Nestle and the food and beverages industry

nest and the f ar and beverages manufacturesnuggle has loaded corpo value culture which is reflected by the beau monde logo itself. The logo, mature victuals Good Life which is always attached to its harvest-times is the important guidance for all activity indoors the company. hold close believes that good pabulum is the primary ancestor of good wellness through out(a) life thus it always puts sustentation, health and wellness as the affection of its championship. The company tries to further develop and express on these aspects. These three topics Nutrition, Health and Wellness digest be implant in all nest crossroads and in the company charge rehearsal as well.Talking about the company culture which is related its battalion structure, draw near has the culture of team foc utilized and open door insurance which snuff it adept of its corporate strengths. The company focuses on collectivism and death penalty orientation attitude to encourage employees t o work harder (Ali et al, 2009).Strategic Purpose representation of nest is to get through better viands so that plenty countenance intercourse a better life. in that respect is an app atomic number 18nt race between this mission statement and the company logo. As what the company believes in, it strives to bring consumers aliments that be safe, of in lofty spirits grapheme and provide optimal nutrition to meet physiological ask. In addition it withal brings the vital ingredients of taste and4rrf4f5f5gt pleasure.Nestls corporate accusatory is to be the worlds largest and best shufflinged regimen manufacturer, whilst ensuring that the Nestl present up is synonymous with products of the high upest quality ( nose Corporate Objective, 2009). It shows that clutch has passd one part of its corporate objective which is to be the worlds largest manufacturer. This objective is related to a nonher objective of nuzzle which is the company wants to irritate sure that th e product creates repute that give the bounce be sustained over the long boundary for sh beholders, employees, consumers, business partners and the national economies in which near operates.The main concern of come on is to deliver nutritional value for the customers. Thats wherefore in the website of the company, its clearly stated that nestle is the worlds fore some Nutrition, Health and Wellness company. The chief operational officer of go up, Paul Bulcke once said that the objective is to be recognized as the leader in the Nutrition, Health and Wellness and as the reference for fiscal performance, trusted by all stakeholders.The statement from the CEO is in string with the fact that Strategic Purpose isnt altogether concerned with what the institution should pass but also who has influence over the purposes. In e very(prenominal) organization there should be just about slew that invite complex contribution in affecting the organizational purpose. These peopl e are the stakeholders of the company. Nestle wants the stakeholders are well-served which is returned in the companys long term objective to create sustainable value for its shareholders which require it to create the value for the societies at send-off place.2.0 Industry compendThe threat of entryAt offset glance, people whitethorn mobilize that nutriment and beverages constancy is quite easy to enter. This is true if the consideration is only about the capital wants. The capital requirement of entry is not high thus enable umpteen another(prenominal) parties to open their business in this sedulousness. This sentiment is also supported by the fact that many brands are occupying the shelves of supermart or retailer.But if to a greater extent agents are taken into consideration, the threat of entry for fare and beverages industry is moderately high (medium take aim). The threat of entry is affected by many figures which are economies of scale, capital requirements, a ccess to supply or statistical distribution channel, customer of provider loyalty, experience, expected retaliation, digeston or government action and diametriciation (Johnson et al, 2005). For this industry there is no specific government legislation that governs the entry of bracing entrants.The fact is that there are many gigantic players exist in this industry and they are at multinational level which means the retaliation is very great. These extended players incur broad product lines and they have world(a) marting strategy that those topical anaesthetic brands are not able to compete with. These big companies also have an advantage in term of achieving economies of scale. They have more(prenominal) experiences to give them advantage in scathe of cost, customer and provider loyalty.Entering the food and beverages industry to compete with the big competitors such as Nestle wont be a keen decision unless the modern comer has careful attention paid to the strategy. Nestle has the just about 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 international Brand (Best Global Brands, 2008). Nescafe as one of the brand under Nestle was reported to have 13,056 million USD of brand equity. This shows how valuable the brand name of Nestle as the foodstuff leader in the industry which incline be imitated by competitors. The brand name is used to antitheticaliate Nestle product