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ASSIGNMENT:MANAGERIALECONOMICS

INTRODUCTION

Nestle is an international corporation that produces a variety of products including food, beverages,and pharmaceuticals that amount to over 8,000 in all . The company was founded in 1867 in Vevey,Switzerland and has facilities worldwide. In fact, Nestle is the worlds largest food company with479 factories and over 200,000 employees worldwide. Nestl is committed to providing people

around the world with the best food and increasing their quality of life. The current CEO of Nestl,Peter Brabeck, has been with the company since 1968.

The primary corporate objective of the Nestle Group is to create values for the internal and external

market environments that will be sustainable in the long-term. The environmental management

responsibility adopted by Nestl incorporates an integrated approach through the supply chain

process for preserving the environment (i.e. minimizing waste products, raw materials produced

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from sustainable methods, etc.), a focus on the preservation of water resources, and systematic

management that describes targets and performance measures for the future.

OBJECTIVES:

y Nestle's business objective is to manufacture and market the products in such a way as to

create value that can be sustained over the long term for shareholders, employees, consumers

and business partners.

y Nestle does not favor short-term profit at the expense of successful long-term business

development.

y Nestle recognizes that its consumers have a sincere and legitimate interest in the behavior,

beliefs and actions of the Company behind brands in which they place their trust and thatwithout its consumers the Company would not exist.

y Nestle believes that, as a general rule, legislation is the most effective safeguard of responsible

conduct, although in certain areas, additional guidance to staff in the form of voluntary business

principles is beneficial in order to ensure that the highest standards are met throughout the

organization.

y Nestle is conscious of the fact that the success of a corporation is a reflection of the

professionalism, conduct and the responsible attitude of its management and employees.

Therefore recruitment of the right people and ongoing training and development are crucial.

y The company continues to maintain its commitment to follow and respect all applicable local

laws in each of its markets.

PRODUCT DIVERSIFICATION:

NESTLE produces different types of products such as chocolates, coffee, ice creams, milk powders

baby food, drinking water, fast foods, breakfast snacks and many other products

Baby products:

CERELAC:

Cerelac is a nutritious, complete meal providing essential and vital nutrients forhealthy growth and development of babies.

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NESTUM: Nestum Infant Cereals provides baby with the best nutrition for healthy growth and

development.

MUCILON:

Mucilon was introduced in Brazil in 1956 and is still the strongest infant cereal brand

in the market.

GERBER:Gerber is one of the most trusted names in baby food and baby care. Since 1927,

Gerber has been committed to promoting good nutrition and healthy eating habits forchildren.

CHOCOLATES: Nestle produces variety of chocolates basing on different tastes of its consumers.It

produces different chocolates all over the world.

Kit KatDelighting chocolate lovers all over the world, Kit Kat has become a favorite chocolate treat thanks to its

light wafer texture and delicious chocolate taste.

AERO:

The bubbles of Aero chocolate offer an effortless way to enjoy the intensity of purechocolate pleasure.

BACI:

Baci is the most famous chocolate brand in Italy,it is a very old chocolate.

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CAILLER:Created back in 1819, Cailler is one of Switzerland's oldest chocolate brands

Some things you just don't outgrow - this unique combination of rich milk chocolate

and crisped rice is one of them.

ORION:

Much loved chocolate brand among Czech and Slovak consumers.

TORONTO:

With a delicious indulgent hazelnut centre, Toronto has represented a unique gifting

experience in Venezuela since 1949.

KITKAT:Delighting chocolate lovers all over the world, Kit Kat has become a favourite chocolate

treat thanks to its light wafer texture and delicious chocolate taste.

SMARTIES: The delicious nibble everyone loves! Nestl Smarties are a colourful

sugar-coated chocolate confectionery popular in countries such as the UK,

Germany, Australia, South Africa and Canada.

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DAIRY PRODUCTS:

CEREVITA: Best in class nutritious, healthy and tasty cereal solutions forall the family.

COFEE MATE: Coffee-Mate makes your coffee taste great, and, it's lactose

and cholesterol free.

NIDO: The NIDO brand offers a complete range of milk and milk based

products that provide nutrition solutions for different needs of children all over the world.

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ICE-CREAMS:

NERO: Vanilla custard ice cream with a base of cocoa and pieces of

caramelised nuts, covered with pure dark chocolate coating in a stylish lookingstick

DRUMSTICK: With its appetizing and attractive appearance, Drumstick is a

carefully constructed balance of diverse tastes, textures and colours, culminating

in an intense chocolate tip.

