STM ASSIGNMENT

INDUSTRY – CONFECTIONERY

COMPANY – NESTLE

Q1. Compare and Contrast the business model of your organization (ex: Air Deccan) with:

a. An International Organization with a similar Business Model (ex: South West Airlines)b. A Domestic Organization with a similar Business Model (ex: Indigo)c. A Government Organization within the same industry (ex: Air India). 

Business Model of Nestle

- Key Partners/SuppliersThe key suppliers of raw materials of Nestle are the farmers in the locality where the plants are present. Nestle provides these farmers with necessary facilities to produce good crops and milk so as to get supplies at cheaper rate and also help improve living standards of the rural people.

- Key ActivitiesNestle’s objective is to be leader in Nutrition Health and Wellness, and the industry reference for financial performance, trusted by all stakeholders. All the products of Nestle are aimed at satisfying both taste and health needs of the consumers. The principal activities include a variety of food items like beverages, milk products, nutrition and ice cream; prepared dishes and cooking aids; chocolate, confectionery and biscuits; water; and pet care.

- Value propositionNestlé’s basic consumer value proposition is that people can trust the quality and safety of the food or drink when they open the wrapper or package. It has one unbending standard of food safety, and the Nestlé Seal of guarantee cannot go on the package of food produced until newly built or acquired factories meet a standardised, detailed and very rigorous set of requirements. These are laid out in extensive, formalised procedures and standards that must be verified, and they typically exceed the legal requirements, as well as the prevailing practices, in the countries where Nestle operate.

- Customer RelationshipNestle lists a telephone number (mostly toll-free) as well as local addresses on each product package, giving phone access to Nestlé Consumer Services

in 80 markets. Their role is to deal with consumer requests, to answer questions and to engage in dialogue. The Nestlé Consumer Services Worldwide Survey in 1998/1999 showed a trend of increasing dialogue, with some 5 million contacts from customers. Of these, 18% were asking for assistance with problems but the vast majority of requests (82%) were for information, such as nutritional advice or recipes.

- Customer SegmentsNestle has products which caters to the needs of people from any gender, income, demography and age. The wide portfolio of brands and the product lines are boon to nestle to remain competitive in the market. Clinutren, for example, is a line of products that includes milk-based flavoured drinks, soups, and prepared meals that are nutritiously balanced to suit the needs of senior citizens. Nestlé also develops and manufactures liquid-based foods for bed-ridden and terminally ill patients.

- Key ResourcesNestlé does not own farms but encourages sustainable agricultural practices amongst its suppliers. The company invests over £45 million per year in environmental protection, amounting to 3% of total capital expenditure on top of regular capital-investment projects that incorporate environmental components and factory environmental operating costs. Also, in certain parts of the world, Nestlé has invested in water education programmes and community initiatives to develop sustainable and safe water supplies.

- ChannelsThe following are some of the strategies used by Nestle for market expansion: Availability of NESCAFE enhanced through an expansion of the vending machine network, New consumption opportunities for chocolates and confectionery were identified and developed in areas like railway platforms, college canteens and major events, Nestle set up ‘Café Nescafe’ and ‘Coffee Corners’ across metros and mini-metros.

2. Prepare an Activity System Map for both a Low Cost Organization (ex: South West Airline or Air Deccan) as well a Diversified (ex: Full Service Airlines) Organization operating in the Industry/ Sector selected by you. 

Q3. Identify the leading Organizations Low Cost Providers (ex: Low Cost Air Carriers) as well as the leading Organizations with Diversified Product/ Service Providers (ex: Premium Air Carriers or Business class airlines) for India and for the 5 Continents (Asia, Europe, Africa, North America and South America). Document the Vision, Mission, and Objectives of these companies (ex: airline companies) and identify the key attributes of success for each of these organizations/ industries (ex: International Carriers). Is it in line with the various readings shared with you? Evaluate the Mission statement as per the suggestions given in the website.