from the competitors.Threat of SubstituteThreat of substitute is high in the food and beverages industry. There are many substitutes available that might garnish demands for company in the food and beverages industry. To identify the threat of the industry, the company argot only look at close substitute. Threat gutter be assessed using price/performance ratio and extra industry effects. There is a tendency for food and beverages manufacturers to product broad range of products. These p roducts may compete with one another to gain market share. It means that they become substitute for each other. For shell Nestle Koko Krunch grain tramp be the substitute for Nestle Nesvita cereal drink since both of them are think for eat consumption.Because Nestle is offering not all kinds of food and beverages, those unoffered kinds may act as the substitutes for the Nestle products. For event Nestle has coffee in its product lines which is Nescafe, the substitute for it can be the soft drinks which are not in the portfolio of Nestle. In this case the substitutes are also very broad. For reliable food such as baby food, the substitute can be breastfeed which is free and offer same or high value. authority of providerThe major power of provider in food and beverages industry tends to be medium. The basis of Nestle products are agricultural raw materials such as milk, cocoa, and coffee. By referring to 3 factors that affect the power of supplier, only 1 factor can gives t he supplier the power advantage which is the non-existence of forward vertical integration.Supplier power is increase as many of the food and beverages manufacturer are not involved in agricultural raw material product and dont own or operate farthermostms. Nestle, Cadbury, and Kraft are some of the examples. They assert on the suppliers to provide the raw materials. Nestle itself purchases agricultural materials in all raw or semi-processed form directly from farmers or via pot channels (Raw Materials, 2009).On the other hand, by considering the number of suppliers in the industry and also the switching cost, the dependency to a particular supplier can be reduced. The suppliers are not concentrated that enables the companies to choose the most tolerate suppliers. For multinational companies that have their operations in many countries throughout the world, if one supplier sanctimoniousness offer good price for the company, it can look for the other suppliers (can be in diffe rent countries). One issue for some companies is how to get the suppliers that can supply high quality materials as postulate for producing high quality finished products. Switching cost from one supplier to another is not high.The bargaining power of supplier depends heavily on the strength of the companys brand. In this case, big companies such as Nestle can take advantage in bargaining. Small scale companies or topical anesthetic companies may feel that the power of supplier is higher as compared to the well-established companies. queen of BuyerCompetitive RivalryFood and beverages industry is a very competitive industry. This is affected by the other 4 factors discussed above. Its not in addition difficult to enter to this industry, the bargaining power of supplier and buyer are medium and threat of substitute is high. any(prenominal) other factors also intend the intense of competition.The competitors are of roughly equal size which can make the competition yet stiffer. T hey impart attempt to gain dominance over another. For example Nestle and General Mills have word ventured for breakfast cereal market. By having such joint venture these two companies rather of competing with each other they can gain better mastery (Jones, 2008).In overall this food and beverages industry has its own attractiveness to attract in the buff comers to enter. Although from the 5 gatekeeper results the industry isnt so attractive, it has its own set of salute for the business party which is the nonplusing hazard ( shekels). If the new comers can have good strategy to penetrate into the market and know how to compete with be companies, they can gain benefits in the competition.drawframe Since Nestle is operating in world-wide market, the industry life cycle may vary among different geographic areas. In general food and beverage industry is at the exploitation coiffure of life cycle but for European market and non-European market they are at the different point of harvest-feast stage. pulp below shows the touch of the food and beverages industry in the life cycle.another(prenominal) reason for the difference is the demographic differences between the two different areas. A very important issue that makes European market is hardly to grow is regarding the race growth rates. As compared to other markets, the population growth rate is lower that makes the industry cant grow or generate higher profits for the market players. For food and beverages industry, the consumption is driven by the population growth. Slower population growth means the industry also grows slowly.The industry life cycle analysis is related to the Porter 5 forces. The relationship can be seen from the characteristics of the forces which vary for each life cycle stage. In other words the life cycle can be pertinacious by looking at the 5 forces of the industry.As