MAXIBON: A crazy hybrid ice cream experience that brings together anassortment of tastes and different textures.

COFFEE

NESCAFE: Enjoy the perfect mix of coffee, milk and sugar in an easy way.

NESCAFE DECAFF: Nescaf Decaff gives you all the great taste and rich aromayou'd expect from Nescaf but without the caffeine.

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CAPPUCHINO: Cappuccino is deliciously frothy and creamy tasting

NESCAFE GOLD: The premium choice from Nescaf for your special cup ofcoffee every day.

NESCAFE TAKUMI :

Ready to drink coffee with real coffee properties.

BOTTLED WATER

AQUAREL: Aquarel natural spring water offers a light and pleasant taste for thewhole family.

ARROHEAD:Arrowhead mounHtain spring water offers naturally great-tasting bottled water tofit every occasion in your life.

DEER PARK:Since 1873, people have enjoyed the crisp taste of Deer Park originating fromcarefully selected springs in the east of the United States.

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ICE MOUNTAIN:This natural spring water brand popular in the Midwest of the United States, takes

its name from its exceptionally crisp, clean, and refreshing taste.

PURE LIFE:Nestl Pure Life is now present in 21 countries around the world, and is Nestl

Waters' biggest bottled water brand.

FAST FOODS

MAGGI: Quick and easy solutions that taste great and help you bring out the best

flavours from fresh food.

BUITONI:Dedicated to using the highest quality ingredients to make delicious pastas andsauces, Buitoni is one of the few remaining big Italian food brands with a rooted

expertise in Italian cusine.

HOT POCKETS:The No. 1 frozen stuffed sandwich in the USA.

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BREAKFAST FOODS

CARNATION INSTANT BREAKFAST:Carnation Instant Breakfast has its roots in the 1960s, when lifestyles were

becoming increasingly hectic. Now, its popularity continues to grow, and our

dedication to fulfilling the needs of this decade's especially demanding lifestyles

is more focused than ever

CINI MINIS:With cool swirls on every piece, Cini Minis breakfast cereal has a delicious

cinnamon taste that you can see!

CHEERIOS:

Multi Cheerios is a great-tasting four wholegrain breakfast cereal which wholefamily can enjoy.

PET CARE

DOG CHOW:

Purina Dog Chow is the fourth largest dry dog food brand in the world.

FANCY FEAST :

Fancy Feast brand cat food combines all the nutrition your cat needs with the

refined flavour your cat demands.

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FELIX:

Irresistably tasty cat food for loveable, mischeveous little rascals.

FRISKIES: Purina Friskies gives your pet everything she wants great taste,nutrition and an unmatched selection of flavors and forms.

GOURMET: Cat food for the feline connoisseur.

HEALTH PRODUCTS

NUTREN: Nutren is a range of products and nutrition solutions that address

the needs of people actively managing health concerns such as diabetes and

ageing.

OPTIFAST: A comprehensive, medically monitored program, Optifast is aserious solution for weight loss.

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PEPTAMEN: Peptamen has been specifically developed for the dietarymanagement of patients with impaired gastrointestinal function.

DRINKS

MILO: Stay energised throughout the day with the six essential vitamins and

minerals in Milo.

BOOST: Boost is an excellent source of many key nutrients for those who areunable to consume appropriate nutrients from solid foods alone.

PERRIER:The ultimate refreshment to quench all thirsts

REASONS FOR DIVERSIFICATION: Historically, Nestl has maintained a relativelynarrow range of products, with food and beverages occupying their main business focus. In theearly 1970s however, Nestl began exploring the possibilities of diversifying its product

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base. Around this time, the company took an interest in LOreal as strategic participation and

currently owns 26.3%.

In 1977, Nestl truly began to diversify by acquiring Alcon Laboratories Inc., a leader inpharmaceuticals for eye care .Alcon Laboratories Inc. is averaging about $2.4 billion in sales

compared with about $275 million when it was acquired. More recent acquisitions include SpillersPetfood and Nestl Philippines Inc. in 1998 and Ralston Purina in 2001. One of the companys only

divestments was Findus brand frozen foods with 15 plants divested in Europe.

