Nestle S A\'s Internal Analysis PDF

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NESTLE’S INTERNAL ANALYSIS SUBMITTED TO: PROF. TURHAN KAYMAK FACULTY OF BUSINESS AND ECONOMICS

SUBMITTED BY: STUDENT NO: 19500441 NAME: YVONNE OBBO

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EXECUTIVE SUMMARY Nestle started its operations in 1866,with the Anglo-Swiss Condensed Milk Company, it was founded by Henri Nestle, and it’s number one in the Food and Beverage industry famous for its aggressive research and innovation and a wide variety of high quality and wide range of differentiated brands and products. In this paper we are going to look the firm’s internal analysis that is its competitive advantage or disadvantage in its primary industry, what makes it the best in the industry? Its core competences, isolation mechanisms that is what sets the company apart from its competitors, its tangible and intangible assets as well as organizational competences and lastly we shall look at its financial situation, analyze it and compare it against its competitors. We shall look further into its research and innovation, good technology, its human resources and how it has managed to stay afloat.

Competitive Advantage and Core Competencies of Nestlé’s Primary Industry Nestle is striving to maintain its competitiveness and do what’s best in all situations through its unmatched investment in research and development and development capability to improve sustainability and success in the long term. It owns the largest research and development networks in the food industry around the world, 25 research and development centers and over 5000 employees. They provide healthy and tasty choices for their consumers owing to increase in demand for vegan and gluten free goods with extra features .In order to do this they merged their scientific research facilities to speed up development of new products quickly and efficiently all over the world, from processing to offering the products due to the increasing number of rivals coming up in the market. Furthermore, diversified from baby food and entered faster growing markets like health care products, their health science has also made acquisitions to make products for people affected by chronic illnesses therefore being able to offer high quality and safe food, providing plant based solutions to consumers worldwide inform of nutrition, health and convenience since they are worldwide. This has put Nestle above its rivals because consumer

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preferences evolve all the time and are they are more knowledgeable about what they put in their bodies. Unmatched product and brand portfolio, wider than any other but also the most recognized in the world compared to its rivals. This gives Nestle a strong presence in the market because of its numerous popular brands. It has over 2000 different products in 7 main categories that offer products to all available market segments; they include baby food, chocolate, coffee, cereal, frozen food, pet care products, health care nutrition, and many others. Nestlé’s ability to diversify to all aspects of life gives them a competitive advantage since they are satisfying all market segments that they have targeted making it less immune to changing consumer preferences or backlash to some of its brands. Nestle also has a strong geographical presence and diversified resources, currently it is in 189 countries, it relies on all these countries for their revenue and with its presence everywhere in the world gives it a competitive advantage over its rivals. Its biggest market is in the United States with 28.5% of Nestles revenue followed by China with 8% of annual revenue this gives it’s an advantage because of being wide spread in comparison to its rivals.

Nestlé’s core competencies include innovation and renovation, through research and development, they have offered high quality products to their customers, through continuous research they have been able to make new products and correct the flaws in their production, processing and distribution process ,adhering to the rules of all countries they operate like the nestle company in china was thought to have melamine in their infant milk supplied to Hong Kong which affected them financially but they countered the problem by dealing directly with milk suppliers and do several tests on it before accepting it to prevent further problems. Increased customer communication, the ability of giving feedback and acting upon customer complaints, through advertising is correct labeling of their products makes customers make informed decisions. Nestlé’s operational efficiency system which cannot be easily replicated, the company’s location in almost all geographical locations enables it produce and supply products to its customers

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while it produces more options and makes their products healthier this was seen through the merging of some scientific research centers hence efficiency.

Nestlé’s Isolating Mechanisms These are methods used by companies to prevent rival firms from eroding their competitive advantage. Nestlé’s include; First mover advantage which means being the first to enter into a market with a new products that other companies in the industry haven’t ventured. This helps to gain market share, become a brand leader, and acquire copy rights that may even make rivals join since they see it is lucrative business. Nestlé’s slogan being “Good Food, Good Life”, its main aim is to deliver high quality products for their customers which enhances their reputation and makes them brand leaders, we see this when it creates the instant noodles category in the 1980s being the first and also ventured in the Pakistan water industry and offered Nestle Pure Life made by Nestle Pakistan Limited in 1998 to offer clean water since theirs had impurities in the industrialized cities, they ended up becoming a market leader in the water industry 78% more than its competitors due to the early identification of opportunities through research and it was already offering the customers other products therefore trusting them was easy because of the reputation attained through the mouth to mouth effect and bandwagon effect since the biggest people were using their products. Legal restrictions, these are mechanisms Nestle is using to make sure other firms don’t duplicate their products or processes, this is done through acquiring patents, trademarks and copyrights, licensing and certification of their processes, intellectual rights so that its competitors don’t gain from their hardwork.Nestle is a member of the World Intellectual Property Organization and is the top applicant for patents in the food and beverages industry for example they patented a device for making liquid beverage from a beverage. Superior access to inputs and information since it obtained vertical integration, it is involved hands on through research from acquiring raw materials, this enables them get information from the source that not all their competitors are getting and work on problems. They have

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laboratories that test and analyze all their ingredients and inputs and their products are checked during production and after to make sure they meet their high quality standards.