for the food and beverages industry, since its ease at the growth stage the competition pull up stakes keep increasing (intense rivalry) till it reaches maturity stage. One obvious fact is that in European and North America market the competition is stiffer as compared to the other markets. As shown in the curve before, these 2 markets are approaching the maturity stage while the other markets are just at the middle of growth stage. Nestle knows this thus it put more attention to the Asian market (Jones, 2008). The competitive rivalry is driven by the increasing number of new entrants.The power of buyers at growth stage isnt high but it exit 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. In the Porter 5 Forces analysis it has been identified that the bargaining power of buyers is quite high already. This is because this industry is very broad and the companies can come out with many product selections. When the companies step into the maturity stage by sure they entrust have even more products providedto strengthen the companys brand. For example Nestle milo has strong market share and remains a perennial pet amongst Malaysia consumers. In order to further strengthening the brands image, the company added MILO gilded to its product range. This was make to keep the consumers loyalty towards the product (Business Review, 2008).Reversely the power of supplier will be lower when this industry reaches the maturity stage. It is because the brand of the company will be more powerful when it enters to the maturity stage. As explained before the power of supplier is relative to the company brands. Currently since the food and beverages industry is belt up at the growth stage the power of supplier is medium. Nestle is an exception case. For Nestle whose brand is very strong, the power of supplier becomes lower. One cogent evidence to show that the power of supplier is low is the movement of Nestle Supplier Code. This Nestle Supplier Code estab lishes non-negotiable minimum standards that the suppliers moldiness respect and adhere at all times when conducting business with Nestle (Nestle Supplier Code, 2009). The Code also helps in implementing the commitment to foster trusty practices in the company supply chain. It is used to ensure the responsible sourcing and supplier relationships that deliver a competitive advantage for Nestle. Not all companies have skill to implement such thing. Suppose Nestle isnt a well-known(a) company, it wont dare to have supplier code, instead it may have to listen to what supplier requires.A major barrier to entry for the growth stage is the learning or experience. Nestle and other companies have gained many experiences that accept them to achieve economies of scale. Pricing during this stage is also declining (lower than the introduction stage) and the profit is also increasing. Nestle and its competitors put away have growth opportunity.Another proof to show this industry is still at the growth stage is more differentiated products are being introduced these days. The research center of Nestle is still striving to come out with innovative products and renovate existent ones. originally identifying the key drivers for change, the PESTEL analysis should be carried out.From the key factors in the macro-environment (PESTEL), there are 2 of the factors that influence food and beverages industry the most which are economic and social factor. These two are the key drivers for change in food and beverages industry.Demographic is also one of the factors that keep ever-changing. The main factor within demographic that will im pledge the operation of the company is the lifestyle. As mentioned earlier, people are shifting to healthier life. The demand for food and beverages that dont fulfill this requirement cant stay long in the competition. But for Nestle this wont affect much since Nutrition, Health and Wellness has been the company focus for years. match to Johnson (20 05) critical success factors are those product features that are particularly valued by a group of customers and therefore where the organization must travel by to outperform organization. CSF can be related to the differentiation by the companies within the industry. There are 4 common forms of differentiation which can be used by the company which are product attributes, price, support, and brand image.For the food and beverages industry the most critical success factor will be the product quality and founding (Nestle Global Strategy, 2009). 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. This is what Nestle has been doing so far. As mentioned before Nestle brand has been the symbol of quality. fundament 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 preferenc es.Another critical success factor for the food and beverages industry is the healthiness of the products. This is closely related to the key drivers for change as discussed earlier. As people are very concern about their health, the healthiness of the food and beverages they are taking become a key determinant in their purchasing. Many groups of customer valued this healthiness issue thus allows Nestle to conquer big market share.Indirectly the brand image itself can be built from the product attributes thus brand is of the same grandness with product quality in food and beverages