The most common motivations for diversification include growth, profitability and riskreduction. In the case of Nestl, growth and profitability are the main drivers of diversificationstrategy. Nestls approaches for increasing growth are geographic expansion, innovation andrenovation and channel growth . In terms of geographic expansion, the management of Nestlsbusinesses in the food industry takes place in three geographic zones: Europe, the Americas, andAsia, Oceania and Africa (AOA). The business activities in water and pharmaceutical products are

managed on a global scale.

Nestl has a variety of brands representing the different product sectors in which itoperates. Nestls six strategic brands include Nestl, Nestcaf, Nestea, Buttoni, Maggi, andFriskies. The most successful brand is Nestcaf. The company is more concerned with the priorityand strategic brands than with the total number if brands. Some of the benefits received fromhaving these brands are the loyalty of the consumer base and the ability to command a pricepremium. The different product sectors in which Nestl operates are beverages, confectionary,

diary, ice cream, nutrition, pharmaceuticals, water, and food services.

In 1997, Nestl established a four-pillar strategy to improve all aspects of business, from the supplychain to consumers . The four pillars include innovation and renovation, consumer communication,product availability, and operational efficiency. Innovation and renovation is mainly implemented

through marketing and research and development. Within this strategic pillar, synergies are createdso that inventions are applied across diverse product lines. The strategy to maintain consumercommunication focuses on building brand loyalty. Product availability, which is motivated bymaximizing sales, is realized by ensuring the distribution of the best products for consumers.

CONSEQUENCES

Nestle generates operates worldwide with a focus on European markets, which make up 70 percent of

its sales. These markets are in the mature state of life cycle of that industry and additionally

demographic changes such as the stagnation of population growth rates make it very hard companies

like Nestle to generate higher profits through higher sales. As a matter of fact the western economies

are actually facing a downturn in output and growth, thus influencing the consumption patterns of

customers, especially in the retail business. Consumer are becoming more price aware and tend to

spend less while demanding at the same time for customisation, product differentiation and

specialization. Another trend is the shift away from branded food and beverages towards cheap non-

branded foods and beverages. Nevertheless, the introduction of non-brand own labelled products such

as Food Lion offers only makes sense in a large scale in order to achieve economies of scale. As a result

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of increasing non-brand cheap products offered by rivals, Nestle find itself in an even more embattled

market and needs to develop a new strategy either away from branding or towards a higher degree of

international market penetration. Since Nestle stands for high quality and has distinctive competencies

in producing higher quality food, it would not make sense to change the strategic group, because it

would most likely get stuck in the middle. The right strategy is to expand into new markets such as Asia,

Eastern Europe and South America. Logically, in these markets the consumer behaviour, macroeconomic

environment and cultural habits are different in contrast to western economies. Most of these markets

are yet in a growth cycle and this clearly generates an opportunity because they are emerging markets

and untouched. As mentioned in the text book China for instances will inhabit 700 million people by

2010 who will have nearly the same income levels as Spain has today. While income levels in these

emerging markets will increase, people will gain a higher purchasing power with unsatisfied demands.

Serving this demands is the right opportunity for Nestle to penetrate new markets, build up market

share while at the same time using its profits to defend its old markets in the western economies

through low prices. Concluding, I am strongly convinced that expanding into new markets is necessary

for Nestle if it wants to stay a global player in the 21st century.Nestle follows the first mover advantage

strategy which meansthat the company enters in an early stage the emerging markets, in order to

establish a network there before competitors such as Unilever do so. The first step they make is to

establish a substantial position by selling basic products such as infant formula and condensed milk tothe customer with the goal to build up commending positions in each niche. In order to save the costly

process of establishing a brand name, Nestle simply purchases local brand names which the consumer is

accustomed to. This helps the company to overcome cultural barriers and customer resentments to

foreign brands. After these niches of basic food supply are filled Nestle moves on into the more upscale

segments such as chocolate, soft drinks and the like. Their strategy is to establish a basis and then

expand into more niches as demand rises. Connected to the rising demand is the rising income level as

the population can afford to spend more money on food products. As mentioned in the book, Nestle

provides about 8500 brand names, but only 750 of them are registered in more than one country and

only 80 are registered in more than ten countries. This is due to the fact that Nestles strategy is based

on a broad range of local brand names which are not entitled as Nestle. The company uses that

approach in order to the convenient fact that the consumer is easier to reached because he isaccustomed to this brand name and they think they know what they are buying. Consequently,

marketing is easier and les costly because a reputation, a distribution channel and customer loyalty

already exits for that product with that brand name. As a result Nestle can focus its distinctive

competencies on product improvement and technological aspects such as process innovation.