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Nestle case study

Introduction

Nestle is nutrition, health and wellness company. Nestle is committed to the improvement of value of life by helping community in which it operates to meet basic and necessary human needs. The competitors are GlaxoSmith Con, Britannia, Rei Agro, Kwality Dairy, Lakshmi Energy, Heritage Foods etc. This report provides a background of the company. Additionally, an external analysis using PESTLE framework has been conducted. Moreover, an internal analysis using a SWOT analysis has been conducted as well. Finally, recommendations have been made based on the internal and external analysis.

Background

Nestle was founded in 1905 by merging two companies, the Anglo-Swiss Milk Company established by George and Charles Page in 1866 and Farine Lactee Henri Nestle, founded by Henri Nestle in 1866. The company head office is situated in Vevey, Switzerland. They offer a large range of products in the market including, chocolate, baby food, bottled water, coffee, milkshake, infant food, breakfast cereals, soup, sauces, seasonings and many more. They have 447 factories all over the world, operating from 194 countries. They employ more than 3 lakhs employees. Their mission is to bring the best product to people. Their slogan says, “Good Food, Good Life”.

External environment analysis

For the analysis of the external or macro environmental factors, PESTLE is a useful framework. PESTLE stands for political, economic, social, technological, legal and environmental.

Political

The political factors affecting Nestle are as follows:

  1. Nestle operates worldwide in 194 countries and the political situations of these countries affects the company. The organization has to keep track of the various changes made in the various policies related to import, export, taxation, environmental regulations, etc. in these countries. These changes may sometimes be in favor of the organization, but sometimes are major bottlenecks to production in certain countries. For example, the change in labor laws, which prohibit/shun the use of child labor in cocoa farms are getting stringent, which according to reports will affect the operations of the company indirectly.
  2. Multinational companies like Nestle, perform well when the global scenario is stable. An unstable phase happened during the Brexit period, where Nestle faced a high-pressure situation. The situations forced the company to rethink its decision of continuing in the country, in fact, the giant even thought of relocating to a new region such as Poland. When such a move will happen, it will leave behind a lot of people jobless, further creating a tensed environment.
  3. When certain food regulations change, the organization must undergo rigorous brainstorming and extensive testing to recreate the product in newer forms and still meet customer demands.
  4. A positive for Nestle happened when India reduced its corporate tax in its latest budget. This gives the group an advantage to produce more and better-quality products at a lower cost and serve the society better.

Economic

The economic factors affecting Nestle are as follows:

  1. With the Nestle group operating across multiple countries, it becomes a mandate to create various economic policies, relating to the economic conditions prevailing in that country.
  2. With affordability being a major factor, providing quality foods for all in a market where the prices of the raw materials keep fluctuating due to various political and environmental factors is a major challenge.
  3. The cost of the raw materials for Nestle has been increasing, with trade wars continuing between China and the US creating further unrest between suppliers.
  4. The lower rise in disposable incomes, posed by the difficulty of producing and supplying quality food for the same price is a major hurdle. With deflationary period continuing across Western Europe, there was a 0.7% decline in pricing.
  5. Nestle has taken various initiatives to promote local-level production of raw materials to increase the efficiency of the various agricultural sectors across its countries of operation.

Social

The following social factors affect Nestle:

  1. Any company that works on such a large scale, gets affected by even the slightest change in trends created by the consumers. Working towards trends related to improved health, the group has decided to work on products with low sugar, sodium, and saturated fats.
  2. The Group has policies, processes, controls and regular monitoring systems that ensure high quality products thus preventing health risks arising from handling, preparation, and storage throughout their value chain.
  3. The success of the Nestle depends on their ability to anticipate the needs of the customer, and be able to offer high quality, competitive, relevant and innovative product.
  4. In context to satisfying the growing customer demand, the group decided to role out custom made Nestle KitKat in the UK market.

Technological

The technological factors affecting Nestle are:

  1. The Nestle group believes in the integration of digital solutions, services, and models, both internal and external. With increasing cyber-attacks disrupting the reliability, security, and privacy of data, a contingency plan needs to be developed to avoid major mishaps while trying to expand into the digital segment.
  2. With real-time data being proposed for water quality, the company has invested in a start-up to turn this dream into reality. With real-time data of its water use, its operations will become more efficient in terms of water consumption.
  3. With trials undertaken in using blockchain for better transparency between the consumers and the group's supply chain, Nestle is willing to change the way the game is being played.

Legal

The legal factors affecting Nestle are as follows:

  1. The legal requirements across various countries need to be analyzed and complied with accordingly.
  2. The laws related to health and safety of the employees, quality and hygiene of its products and labor laws established in different countries need to be followed.
  3. Apart from these, trademark and IPO rules need to be kept under constant watch, along with environmental laws.
  4. A major issue that the company has faced over the years, is preventing its unique chocolate designs from other competitors.
  5. Though not in Europe, Nestle has managed to secure a trademark for the KitKat shape in countries including Australia, Canada, and France.
  6. Nestle has been facing the heat in India for supporting research for breast milk substitutes which is proclaimed to be against the local as well as international law.

Environmental

The environmental factors affecting Nestle are:

  1. Nestle believes in creating shared value and strive for zero environmental impact via its operations.
  2. The group's efforts to reduce the use of plastic in its products and their target to make 100% recyclable plastic in all its packaging material is a major feat towards environmental sustainability since its one of the four major groups that are responsible for production of 6 million metric tons every year.
  3. If any of these policy changes are missed the group faces major setbacks. This fact was evident when Nestle was suspended by RSPO when it failed to submit palm oil sustainability reports. Nestle group's efforts, though not completely bleak are seen as a part of their annual review.
  4. The report boasts a 2.6% reduction in indirect greenhouse gas emissions per tonne of product produced, along with 293 companies claiming zero-waste production. The group proposes to be developing plant-based offerings and promoting sustainable nutrition worldwide.
  5. A major project that they have undertaken is to promote water efficiency and sustainability across the various operations as well as promote these policies and stewardship.

Internal environment anfalysis

For the analysis of the internal or micro environmental factors, SWOT is a useful framework.

Strengths

Weaknesses

· World renowned brand

· Deep product penetration

· Strong R&D

· Efficient distribution

· Multiple controversies

· Non-differentiated brand structure

Opportunities

Threats

· Brand marriages

· Expansion of distribution system

· Improving brand image

· Threat of new entrants

· Rising prices of raw materials

 

Recommendation

  1. With the US and China being its major markets, improved economic activity in this region will lead to better performance as well as higher sales and profits.
  2. Product diversification and customization depending on market and consumer needs in different countries.
  3. Nestle should concentrate on research and development of new products in order to come up with new products. Since the company started out to serve infants in need for nutrition, Nestle should enhance and find way to enrich their product with substances and vitamins that will provide children their daily needs of calcium and even mothers. Because they should start from mothers’ health in order to provide infants’ health.
  4. Nestle should carry on with their partnership activities that will increase their competitive advantage more. However, they shouldn’t venture their business with companies that can’t sustain the pressure of the market and in which waver under the scrutiny of competitors.

Conclusion

From the above discussion, it can be concluded that Nestle despite their deep market penetration and product diversification, faces various issues due to high competition, copyrights and pricing. They operate in a highly competitive market and their strategies should reflect that. By adopting the recommendations made above, the company would be able to gain a significant competitive advantage over their competitors in the market.

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