what their competitors’ absence that provides Nestle a competitive position. One of the strengths that Nestle Malaysia possess is superior technology which is from one of the remote environment factors. The technology that Nestle Malaysia possess allows them to meet their customer needs in ways that the competitors does not fully fulfil. Nestle’s technologies enable the development of safe, nutritious foods and beverages. For example, Nestle uses healthier fats in processing foods and the use of portion dispensing system in the beverage system. (Food science and Technology , n.d.).

Next, Nestle Malaysia are environmentally aware and strive to reduce environmental impact of their packaging. Based on Nestle’s 2007 report, Nestle uses resources from renewable resources in terms of packaging and manufacturing of product performance. Nestle also supports the initiatives towards recover and reuse energy from used packaging, and to provide environmental benefit by using recycled materials. (Nestle, 2013) The Nestle policy on the worldwide environment, since the year 1991 has been communicated and implemented in Nestle Malaysia. Nestle Malaysia can contribute to the global environment by minimizing waste and preserving natural resources. (Nestle, 2007) This encourages loyal customers to feel better, buying from Nestle as they are environmentally aware because they strive on lessening negative impacts on the environment.

Furthermore, one of the major strengths of Nestle Malaysia is the strong brand name as it is the largest food and beverage industry in the world that is headquartered in Switzerland. (Nestle , n.d.) Nestle is also fortune 500 company ranked 69th in the year 2018 with the revenue of $91,222 million. (Fortune Global 500, n.d.) Therefore, this gives Nestle Malaysia the upper hand above their competitors in setting higher prices for their products. This is because consumers place additional value in the Nestle brand. Nestle Malaysia was able to penetrate into the Malaysian market easily with additional 500 halal products.

Weaknesses

One of the weaknesses of Nestle (Malaysia) Berhad is overstocking. Based on a study by Nur Zakeerah Binti Mat Khanin from Universiti Utara Malaysia, there is overstocking problem in Nestle (Malaysia) Berhad. It shows that the company has issues and difficulty paying its current liabilities when the need arises, and therefore the company will not be able to pay off the current liabilities of the company without winding up its existing inventories. This can lead into a major issue into the future if there is any surplus of existing inventories where it will lead to insolvency. (Khanin, 2017) This shows that Nestle (Malaysia) Berhad is not very good with demand forecasting which will lead to high inventory and eventually overstocking the inventory.

Next weakness of Nestle Berhad is the brand structure. There are over 2,000 brands over 150 countries where in Malaysia there are brands which is the favourites among the customers. (Nestle, n.d.) Brands such as Nescafe, Milo and Maggi are the favourites in Malaysia, however too many brands under one management can lead to conflict of interest. For example, Nestle Berhad cannot create a strategy to fulfil the needs of all customers whenever they are focusing on other category. (SWOT analysis of Nestle – Nestle SWOT analysis and 4 P’s, 2018)

Opportunities

Malaysia was considered one of the most obese country in Asia over the recent years therefore the Ministry of Health (MOH) has come out with a solution by implementing new national health policies to reduce the issue of obesity. (Meiyi, 2018) Therefore, Nestle Malaysia needs to do more market advertising and penetration on the healthy cereals. Nestle Malaysia can also come up with a healthier choice of beverages and snacks as well, to further improve on their healthy selection of food and beverages. Consumers who are health conscious will focus on Nestle’s healthier choices of product.

The next opportunity for Nestle (Malaysia) Berhad is creating strategic alliance with other big brands in Malaysia, to further captivate and fulfil customer’s needs and wants. Nestle has already engaged with many big companies such as Coca-Cola and L’Oreal, but they can partner with more food giants and other product line brands to further increase their growth of their company. Increasing alliance of other brands can further increase Nestle’s product line and enable people to listen, learn and contribute effectively. (Nestle, n.d.)