India Company Mission Vision Objectives of the Key success Factors

companies

Low cost Provider

sParle Products

We will be leaders in our business by maintaining high

quality, introducing new and innovative

products, reaching every part of India,

remaining customer centric,

constantly upgrading our

knowledge and skills

To be the leaders in our business. We will stand

apart from the competition by being the

first in the market to innovate

To be the largest manufacturer of biscuits

and confectionery. Parle name symbolizes

quality, nutrition and great taste

Widespread distribution network, continuous product

innovation, large product portfolio

Diverse Service

Providers

ITC

To enhance the wealth generating capability of the enterprise in a

globalising environment,

delivering superior and sustainable

stakeholder value

Sustain ITC's position as one of India's most

valuable corporations through world class

performance, creating growing value for the

Indian economy and the Company's stakeholders

Developing a customer-focused, high-performance organisation which creates

value for all its stakeholders, constantly pursue newer and better

processes, products, services and management

practices, generate economic value for the

Nation

Portfolio of world class businesses,

benchmarking health standards, competitive advantage, nurturing

good talents and building strong top

management

Evaluation of Mission Statements: Parle Products

Does it include…? Does it mention values like…?

CustomersProducts/

Markets Citizenship TeamworkServices

Yes Yes Yes No Yes

Technology

Concern for

Philosophy Excellence Integritysurvival

Yes Yes No Yes No

Self-concept

Concern for

Employees

   

public image

No No No

Customer or product-oriented?

Combined

Evaluation of Mission Statements:ITC Foods

Does it include…? Does it mention values like…?

CustomersProducts/

Markets Citizenship TeamworkServices

Yes No No Yes No

Technology

Concern for

Philosophy Excellence Integritysurvival

Yes Yes Yes Yes No

Self-concept

Concern for Employees    

public image

No Yes Yes

Customer or product-oriented?

Customer oriented

Asia Company Mission VisionObjectives of the

companies Key success Factors

Low cost Provider

sMeiji Co. Ltd

Widen the world of tastiness and

enjoyment and meet all expectations

regarding “Health and Reassurance”

Continue finding innovative ways to meet

our customer needs today and tomorrow

Commit to customer based ideas, high quality, produce new value, be a transparent wholesome

company trusted by society

Customer centric, trend follower, work ethics, strong belief in team’s

potential

Diverse Service

Providers

Lotte

Enriching people’s lives by providing

superior products and services that our

customers love and trust

To spring as a global business group as well as ‘one of the top 10

global business group in Asia,’ which leads the

Asian region,Lotte proclaimed ‘Vision

2018’ and has been exerting

multidimensional efforts through the core

business reinforcement and expanded

overseas business weight, aiming at its

realization until 2018.

Strengthening core competencies, developing

talent, on-site management, enhancing

brand value

Customer focus, originality, partnerships, responsibility,

passion

Evaluation of Mission Statements: Meiji Co Ltd

Does it include…?Does it mention values

like…?

CustomersProducts/

Markets Citizenship TeamworkServices

Yes Yes No No Yes

Technology

Concern for

Philosophy Excellence IntegritysurvivalNo No No No No

Self-concept

Concern for

Employees    public

imageNo No Yes

Customer or product-oriented?Both

Evaluation of Mission Statements :Lotte

Does it include…?Does it mention values

like…?

CustomersProducts/

Markets Citizenship TeamworkServices

Yes Yes Yes No No

Technology

Concern for

Philosophy Excellence Integritysurvival

No No No Yes No

Self-concept

Concern for

Employees

   

public image

No No No

Customer or product-oriented?

Customer oriented

Europe Company Mission VisionObjectives of the

companies Key success Factors

Low cost Provider

s

Disney chocolates

one of the world's leading producers and

providers of entertainment and information. Using

our portfolio of brands to

differentiate our content, services and consumer products, we seek to develop the most creative,

innovative and profitable

entertainment experiences and

related products in the world

Continue finding innovative ways to meet

our customer needs today and tomorrow

Commit to customer based ideas, high quality, produce new value, be a transparent wholesome

company trusted by society

Customer centric, trend follower, work ethics, strong belief in team’s

potential

Diverse Service

ProvidersFerrero

Enriching people’s lives by providing

superior products and services that our

customers love and trust

To spring as a global business group as well as ‘one of the top 10 global business group

passion for excellence and reliability of our products

High quality, crafted precision, product

freshness, careful selection of the finest raw

materials, respect and consideration for our

customers

Q4. Conduct an External as well as Industry Environment Analysis for the industry in which the company (PESTEL and Porter's 5 Force Analysis) is operating. Identify the strategy of the company's closest competitor? Who are the complementors (company's offering complementary products or services) of the organization?

PESTEL ANALYSIS FOR NESTLE

1. Political Factors- Nestle is one of the largest wealth creators in India and is a globally recognised

country well known for providing nutritious and healthy products that include milk products, beverages, instant food and confectionery.