Reputation and network effects, Nestlé’s motto is “Good Food, Good Life” so it has gained a reputation of delivering high quality products and this no one can take it away from them. When they enter new markets they easily gain markets share because of their strong brands that are affordable.

Tangible Assets, Intangible Assets and Organizational Capabilities Of Nestle S.A Tangible assets are resources that can be physical and measurable, they are the easiest to identify and they include; Financial assets; - It should be noted that the firms finances mainly come from sales of products. According to Nestlé’s annual report, 2019, they recorded sales of CHF 92.57 million and total financial assets were valued at CHF 24,894 million and made a profit of CHF 12,904 millions;Technology, Nestle has embraced technology through its research and development for new products, it has made partnerships with universities for research by students which can easily be turned into prototypes. It has embraced the digital era and this increased their sales by 18.5% in 2019.It owns 25 research centers which are the world largest in the food and beverage industry. There product technology centers have to deploy new technology to company operations and make discoveries of new options;-Physical resources that include the raw materials like coffee, soya, buildings, machinery, buildings, supplies, water, baby food, ice-cream, confectionary and healthcare nutrition;-Organizational resources, Nestlé is a highly structured company with board of directors and they hold annual General meetings. The managers are to help in decision making according to the interests of the shareholders Intangible assets are those that cannot easily be traced or measured and they are usually internally generated by the company. Nestlé’s intangible assets were accounted as CHF 15966 million in 2019.They include; - Reputational resources and brand name, Nestle ranks number 5

one in the food and industry through their continuous research and answering to consumer needs. According to fortune magazine they are the world most admired company because of their cause to reshape what we put in our bodies;- Human resources and innovativeness of the company which is the physical effort and ideas offered by employees, Nestle employs over 350,000 people with whom they have trained and instilled their organizational culture. They have a great and innovative research and development team. Additionally, strategic alliances and joint ventures are increasing Nestlé’s innovativeness as well as its great investment in research and development it has the science and technology to produce products of high nutritional value and change the food industry and lastly, Goodwill and strategic alliances, which is acquiring another company at a premium value, they get to gain the value of the company’s brand name, employee relations and existing patents that improves trust in would be customers. These were valued at 28,896 million as of 2019.

Organizational capabilities Finances This is the most important capability because without it, nothing can happen. Nestlé’s strong financial power and flow of cash has enabled it engage in foreign direct investments around the world and build markets through buying local companies or engaging in business with them and produce different products for the specific markets. They are also investing highly in marketing and research and development to leverage competitive advantage in the industry Research and development Through the product technical centers, the company is able to offer worldwide know- how to farmers and its suppliers of coffee, cereals, beverages and diary and nutritional products. The Switzerland product technical centers provide technical expertise about products, manufacturing and packaging processes. Human resources The company is currently employing around 328,000 employees from all walks of life and insists they are a people-inspired company, improve business performance of people and have 6

departments specifically to take care of essential needs of their employees so that they can focus on what they do best. They prove training and make sure employees adhere to the code of conduct. They offer a good remuneration and retirement and compensation packages.

Marketing ‘Brand building the Nestle way’ is the approach used to set Nestle apart from its rivals, they offer attractive and rewarding experiences for both its employees and customers, they also incorporate all departments and activities so that it’s a win-win situation for everyone, along with sales, agency partners and the research and development teams and they advertise their products in different ways and media companies to focus on brand management and customer insights. Procurement and Supply chain The procurement professionals have to create value and source inputs responsibly. The hubs in Switzerland, Panama and Malaysia ensure adherence to specific procurement procedures of specific raw materials and packaging, indirect materials and others. The supply chain personnel have to ensure that consumers receive products of quality in time, safely storing and transporting them as well.

Nestlé’s Financial Situation Nestle is the top player in the food and beverage industry. We will look at their financial situation from the previous 4 years. For the financial year ended December, 2019, Nestle S.A’s sales increased by 1.2% from CHF 91,439 Billion as of 2018 to CHF 92,568 Billion in 2019, they also had an increase in net profits by 24.4% of CHF 12,904 Billion as compared to CHF 10,468 Billion in 2018 and cash flow grew by 10.9% to CHF 11.9 billion and it’s expected to remain at 12% of sales as shown in Figure 1 in the appendix. Nestlé’s trading operating profit margin reduced due to increased restructuring and related expenses by 14.8% and they say they reached their 2020 profitability target range. Total assets reduced in 2019 by 8.08% as compared to an increase in the previous years. To summarize this, its sales, assets and market value are increasing steadily from all the past four years.