Moreover, Nestle (Malaysia) Berhad should also focus more on research and development to handle ethical issue. There were many products that Nestle has to recall due to various issues such as the Maggi noodles in India where the noodles has lead, also the Alfamino infant formula in Germany and Maggi beef and chicken noodles recalled in Philippines due to found salmonella in 2 batches of noodles. (Reuters, 2015), (Reuters, 2018), (ABS-CBN News, 2011). To avoid any of the following issues to be repeated in Malaysia or internationally that can affect the Nestle’s brand image, Nestle has to be more cautious in their operations and invest more in Research and Development to further bring up more hygienic food products and ingredients.

Threats

For Nestle (Malaysia) Berhad, one of the threats in Malaysia is the competition in the market. It is an external threat that the company cannot control but to adapt or to change for improvement. It can be local or international brands. Cheaper cereal brands such as Tesco brands goods sells at a cheaper price with bigger serving size which is more reasonably price, compared to Nestle which is set at a higher price with smaller serving size. With increasing numbers of competitors, it gives Nestle difficulties to differentiate from others with emerging products which is similar functions and might be better in terms of advertising and cost.

In addition, buyers’ power or the customer’s buying power also plays a very big role in determining the growth of Nestle. In Malaysia market, it is highly diversified in goods which offers different benefits and characteristics. It is difficult for a consumer to stick to one brand and be loyal towards a single company. Therefore, this will result to brand switching where customers has the power to choose other brands beside Nestle, based on different factors. Factors such as availability, price, portion size and group recommendation. It is difficult for Nestle to ensure customer are loyal to their products due to different types of products which offer different flavours which Nestle has not created one.

Industrial analysis

Nestle (Malaysia) Berhad is a Malaysian investment holding company owned by Nestle. Nestle (Malaysia) Berhad manufactures and sells food and beverage products in Malaysia and internationally. It provides junior foods, powdered milk and drinks, liquid milk and juices, breakfast cereals, instant coffee and other beverages, instant noodles, chilled dairy products, ice creams, culinary products, chocolate confectionery products, health science products, yogurt and related products, and ready-to-drink beverage products, as well as infant and maternal nutrition products. The main geography is the domestic market, representing approximately 80% of total sales.

It offers its products primarily under the well-known Brands are MILO, NESCAFÉ, MAGGI, NESTLÉ OMEGA PLUS, DRUMSTICK, NESTLÉ BLISS, LACTOKID, COMFORTIS, and KIT KAT.

Nestle (Malaysia) Berhad is using Porter Five Forces analysis to enhance and secure its business and competitiveness in the industry.

Threat of New Entrance

The threat of entry is affected by many factors which are economies of scale, capital requirements, access to supply or distribution channel, customer of supplier loyalty, experience, expected retaliation, legislation or government action and differentiation (Johnson et al, 2005).

It is very important for Nestle to set up numbers of entrance barriers. Nestle is well experience and understand the customers’ need. They have developed customer loyalty over time (Othman, 2014).

Nestle has developed strong distribution networks and economies of scale that allow that to produce or manufacture as well as deliver at a very low cost. Nestle has the most important thing to retain its customers which is the brand name itself. In 2008, Nestle is one of the companies in the list of 100 Best Global Brand (Best Global Brands, 2008). Capital also play a very important roll, most of the time when they is a new product launched, advertisement and promotion are needed. This will cost a lot of money, thus this tough for new entrance trying to grab some market share in this industry. Hence, it has low threat of new entrants.

Threat of Substitute

Threat of substitute is high in the food and beverages industry. Threat can be assessed using price/performance ratio and extra industry effects. Nestle may use product selling price to tackle the product substitute from the competitors.

Nestle is strives to highlight the healthy aspect of the products so as to tackle the substitute. It strives to bring consumers foods that are safe, of high quality and provide optimal nutrition to meet physiological needs. In addition it also brings the vital ingredients of taste Nestle is to deliver nutritional value for the customers.