- Nestle support’s the Indian Government’s efforts to proliferate a healthy lifestyle in the society and encourage eating nutritious food.

- Nestle has created a huge product portfolio to cater to the government’s need of creating a healthier population.

- Increase in taxes will affect the high end nestle products like the milk products which serve the middle and upper middle class segment.

2. Economic Factors- Nestle has always been known for innovation and this has driven its organic

growth in both developed and developing nations.- Some of the best brands like KIT-KAT, MILKY-BAR, NESCAFE, MAGGI are a

inevitable in every households because of their value for money and quality.- Nestle collaborates with local governments to provide help to farmers in rural

areas to assist them in farming. The farmers are able to produce good quality crops and Nestle in turn gets the foods and raw materials at a cheaper price.

- The above strategy of Nestle helps consumers enjoy local taste as well which will come at a very low price.

- Also Nestle being in the FMCG sector, the probability of demand and supply fluctuations are very less

3. Social Factors- Ever since the foundation of Nestle, it has been a socially responsible brand. - In India, Nestle oversees and finances the provision of clean water in villages

schools benefitting some 20,000 school children- Nestle’s knack for achieving competitive advantage is combined with the motto

of “CREATING SHARED VALUE” and has become an integral part of its business.- It aims to create a greater value for all its stakeholders (which include the

society) in – nutrition, water and rural development. These factors have become core factors in the value chain of the company.

4. Technological factors- The company has always implemented the best of technologies to make its

plants more efficient. It has incorporated lean and JIT in its manufacttle uring processes. This has also allowed significant reduction to environmental impacts.

- Strength in research and development has been the driving forces in making nestle an innovative company.

- Nestle’s brands are part of a closer level engagements between the consumers which has been possible because of the new opportunities and new businesses that technology has been able to create

5. Legal Factors- Nestle’s products are manufactured and distributed under the strictest

conditions of hygiene.- The product always come with a seal of guarantee and cater to the international

standards of food production- Nestle’s mission of achieving nutrition, health and wellness is corroborated by

catering to best quality control techniques.6. Environmental Factors

- Nestle produces products specifically suited towards the region and as per the country’s environmental regulations.

- Nestlé defines sustainable development as "the process of increasing the world's access to higher quality food, while contributing to long-term social and economic development, and preserving the environment for future generations.

- Nestlé created the Sustainable Agricultural Initiative with other food manufacturers. The group defines sustainable agriculture as "a productive, competitive and efficient way to produce agricultural raw materials, while at the same time protecting and improving the natural environment and social/economic conditions of local communities".

PORTER’S FIVE FORCES ANALYSIS OF NESTLE

1. Threat of New Entrants- The food processing industry in vast and competitive. Many new companies

enter into this market targeting to get a share of the profitable industry.- Nestle as a food processing industry has been there since a long time(over a

century).- Nestle has been able to capture a large market share due to its inimitable quality

of products and consumer satisfaction.- It’s very difficult for a new entrant to capture a share of Nestle’s market to

survive.2. Threat of Substitute Goods

- There are wide portfolios of similar products that compete with Nestle which makes competition fierce.

- Nestle’s focus on Nutrition, Health and Wellness has helped it stay ahead of other substitutes.

3. Bargaining power of Suppliers- Creating and maintaining a positive relationship with the suppliers has been a

key aspect of Nestle’s core business.- Nestle’s suppliers are primarily farmers whom Nestle assists in farming and

harvesting the crops. Therefore Nestle is able to get its raw materials at a cheap price.

4. Bargaining Power of Customers- There are close substitutes of Nestle’s products which makes it easier for

customers to switch to other products easily.- Nestle has been incorporating health and wellness into its products as society

has begun to grow more health conscious.5. Competitive Rivalry With the Industry

- Rivalry is very in the food processing industry.- Pricing strategies of Nestle has to be dealt with very carefully as a slight increase

in the prices of the products will reduce the market share drastically.- Plethoras of competitors like Mondelez International, Parle, Lotte, etc are

present which makes it more difficult for Nestle.

Closest competitor of Nestle in the Confectionery Business – Cadbury India Limited

Business Strategies of Cadbury India

- Increase the product range of chocolate consumption through low price point packs and distribution focus.

- Increase depth of consumption, targeting regular chocolate consumers through generating impulse and a dominant presence at points of Sale.

