Organisational Analysis Of Nestle

Company Background

Discuss about the Organisational Analysis of Nestle.

In this paper, an organisational analysis of Nestle has been carried out. Nestle is a food and drink company headquartered at Vevey, Vaud, Switzerland. Henri Nestle established the company in the year 1867 with the help of Charles Page and George Page. Nestle is one of the reputed and largest food and drinks company in the world. Earlier it used to trade with condensed milk but then they bring more products into the market. The company serves worldwide and has a good customer market. It has years of experience and have been remarkable with their products and market domination. They hold a majority of market shares in the market. They also have developed a good distribution channel all over the world. In this assignment, a macro environment analysis of Nestle will be done with the help of PESTLE analysis. PESTLE analysis will help to understand the Political, Economic, Social, Technological, Legal and Environmental factors that affect the organisation. The industry analysis will be carried out with the help of Porter’s five forces. Porter’s five forces will explain about the competitive rivalry, threats of new entries, bargaining power of the suppliers, bargaining power of the buyers and the threat of substitute products. This paper will contain some of the core competencies of Nestle. This paper will also contain the market strategy that Nestle is using.

Nestle is a food and drink company headquartered at Vevey, Vaud, Switzerland. Henri Nestle established the company in the year 1867 with the help of Charles Page and George Page. Nestle is one of the reputed and largest food and drinks company in the world. Earlier it used to trade with condensed milk but then they bring more products into the market. The company serves worldwide and has a good customer market (Nestle.com 2018).

• Ulf Mark Schneider (CEO)
• Paul Bulcke (Chairman)

In 1860, two Swiss enterprises were founded that in future led to the main structure of the Nestle. Charles Page and George page established a company named Anglo-Swiss Condensed Milk Company in Switzerland (Obladen 2014). In the year 1867, Henry Nestle created a milk product, which is similar to the condensed milk and is mainly for the children. In that similar year, Daniel Peter started working in perfecting the milk chocolate manufacturing procedure. In 1875, Henri Nestle retired but the organisation retained the name and it came to know as Nestle (Biswas et al. 2014).

Ownership

The company is one of the leading producers of child drinks and other food items. Its product range and quality helped them in creating a good customer base as well as helped in increasing the goodwill of the company. The revenue of the company is recorded CHF 89.8 billion in the year 2017 and the operating income of the company is recorded as CHF 13.16 billion in the year 2016 (Saluja and Mahajan 2017). The company earned a net income of CHF 8.88 billion in the year 2016. Presently Nestle employs 335,000 employees in their organisation. Nestle sells its product in 189 countries worldwide. In 2017, the company paid a corporate tax of CHF 3.47billion (Smith 2013). Nestle also has a good amount of equity shares, which is recorded as CHF 65.98 billion in the year 2016 (González-Benito, Martos-Partal and Fustinoni-Venturini 2015).

Nestle has a very good infrastructure and has many high-end technologies. The company is expected to expand their business processes in other countries as well and it is very much possible as their distribution is channel is very superior (Rushton, Croucher and Baker 2014). Nestle also has a very good brand awareness among people and this will help them in expanding their business in different countries. Nestle can also diversify their product in the Sports drink category, which can increase their revenue (Hutzschenreuter and Horstkotte 2013).

Nestle has a wide range of product to offer to the customer (Payaud 2014). Some of the products are listed below:

• Baby food
• Dairy products
• Breakfast cereals
• Pet foods
• Ice cream
• Bottled water
• Coffee
• Noodles

Nestle has a number of competitor in the market who are competing hard expand their own organisation. Some of the main competitor of Nestle are Britannia, GlaxoSmith Con, Varun Beverages and soon (Nestle 2013).

The macro environment analysis of Nestle can be done with the help of PESTLE analysis. PESTLE analysis is a marketing tool that helps to understand the external factors that influences the operation of an Organisation. PESTLE analysis will help to understand the Political, Economic, Social, Technological, Legal and Environmental factors that affect the organisation (Aithal 2016).

Political factors:

• Change in food standards: The change in food standards of different countries influences the manufacturing process of the product (Heasman and Lanhg 2015). Food standards means quality of the product or the materials, which are used in the product, should be of higher quality. The product should not create any health issues to the consumer.
• Rules and regulations: Government rules and regulations highly influence the organisations process of manufacturing the food products. Rules and regulations are set differently in different regions by the government. Nestle should consider the import/export duties, taxation, government permission for entering into a market and should focus on bringing hygiene products that are allowed by the government.
• Government stability: The organisation should also make decisions considering the government stability.  Change is government mean change in policies, which will affect the organisation.

Economic factors:

• Change in consumer budget: With changing times, the habit of the customer is also changing. Customer is becoming more cost-conscious and this is changing the think process of many organisations (Hope and Fraser 2013).
• Increased price of raw materials: The price of raw materials is increasing day by day this is forcing the organisation to cut the cost of production. Nestle should make their organisation strategy is such a way so that they can adapt to the rising price of raw materials.
• Other factors: Nestle should have proper knowledge about the changing inflation, economic growth of the company and also about the income levels of the people.