Nestle may use the strategy of manufacture or produce broad range of similar products. These products may compete with one another to gain market share. It means that they become substitute for each other. For example Nestle Koko Krunch Cereal can be the substitute for Nestle Nesvita cereal drink since both of them are intended for breakfast consumption. The product are substitute but from the same company with different brand name. Nestle has strong capital to produce same range of product to gain market share in this industry. This industry is said to be having high threat of substitute.

Bargaining power of buyer

The bargaining power of buyers at growth stage is not high but it will increase as the industry goes further in the life cycle. The main reason for this is because of increasing number of competitors to offer more products to the customers. Nestle needs to emphasis on its products to meet customers’ need and demand. Whether on products ingredients, freshness, nutritious, health and wellness. For example Nestle MILO has strong market share and remains a perennial favorite amongst Malaysia consumers. In order to further strengthening the brands image, the company added MILO GOLD to its product range. This was done to keep the consumers loyalty towards the product (Business Review, 2008).

Nestle needs to carry out more often on market survey, interview and event that to provide more feedback from different group of age customers consuming products so that it can cover different range of products. Thus, it has a high bargaining power of buyers because Nestle can meets the needs of their buyers.

Bargaining power of supplier

The power of supplier in food and beverages industry tends to be medium. The basis of Nestle products are agricultural raw materials such as milk, cocoa, and coffee. They not only rely on the suppliers to provide the raw materials. Nestle itself purchases agricultural materials in either raw or semi-processed form directly from farmers or via trade channels (Raw Materials, 2009).

Nestle holds the largest market share in the industry. As a result it requires supplies in massive quantities. Therefore any supplier get started supply raw material to Nestle will never interferes with its or attempts to bargain or influence the price. Nestle, in return hold its supplier in esteem and take of them (Tavsar, 2013) Nestle prefer long term relationship with supplier in order to ensure the quality of raw material and stable pricing.

Switching cost of Nestle or change supplier is moderate as it need to ensure that quality from the supplier. The bargaining power of supplier depends heavily on the strength of the company’s brand. In this case, big companies such as Nestle can take advantage in bargaining. Small scale companies or local companies may feel that the power of supplier is higher as compared to the well-established companies. In short, bargaining power of supplier is low.

Competitive Rivalry

Nestle are facing competitors too in the market. The main competitors are Kellog, Danone, Kraft Foods, Hershey’s and many others. The competition is not only price, but product varieties, creativities, promotions and so on.

Nestle has made the company reached the first place in the industry. Quality which is the most important factor for food and beverages industry. Nestle knows that innovation and quality are the key determinants. It means that for the company to success in this industry, the product quality should be taken care the most while innovation process is also carried out. Nestle brand has been the symbol of quality. Innovation is said to be the critical factor because in this kind of industry the company should be able to come out with new ideas to keep pace with the changing customer preferences.

Nestle has which is becomes the first in the industry to offer a full range of chilled dairy products with “No Artificial Colouring” in 2008 (Business Review, 2008). Some examples of the products are BLISS Yogurt Drink, NESTLE Yogurt and YOCO Cultured Milk Drink. Nestle can take advantage of location economies to lower the cost of value creation thus it can achieve low cost position which will give the company even better market shares (Nestle: Global Strategy, 2009).. For Nestle to sustain its competitive advantage shouldn’t be a problem. This is due to the value and inimitable of the core competencies of Nestle especially for its corporate brand image and commitment. The most important thing is that Nestle is aware of the intense competition and keeps improving itself. Nestle also has competencies in leading and developing people (Roongrerngsuke, 2006). As the market in each country is different from the others, the company needs to adapt itself to the macro-environment accordingly. Therefore, the competitive rivalry is high.

Last but not least, the industry has high competitiveness because it has low threat of new entrants, high threat of substitute, low bargaining power of supplier, high bargaining power of buyers and high competitive rivalry.

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