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Nestlé’s main rivals are Unilever and Mondelez International, Nestle is number one in the food and Beverage Company and others follow because of its high market share even with reducing profits it doubles up the revenue of all its competitors. It makes more revenue than any other company and employs more workers than any other of its competitors. In 2019 Nestle made USD 13316 profits compared to USD 10337 billion for Mondelez International and Unilever surpassed both of them with USD 22279 billion and this was because of the increased prices levied on goods by Nestle. Figure 2 shows these comparisons.

Recommendation Nestle should consider increased advertisements to make their new brands and sub brands known, they can adopt personalized marketing from time to time in order to gain a competitive advantage, alternatively increase on the areas it focuses on under its “creating shared value” program, because giving back in this era is virtue for the customers. Furthermore they should be hands on in acquiring its ingredients, reduce on genetically modified materials because they seem to be causing problems and scandals for them, provide correct labeling on all its products, even so find alternatives of making products healthy without changing their taste because now customers are more conscious of what they ingest while investing in eco-friendly materials to reduce on pollution. Alternatively, they can increase on training their employees and encourage them to innovate products according to daily customer needs, they should also commit to ethical issues and hygienic standards to avoid contamination of products and monitor its recruitment processes as well as complying to the international codes for the countries they are situated. The company should also liaise with stakeholders so that they are always in the know of what they are doing wrong since laws are different everywhere and re-build trust. Lastly it should first grow capital and market share in a specific location before venturing any further because this makes re-investment easier and each location can start depending on itself alone.

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REFERENCES 1. NESTLE SA. (2020, January 13). Retrieved April 24, 2020, from https://www.nestle.com

2. Essays, UK. (November 2018). Sustaining Competitive Advantage Of Nestle Marketing Essay. Retrieved from https://www.ukessays.com/essays/marketing/sustaining-competitive-advantageof-nestle-marketing-essay.php?vref=1 3. Nestle SWOT Analysis, 2019. (2020, January 10). Retrieved from https://bstrategyhub.com/nestle-swot-analysis-2019-swot-analysis-of-nestle/ 4. CONSOLIDATED FINANCIAL STATEMENTS 2019. (2020, February 13). Retrieved from https://www.nestle.com/sites/default/files/2020-02/2019-financial-statements-en.pdf 5. CONSOLIDATED FINANCIAL STATEMENTS OF NESTLE GROUP 2017. (2018, February 14). Retrieved from https://www.nestle.com/sites/default/files/assetlibrary/documents/library/documents/financial_statements/2017-financial-statements-en.pdf

6. INVESTING. (2020, April 24). FINANCIAL SUMMARY FOR NESTLE. Retrieved April 24, 2020, from https://www.investing.com/equities/nestle-ag-financial-summary

7. Strategic management of nestle. (2013, April 20). Retrieved April 24, 2020, from https://www.slideshare.net/sitirizkymardhani/strategic-management-19302837

8. ANNUAL REVIEW-NESTLE. (2020, February 13). Retrieved April 20, 2020, from https://2019annual-review-en.pdf 9. UNILEVER MARKET VALUE. (2020, April 5). Retrieved from https://www.macrotrends.net/stocks/charts/UN/unilever/market-cap 10. NESTLE COMPETITORS. (2020, January 2). Retrieved from https://craft.co/nestle/competitors 11. FINANCIAL OVERVIEW OF MONDELEZ INTERNATIONAL. (2020, January 22). Retrieved from https://craft.co/mondelez-international 9

APPENDIX Figure 1. Financial Statements of Nestle SA, 2016 to 2019; Source: Consolidated financial statements of Nestle Group for the year ended 2017 and 2019 IN BILLIONS OF USD (Subject to exchange rates for each specific years)

Total assets

2019 132.033

2018 137.980

2017 133.449

2016 128.935

Total liabilities

77.479

81.127

69.194

64.437

Sales

95.529

92.084

89.997

87.457

Operating profit

14.111

13.886

10.350

12.867

Total profit

13.316

10.542

7.715

8.683

FIGURE 2; Financial situation of Nestle verses its competitors COMPANY

NESTLE SA

MONDELEZ

UNILEVER

(BILLION USD) Revenue

95529

INTERNATIONAL 25.868

51.980

Profit

13316

10.337

22.279

Market value

325.039

73.320

124.30

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