Social factors:

• Changing consumer preference: With changing times, consumers are becoming more health conscious and Nestle should emphasise on healthy drinks and products. It will help nestle in retaining the customer market.
• Changing lifestyle: Changing lifestyle also affects the organisational functions. Instant foods are making its own market.  Nowadays people do not want to spend time on cooking rather they like to have instant foods. Nestle has created its own product that serves this purpose. The product is Maggie and it acts as an instant snacks/food to the consumer.
• Cultural barrier: Cultural barrier is one of the problems for many organisations while doing its marketing. Need of adapting to different cultural behaviour is a necessary steps for the marketing strategy.
• Consumer behaviour: Consumer behaviour towards the product is a very necessary. The organisation should understand how the market is taking their product, whether they are satisfied with their product or not.

Technological factors:

• E-commerce: E-commerce has helped many organisations recently in increasing their revenue and expanding the customer market. Nestle should focus on the E-commerce strategies in this modern era as the company can get a number of benefits from that like increased brand awareness, increased sales.
• Internet as feedback tool: Use of internet in getting feedbacks can attract more customers. A positive feedback from the customer will force other consumers to try their product and a negative feedback will help the organisation to reduce the issues. Internet has also reduced the gap in direct communication between the customer and the company.
• Innovation: Advancement in technology has increased the level of innovation among the organisation. The use of technology will help Nestle to innovate more and bring new products in the market.

Legal factors:

• Safety standards: Nestle is a food product and mainly consumed by the children. The main priority of Nestle should be health and safety rules for the employees and to produce hygienic products for the consumer.

Environmental factors:

• Packaging: The concern of consumer for the environmental cleanliness is highly crucial in case of packaging. Nestle should use Recyclable materials while packaging their products.  
• Corporate Social responsibility: Corporate social responsibility is important and Nestle should understand the value of good corporate social responsibility (Schwartz 2017). Valuing corporate social responsibility will help in customer retention, more media and print coverage, rand differentiation and happier employees.
• Production process: The production process should be environment friendly. It should not affect the environment in any way. The production process and technology that will be used should follow proper environment guidelines.  

  From the above analysis, it can be stated that there are number of factors that are to be considered during the activity of the organisation. All the factors are equally important and Nestle should follow this factor to keep their place in the market.

Porter’s five forces theory will help to understand the five key driving forces that affect an organisation. It will help to understand about the level of competitiveness, threats of new entries, bargaining power of the suppliers, bargaining power of the buyers and the threat of substitute products (Dobbs 2014).

• Competitive rivalry (high): The level of competitiveness in this industry is very high. Competitors like Britannia have also a good market share and good brand awareness in the market. Nestle also faces a tough competition from the Kraft foods, Group Danone and P&G. In breakfast cereal segment, Nestle faces competition from Kellogg’s (Gallagher 2013). However, being a company of 150 years of experience Nestle is still facing tough competition from its competitors. The competition is not based only on price, product variety, promotional offer, creativity is also the main reason for this tough competition in this industry.
• Threat of new entries (Low): Nestles industry is diverse thus making it tough for the new entries to enter into this industry. There are many barriers to enter into this industry.  One of the main problems is that the existing firms hold a huge amount of market shares. The existing companies have also made a good brand loyalty. Existing firms also have a good distribution channel, which creates another roadblock for the new entrances growth.
• Bargaining power of Suppliers (Low): The bargaining power of the low supplier is low for Nestle is because of the market shares that nestle holds. Nestlé’s market is the largest among all its rivals. As a result, Nestle needs a huge amount of supplies of raw materials. Therefore, if someone starts supplying Nestle does not interferes or try to bargain the price. Nestle is a company who prefers to have a long-term relation with the suppliers. This makes the bargaining power of the suppliers very low.   
• Bargaining power of the buyers (High): The bargaining power of the buyer is high because the existing amount of competition in the market. The competition for Nestle as well as for other companies gives a bargaining power to the buyer. Buyers can easily move to other products, as there are number of similar kinds of product available in the market.
• Threat of substitutes (High): Nestlé’s different product has different substitutes for example pasteurized milk has a lot of different substitute. Baby products have homemade substitutes. There also have been many allegations that many of Nestlé’s products are not healthy and this has led to the increased sale of its substitute products (Porter and Heppelmann 2014).

History

  From the above Porter’s 5 forces theory it can be stated that Nestle has a number of positive factors to run their organisation smoothly but at the same time they also have some major negative areas that affects  them. The competitive rivalry is high in this industry.  The threat of new entries and the bargaining power of the supplier are low. The buyer gets the power to bargain due to the extreme competition. The threat of substitute product is also high as there are many substitute products available in the market.  