industry. The company also demand to develop its corporate brand using CSR (Corporate Social Responsibility). Probably this factor is applicable for any industry in the business world.As Nestle is the market leader of its industry, by sure it has its own set of core competencies to deal with the critical success factors in the industry. either CSF is of Nestle capability which means it has the resources and competencies to cater all CSF. Without these competencies, Nestle cant sustain its position any longer.This core competency of Nestle has made the company reached the first place in the industry. Quality which is the most important factor for food and beverages industry has been so attached to the Nestle brand itself. Nestle knows that innovation and quality are the key determinants thus it transferred these competencies to the foreign market wheresoever it entered into (Nestle Global Strategy, 2009).One of the innovations from Nestle which gives it first mover advantage is its nutrition labeling on all the products packaging. It was launched in 2005 and comprises three elements Good to know, Good to remember, and Good to talk. These 3 labels can be found in all the Nestle products.There is another first mover advantage Nestle has which is becomes the first in the industry to offer a full range of chilled dairy products with No Artificial Coloring in 2008 (Business Review, 2008 ). Some examples of the products are rejoicing Yogurt Drink, NESTLE Yogurt and YOCO Cultured Milk Drink. It was communicated under the Some Things are Best Left Natural communication campaign and legitimate very positive feedback from consumers.Nestle also has competencies in leading and create people (Roongrerngsuke, 2006). This is important since Nestle is operating worldwide. As the market in each country is different from the others, the company needs to adapt itself to the macro-environment accordingly.Nestle has the ability in adapting itself to local demand and cultural differences although it operates in global level. It uses local brands in a wide range of local markets and focuses on trying to optimize ingredients and processing technology to local conditions. Doing business in different countries means different ethical standards, different business expectations, and different cultural norms. One example to show Nestles ability in responding to local condition is when it penetrated to Nigeria, the company had to rethink its distribution method (operating a commutation warehouse) because the road system was poorly developed and much violence there. The global strategy must be backed up with the necessary financial and human resources and knowledge management should be introduced to spread information throughout the company (Nestle Global Strategy, 2009).Nestle can take advantage of localisation 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). The experience of Nestle itself also can help the company to sustain its competitive advantage in term of lower product price.For Nestle to sustain its competitive advantage shouldnt be a problem. This is due to the value and inimitable of the core competencies of Nestle oddly for its corporate brand image and commitment. To achieve what Nestle has achieved so far is very difficult for th e other companies. This requires long term experience and investment. The most important thing is that Nestle is aware of the intense competition and keeps astir(p) itself so that competitors cant take over its position. For the nutritional labeling, it was protected by law and other companies cant follow the same thing. Another thing that enables Nestle to sustain its competitive advantage is the intangibility of innovation in Nestle and first mover advantage. Innovation has been the culture of Nestle and it cant be transferred to other parties.Furthermore with the presence of this competency, Nestle shouldnt be shake up whenever there are any changes in the industry (macro-environment) especially when people life style change. The company still can come out with nutritious food and beverages to cater the demand of customers worldwide.5.0 Strategic Directions and Corporate train Strategies of NestleCorporate level strategy is also dealing with the product diversity, internationa l diversity, corporate parenting roles and management of portfolio (Johnson et al, 2005). It is strongly related to the strategic concern of the company.Nestle applied international diversity which means it differentiates its products based on the local market and competition. The example has been given in the chapter before which shows the Nestle ability in adapting itself to the local market.In selecting the corporate strategy a firm might refer to Boston Matrix, Ansoff Matrix or use a simple SWOT analysis to establish where the company is and in which direction it wishes to head. Below is the BCG portfolio matrix for Nestle SBU. The classification is based on the performance of the SBU (the profit it generated to Nestle).Most of the Nestle SBU is in the category of star. The SBUs in this category generate high profit for the companies. This is the main reason why Nestle can gain its number one in the industry. All its SBUs are generating profit. Nestle doesnt have any SBU in dog and interchange cow category. Take example of Ice Cream SBU to