- Maintain image leadership through superior marketing mix.- Be a significant player in the gifting segment, through occasion linked gift packs.- Build Critical mass in sugar business by introducing value-added sugar

confectionery products.

Q5. Write within 750 words each of the following:i. Comment on the History, Evolution, Growth Rate, Profitability Rate & Future of the Industry in which the Organization is operating. How has it been for Organization as well?

History and Evolution of the Confectionery Industry and Nestle

Confections date back more than 3000 years to the time of Egyptians; hieroglyphics have been found depicting the preparations of sweets. It was once a bitter drink used in Central America for its strengthening and aphrodisiac effects. It is now a sweet food appreciated in the whole world. It was once a precious foodstuff reserved for royalty and upper class. Now people from any horizon or any age can enjoy chocolate. But there is one point that has never changed throughout history: chocolate has always been a food that has raised a lot of passions. Nestle was founded in 1876 in Geneva Switzerland. It’s first product was “fareene Lacte Nestle”, an infant cereal. Nestle setup its first factory in 1961 in Moga district of Punjab. Nestle has now 511 factories in 86 countries in the world and in India it has 7 factories. Nestle’s chocolate and confectionery contribute 15% of its revenues and are targeted at delighting the senses of the consumers with a range of tastes and textures. The major confectionery brands of Nestle are Kit-kat, Munch, Milky Bar and Eclairs. Nestle has become the market leader in Wafers and White confectionery products. With an employee-strength of over 3000 and turnover of US$ 497 million in 2003, Nestle India is one of the leading companies in the FMCG space in India. The company is acknowledged amongst India’s ‘Most Respected Companies’ and amongst the ‘Top Wealth Creators of India’.

Growth Rate

Revenues from the chocolate industry continue to prove rewarding, with 2011 figures from IBIS World predicting annualized growth of around 2% over the next five years, after dampened expectations during the dark days of 2007-09. Revenues have remained resilient despite a recessive global picture, falling disposable incomes, volatile commodity prices and increasing competition. Chocolate is often described as recession-proof. Revenues over the past few years would seem to back this hypothesis, although year-on-year growth remains relatively sluggish and the spectre of volatile input prices continues to cast a shadow over future projections. Although the global market is still dominated by Western Europe and North America, emerging markets clearly represent the future. The BRIC countries (Brazil, Russia, India and China) accounted for55% of global confectionery retail growth in 2011. Other emerging economies with youthful populations and an acquisitive middle class are likely to develop a taste for chocolate and, as their disposable incomes grow, they will represent important target markets.

Profitability Rate

The global gum and cereal bars confectionery industry experienced good growth during 2007-2012; however, over 2013-2018, growth is expected to be moderate driven by introduction of new products to boost industry profitability and impressive marketing strategies. The industry is forecast to reach $31.9 billion by 2018 at a CAGR of 4.3% through 2018. Industry competition is high with numerous players in the market. During the first half 2004, NESTLE registered a total income of US$ 257.8 million and net profit of US$ 23.73 million. Nestlé India is a 61.85 per cent subsidiary of Nestle S.A. Switzerland and was incorporated as a limited company in 1959. Milk products and nutrition account for around 45 per cent of Nestlé India’s total revenues. The company’s beverage products generate 22 per cent of the company’s total revenues, while prepared dishes and cooking aids generate

18 per cent, and chocolate and confectionery 15 per cent.

Future of Confectionery Industry and Nestle

Taste is diverging, as fast-growing economies and empowered consumers demand more from their products. For industry stalwarts, the requirement to offer local, highly tailored and increasingly diverse products represents a serious threat to market share. Spotting the markets that are likely to grow quickly will make the difference between the winners and losers of tomorrow’s chocolate landscape. According to official government figures, current hot spots include India (annual growth rate 15%), China (9%), Russia (6%) and Mexico (3.8%). They all exhibit a number of key factors that help them stand out from the pack, including a youthful population, rapid capital inflows and retail consolidation. Nestle aims to create value for consumers that can be sustained over the long term by offering a wide variety of high quality, safe food products at affordable prices.

ii. Size of the Industry across the world and the country where the organization is operating.

Russia: Russia is one of the most promising emerging economies for chocolatiers. The market is worth more than US$8bn and is expected to grow 45% by 2016.Asconsumersmove up the value chain; artisan manufacturers begin to stake their claim.