Nestle is a well known and reputed company and with years of experience Nestle has gained a number of competencies that helped them in increasing their brand value as well as helped them increasing their brand value. Nestle uses the differentiation strategy which not only makes them a unique from others but also give them advantage over others. The main competencies of Nestle are quality products, health and hygiene and the most important competency is customer satisfaction.  Nestlé also provide warranty to retailers regarding expiry, after sale service and the delivery.  Nestle provides superior product quality for the product differentiation strategy.  Nestle want to keep their customer base loyal. The product of Nestlé’s are verified by international quality standards and by different health and safety standards.  They also have a good distribution channel all over the world, which helps them in quick and fast delivery of products to the customers (O’Neil and O’Neil 2014).

The health and safety standard is one of their main competencies because consumers are becoming more health conscious day by day. Consumers are preference healthy products and Nestle is coming with more and more healthy products, which helps them in satisfying their customer base and helps them in retaining the customer in the market. A good supply or distribution channel always increases the brand goodwill and the brand value of the company. The distribution channel of Nestle helped them in distributing their product in 189 countries (Gillespie and Riddle 2015).

Nestle has been successful in maintaining the mission and the goals due to their amazing business strategies. The business strategies of Nestle can be divided into three different strategies (Joyce and Paquin 2016). They are listed below:

Operational pillars

• Innovation
• Consumer communication
• Whenever, However, Wherever
• Efficiency of the organisational  operations

Growth drivers

• Growing markets, Positioning of popular products
• Health, Nutrition and Wellness
• Instant products

Competitive advantage

• Unique product and brand goodwill
• Geographical presence in 189 countries
• Culture, Attitude, Values and People
• Research and development

These are some of the strategies, which Nestle used to ensure they succeed in the industry.  The brand value of nestle gives them an advantage over other companies in the market. Nestle uses their brand goodwill as the competitive barriers (Awan and Rehman 2014). The key reason for their success is the incredible marketing and consumer communication. The main motive of their marketing is to provide cheaper but quality products ensuring total customer satisfaction. Nestle has been consistent is maintaining the brand image due to their nutritional products, which many other companies fail to provide to the customer. Nestle are also ahead of their competitors sue to their research and development strategy. Nestle also have partnership with other reputed organisation like Coca-Cola (Powell and Gard 2015). They have a unique and different way of market research procedure. Nestle create regional heads who are able to give information about local culture and markets. This helps them in gaining strategic knowledge about global markets and helps them to attain better customer satisfaction.

Size

Though Nestle has years of experience and a market knowledge about how to strategies and bring their products in the market but there are some areas in which Nestle can improve their business. Nestle can diversify their products in the energy drinks category and can bring a healthier option replacing the caffeine products like Coke Zero. They can tie up with big organisations like KFC or McDonalds, which will help both the companies in expanding their business. They should also bring new flavours in their products time to time so that the consumer does not get bored with their same flavours. They should increase their promotional activity in the developing countries because very soon the developing nations will be a leading consumer of Nestle.

Conclusion: 

This paper analyses about the organisational strategy of Nestle. Nestle is a food and drink company headquartered at Vevey, Vaud, Switzerland. Henri Nestle established the company in the year 1867 with the help of Charles Page and George Page. They are one of the most old and reputed food companies in the market. They have a good market presence with the delivery of their products in more than 189 countries. Their main products include Baby food, Dairy products, Breakfast cereals, Pet foods, Ice cream, Bottled water, Coffee and Noodles. This paper explains the macro-environment of Nestle with the help of PESTLE analysis. PESTLE analysis helps to understand the Political, Economic, Social, Technological, Legal and Environmental factors that affect an organisation. The political factors include Change in food standards, Rules and regulations and Government stability, the economic factor includes Change in consumer budget, rise in prices of raw materials. The Social factors that affect the work process of Nestle include Changing lifestyle, Changing consumer preference, Cultural barrier, Consumer behaviour. The technological factors include E-commerce, Internet as feedback tool, Innovation. The legal factors and the environmental factors include Packaging, Corporate Social responsibility, and Production process. The industry analysis has been carried out with the help of porter’s five forces theory. Porter’s five forces are competitive rivalry, threats of new entries, bargaining power of the suppliers, bargaining power of the buyers and the threat of substitute products. The threat of Competitive rivalry, bargaining power of the buyer and the threat of substitute product is said to be high. The other two forces bargaining power of suppliers and threat of new entries is comparatively lower. This paper also contains some of the core competencies of Nestle. Some of the core competencies of Nestle are brand value, healthy products, good distribution channel and so on. The marketing strategy of Nestle has also been discussed in this paper.  The marketing strategy of Nestle can be divided into three parts operational pillars, growth drivers and competitive advantage. To conclude, Nestle has years of experience in this industry and there marketing strategy has been remarkable. They have the majority of the market shares. They have major challenges like competition, government policies, and false allegations but still they have expanded their Company and presently have a global presence in 189 countries.

References:

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Awan, A.G. and Rehman, A.U., 2014. Impact of customer satisfaction on brand loyalty: An empirical analysis of home appliances in Pakistan. British Journal of Marketing Studies, 2(8), pp.18-32.

Biswas, A.K., Tortajada, C., Biswas-Tortajada, A., Joshi, Y.K. and Gupta, A., 2014. Executive Summary. In Creating Shared Value (pp. 1-4). Springer International Publishing.

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