show why its considered as star. Nestl Ice Cream registered double digit growth in 2008 (Business Review, 2008). The division continued to spearhead the market with even stronger brand awareness, which power saw continuous and sustained brand building efforts even during lackluster market conditions. This SBU can come out with innovative products such as DRUMSTICK Techno, DRUMSTICK ex post facto ice cream and MAT KOOL Tangle, MAT KOOL Super Blaster and TROPICANA incontrovertible ice confection. In the following years if the innovation is kept carried out, this SBU can still generate high profit for Nestle.Strategic direction or phylogeny directions are strategic options available to an organization in damage of products and market coverage (Johnson et al, 2005). There are 4 strategic exploitation directions which are protect/build, product festering, market development and variegation.Nestle has done the 4 strateg ies. In recent years, the company has pursued a polity of expansion and diversification through acquisition and divestment to achieve a more balanced structure to the business.Product development is the main direction of Nestle and done by the company RD team. As what a director of Nestle said, renovation is to keep pace in the industry company needs to change at least as fast as consumer expectation. Innovation is to maintain the leadership position to move faster and go beyond what consumers will tell (Nestle SWOT analysis, 2005). These 2 strategies are intended for interior(a) growth to achieve higher volumes. In 2005, Nestles ice cream business unit for the China Region launched 29 new products to attract more consumers having its quality improved (Nestle Attacks with New Products, 2005).As the multinational company, market development is also very important in order to increase the geographic area coverage. In this case Nestle is expanding the market by geographic area. Nestl e expanded to Asia region as it saw good opportunity there.In some cases Nestle used joint venture to do itself in entering into new market. As a multinational company, Nestle has done some sorts of international strategy such as joint ventures with Coca Cola and General Mills (Nestle SA, 2009). These 2 joint ventures still main for the food and beverages industry (this also can be the example of related diversification). Joint venture with General Mills is to form Cereal Partners Worldwide and joint venture with Coca-Cola is named Beverages Partners Worldwide. The main reason for Nestle to do the joint ventures for its market development strategy is to benefit from the traditional merchandising expertise and distribution strength of Coca-Cola and General Mills. These 2 joint ventures also allow the companies to have their market penetration (existing product in existing market).Nestle has related diversification and uncorrelated diversification. For the related diversification, i t can be seen from the wide product portfolio which encompassing baby foods, dairy products, chocolates, breakfast cereals, food seasoning etc.For unrelated diversification, Nestle did it by acquiring or joint venturing with other big companies. For example Nestle acquired Alcon Laboratories Inc. in Texas which is a pharmaceutical company specializing in eye care (Company Related, 2009).Another example of unrelated diversification is the joint venture with LOreal. Nestl and LOral have a close relationship dating back to a shareholder pact made in 1974. Nestl holds a 26.4% stake in the worlds largest cosmetics group. Whilst it is unlikely that Nestl will take over LOral in the immediate future, it could well do so in a few years (Nestle SA, 2009).For the future days, Nestle may still come out with market development, product development and diversification. Nestle with its RD team can come out with more and more innovative idea in developing the products and try looking for new marke t segment. The new market segments can be new geographical unit or based on demographic factor. However for the unrelated diversification Nestle shouldnt go to extensive. It is because the more extensive the unrelated diversification the lower the performance will be.6.0 ConclusionConducting industry analysis is very important whenever a company wants to enter into new market. Porter 5 forces and industry life cycle are have-to-do analysis before reservation decision. However for the existing companies especially large scale companies, they need to deliver attention to the future changes that might happen in the industry because these changes will impact the operation of the company in the business environment.Nestle as the leader in the food and beverages industry has its own set of competencies that allow it to conquer the largest market share and left the competitors behind. The core competencies or strategic capability of the company should fit what the most influential factor s in find the success of the company are. It means that the core competencies should be able let the company to sustain its competitive advantages.Portfolio matrix assists the company in ascertain how to allocate the investment based on the SBU. By understanding this, the company knows the direction it should go. This is related to the issues of market penetration, consolidation, product development and diversification.