MGT 4880 CTRA
April 1st 2013
Nestlé: MNE Profile
Nestlé has around 468 factories, operates in 86 countries around the world, and employs around 330,000 people. It is one of the main shareholders of L’Oréal, the world’s largest cosmetics company (Nestlé). The mission of Nestlé nowadays – “Good Food, Good Life” – is to provide consumers with the best tasting, most nutritious choices in a wide range of food and beverage categories and eating occasions and to put a strong emphasize that leadership is not just about size; it is also about behavior and trust earned over a long period of time by consistently delivering on promises (Nestlé).
The company grew significantly during the First World War and again following the Second World War, expanding its offerings beyond its early condensed milk and infant formula products. The company has made a number of corporate acquisitions, including Crosse & Blackwell in 1950, Findus in 1963, Libby’s in 1971, Rowntree Mackintosh in 1988, Gerber in 2007, Kraft Frozen Pizza in 2010 and Wyeth Nutrition in 2012 (Wall Street Journal).
Nestlé has a primary listing on the SIX Swiss Exchange and is a constituent of the Swiss Market Index. In 2011, Nestlé was listed No. 1 in the Fortune Global 500 as the world’s most profitable corporation. With a market capitalization of $ US 200 billion, Nestlé ranked No. 13 in the FT Global 2011 and No. 12 in the FT Global 2012 (Financial Times).
It is quite important to present Nestlé’s internal resources when analyzing company’s strategic position – the key strengths and weaknesses. Nestlé’s Chairman and CEO Paul Bulcke had set Nestlé on the path of achieving worldwide sustainable competitiveness through the following strategic “pillars” such as low-cost, highly efficient operations; renovation and innovation of the Nestlé product line; universal availability and ability to customize products to the local market conditions; improved communication with consumers through better branding; research and development capabilities with a focus on meeting today’s needs without compromising the ability of future generations to meet their needs, and to do so in a way which will ensure profitable growth year after year and a high level of returns for shareholders and society at large over the long-term. The company has the largest R&D network of any food company in the world; with 32 R&D centers and over 5,000 people directly involved in R&D (Nestlé).
However, there are still few weaknesses the company has to take into consideration, such as the history of product recalls, questionable reputation and shady deal-making, allegations of unethical conduct, product concentration in many areas have been viewed as unhealthy and also lower margins. Nestlé’s LC-1 division was not as successful as it has been thought it would. The growth in the organic food sales division was flat since 2008, even though the industry grew 8.9%. Since 2004 the breakfast cereal industry has been under fire from the FDA and the American Medical Association, both of which said that false claims of “heart healthy” and “lower cholesterol” had to be removed from packaging and advertising. Nestlé has also been forced to reduce the amount of sugar in their products, as parent’s advocates groups claimed they were contributing to the diabetes epidemic among American children. General Mills is an experienced, established brand and are the market leader in the USA; however, they have been lacking in innovation and have been behind in creating new niche products.
Nestlé is the biggest food company in the world, with a market capitalization of roughly 191 billion Swiss francs (CHF), which is more than 200 billion U.S. dollars. In recent years the company has performed quite well reporting US $98.92 billion in sales for 2012. However, financial analysts are lately concerned about Nestlé’s decline in emerging markets where key regions were hit by a string of natural disasters and political unrest. As of December 31 2012, Nestlé’s sales (in million CHF) were equal to 92,186, whereas reported sales in 2011 – 83,642 and in 2010 – 93,015 (in million CHF) respectively. Despite the slowdown in sales, Nestlé Chief Executive Paul Bulcke reassured there were still growth opportunities. According to the recently published financial data, Nestlé still managed to report a 12% rise in full-year net profit as high-profile brands such as Kit Kat and Nescafe continued to perform very well (Nestlé).
During 2011-2012 Nestlé was boosted by strong performances by its so-called “billionaire brands” – products that generate more than 1 billion Swiss francs ($1.09 billion) a year. As an example, Kit Kat, became the best-selling chocolate bar in Japan, following the successful launch of new flavors including wasabi and limited edition bars, while instant coffee capsule brand Dolce Gusto was a major success around the world. The coffee brand performed very well in Germany, the U.K., Russia and austerity-hit Spain, where it benefited from a consumer trend toward small, affordable treats despite economic cutbacks (Wall Street Journal).
Nestlé’s long-term corporate objectives are to be recognized as the world’s largest and best branded food manufacturer and leader in Nutrition, Health and Wellness, trusted by all its stakeholders, whilst ensuring that the Nestlé name is synonymous with products of the highest quality as well as achieving the status of “Nestlé Model”, a term which referred to Nestlé’s objectives of “organic growth between 4% and 6% each year; continued year-after-hear improvements in earnings before interest and tax. In recent years, the company has pursued a policy of expansion and diversification (brands diversified into specific product groups like baby foods, bottled water, coffee, drinks, food service, sport nutrition and weight management etc.) through acquisition and divestment to achieve a more balanced structure to the business (as an example, Nestlé‘s 2012 acquisition of Pfizer Nutrition, enhancing its position in global infant nutrition) (Nestlé).
To stay ahead of the competition, Nestlé centralizes expertise in the system technology. Nestlé has marked recently the official opening of a new System Technology Centre (STC) in Switzerland that brings together on one site the expertise used to combine products, capsules and machines such as those used in its Nespresso and Nescafé Dolce Gusto beverage systems what will significantly affect the company’s profits in the future (Wall Street Journal).
The company has also set up a new institute to combine nutritional and biomedical research, in the hope of creating foods that provide a medicinal benefit. Nestlé is examining its entire portfolio to make sure its products are healthier and tastier than those of its direct competitors (The Economist).
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- “Food for Thought.” The Economist. Web.15 Dec. 2012
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- “Nestle to Spend $16 Million on China Coffee Center.” BloombergBusinessWeek. Web. 2 April 2012. <http://www.businessweek.com/news/2013-04-02/nestle-to-spend-16-million-on-china-coffee-center>