Industry Analysis
Companies in the food processing industry deal with the transformation of finished food products from raw agricultural ingredients, lengthening the shelf life of products in compliance with hygiene and health standards (SHARP). Food processing industries include the following: cannery, meat processing, food packaging etc. These foods are often sold to wholesalers or retailers for distribution to consumers. The industry is characterized by intense competition, with the most reliable firms, such as Nestle, performing well by focusing on efficiency in terms of fast processing and distribution (ReportLinker). More often than not, the most successful companies within the food and beverage industry (such as Nestle, Kraft and Mars, Inc) implement a diversification competitive strategy where they spread out and add related or similar products to its existing core business.
Economically speaking, the effect of the global economic meltdown has had a less impact in food processing industry than in other industries due to its rising demand for convenience food and ready to serve products. However, one of the challenges that all food processing companies face today is the rising price of raw ingredients such as corn, wheat and dairy. Other factors that affect demand for processed food are issues concerning dieting and obesity, allergens, and increased interest in the use of quality ingredients. One major key segment in the food processing industry is the increasing growing market for organic food and health products. The Organic Trade Association reports that sales of organic food grew to over $28.6 billion, making up 4% of total food sales. Sales growth was strongest for organic meat, dairy, fruits and vegetables, and bread and grains (US Organic Trade Association). Companies that wish to find success in the food processing industry must adhere to these factors, as they have an undoubtedly major effect on the industry.
As the largest food company in the world in virtually any way that can be measured, Nestle is the food processing industry’s undisputed leader. In fact, Nestle currently has over 29 brands that independently earn revenue upwards to a billion Swiss francs every year (DuBois). Additionally, with only 42% of its food and beverage sales coming from the United States, Nestle solidifies itself as the most geographically diverse of all major food and beverage companies. For the company, it’s all about creating long-term value and catering to customer’s wants and needs by employing a decentralized approach to its market (DuBois). Although Nestle derives much of its success from superior marketing and strategy, former vice president, Allan McIntosh, asserts that its true competitor advantage is due to its manufacturing operations. All manufacturing of Nestle products take place in its own plants “to better control all aspects of value creation, from marketing and supply chain factors to technology and plant processes (Sperber)”.
In response to the current trend in the food processing industry, Nestle has focused its core competencies toward advancing health and nutrition. Illustrated by its tagline, Good Food Good Life, Nestlé’s stated goal is to be recognized globally as the leader in nutrition, health, and wellness. This is accomplished by Nestlé’s attempt to promote its nutritional value in its products and to expand into new areas of nutritional food- and food-based products. Nestlé’s creation of the Nestle Health Science Company further demonstrates its commitment to nutrition, health, and pharmaceutical foods (Nestle Health Science). This wholly-owned subsidiary operates under the objective to bridge the gap between pharmaceuticals and food and untangling the accessibility of food, drugs, and disease. The main driver in the food processing industry is technological innovation. In addition, in order to maintain its leading global position, Nestle has a notably huge R&D budget of $2 billion which is invested in new food technologies for chilling, dehydrating, and freeze-drying (DuBois). In sum, Nestle has a clear competitive advantage over its competitors, allowing the company to be an impressive leader in the industry and to dominate markets.
Works Cited
“About Us.” Nestle Health Science. Nestle, n.d. Web. 1 Apr. 2013. <http://www.nestlehealthscience.com/about>.
Annual Report 2010. Rep. Nestle.com, 2011. Web. 1 Apr. 2013. <http://www.nestle.com/asset-library/Documents/Library/Documents/Annual_Reports/2010-Annual-Report-EN.pdf>.
DuBois, Shelly. “Nestlé’s Brabeck: We Have a “huge Advantage” over Big Pharma in Creating Medical Foods.” CNN Money. Cable News Network, 1 Apr. 2011. Web. 1 Apr. 2013. <http://money.cnn.com/2011/04/01/news/companies/nestle_brabeck_medical_foods.fortune/index.htm>.
Food Processing Industry: Market Research Reports, Statistics and Analysis. Rep. Report Linker, n.d. Web. 1 Apr. 2013. <http://www.reportlinker.com/ci02050/Food-Processing.html>.
International Trade Association. Department of Commerce. Food Manufacturing NAICS 311. Trade.gov, Feb. 2010. Web. 1 Apr. 2013. <http://www.ita.doc.gov/td/ocg/outlook10_food.pdf>.
Safety & Health Assessment & Research for Prevention (SHARP). Washington State Department of Labor & Industries. Food Processing Industry. Washington State Department, n.d. Web. 1 Apr. 2013.
Sperber, Bob. “Nestle USA: Manufacturing That Sustains.” FoodProcessing.com. Food Processing, 30 Nov. 2009. Web. 1 Apr. 2013. <http://www.foodprocessing.com/articles/2009/processor2009_nestle_plant.html>.
“Strategy – Nestlé Roadmap to Good Food, Good Life.” Nestle.com. Nestle, n.d. Web. 1 Apr. 2013. <http://www.nestle.com/AboutUs/Strategy>.
U.S. Organic Industry Overview.” Www.ota.com. Organic Trade Association, 2011. Web. 2 Apr. 2013.