China: Widespread lactose intolerance has made for a slow start in China, but chocolate sales have risen 40% since 2009. Lindt claims in its annual report that the market is growing 30% a year. Premium products are popular, with over half of all sales bought as gifts.

Japan: At US$11.4bn, Japan is the largest Asian market. Domestic artisan companies are flourishing but foreigners can find it hard to gain a foothold. Nestlé’s Kit-Kat brand is the exception, appealing to consumers with 200unusual flavours and special editions.Middle East and North Africa: The Middle East/North Africa market is expected to reach US$5.8bn by 2016, up 61% on today. Almost every part of Africa is growing: South Africa is the biggest market, but sugar confectionery is still 22% more popular there than chocolate, says Leatherhead Food Research.Nestle is the market leader in Middle East and Africa in the confectionery business thanks to its solid foundations set by its manufacturing footprints, strong brands and talented people. It has a presence of over 100 years in the continent and 6% of Nestle’s revenues come from Africa only.

India: India has always had a sweet tooth, and chocolate is fast becoming its favourite treat, ahead of sugar candy, with an annual market growth rate of 15%. Cadbury’s now owns 70% of the market, introducing innovative products that can survive in the extreme heat.Nestle has a 21% market share in India and 15% of its revenue comes from confectionery.

Global Market share by Region Western Europe - 32%North America – 20%

Asia – 17%Latin America – 13%Eastern Europe – 12%Middle East and Africa – 4%Australasia – 2%

Source: Euromonitor.com

iii. Key success factors for any organization operating within the Industry and how is your organization performing on those criteria.

Key Success factors

1. Sustainability: Food origin is an increasingly important driver for consumer purchasing decisions in more developed markets, particularly at high-end retailers. Mary Nanfelt, Analyst at IBIS World, says: “Americans in particular are becoming more socially conscious in their choices, buying chocolate from sustainable and organic sources.” Globally, use of Fairtrade cocoa has risen dramatically over the last few years, and smart phone users can even download ethical shopping apps. Nestlé defines sustainable development as "the process of increasing the world's access to higher quality food, while contributing to long-term social and economic development, and preserving the environment for future generations". Nestlé tries to be a genuine partner in sustainable development. Nestlé created the Sustainable Agricultural Initiative with other food manufacturers. The group defines sustainable agriculture as "a productive, competitive and efficient way to produce agricultural raw materials, while at the same time protecting and improving the natural environment and social/economic conditions of local communities".

2. INNOVATION: As consumers become ever more demanding, innovation is crucial to market share. And personalization is likely to be the next consumer-driven revolution in the industry. The next logical step is for consumers to design chocolate bars that cater to their unique palate. Nestlé is leading the pack in this area. The culture of innovation and renovation, continuous improvement and the thrust on value-for-money and affordability have helped the company to focus on adding value for the consumer. Nestlé Group’s Proprietary technology/brands, expertise and the extensive centralised research and development facilities have helped the company be a leader in research and development.. The culture of innovation and renovation and benchmarking of consumers’ tastes and products is facilitated in the company by the unique “Experimental Kitchen” and “Sensory Laboratory” at the Head Office.

3. Thrust on Supply Chain: During the past few years, Nestle India has continuously focused on improving the supply chain to reduce wastage, improve efficiencies and provide consumers with fresh stocks all the time.

• Reduction in the finished goods inventory pipeline to improve freshness of stocks and reduce working capital

• Control on distribution costs through innovative measures• Sustained improvement in customer service levels to improve product availability across all geographies and channels • Reduction in obsolescence of materials.

The company has continuously focused on operational efficiency; improving product availability and visibility and initiated efforts to make its products more relevant to the consumers. This has been supported by the distribution of smaller stock-keeping units (SKUs).

4. Health: Although many consumers view chocolate as an occasional treat and don’t obsess over its effect on health, fat is becoming a major issue for manufacturers. So-called ‘fat taxes’ are threatened in a number of major economies, including the US and the UK, while European countries such as Denmark and Hungary have already introduced surplus taxes on unhealthy food. An increased emphasis on healthy lifestyles is an imperative for governments facing rising healthcare costs, particularly in developed economies that are battling childhood obesity. With the world’s largest private nutrition and food research capability, Nestle is continuously creating nutritional value and health benefits across our product range. Nestlé's science-based solutions are helping to address global nutrition challenges such as vitamin deficiency and obesity. Through partnerships and programmes such as Nestlé Healthy Kids, it seeks to generate greater awareness and understanding.