A Research Of Nestle Business Performance
Today, the biggest company in food and beverage industry in the world, NESTLE, a company which has more than 150 years background history, was founded in the year 1866 by a man named Henri Nestle. In the year 1867, the company launched their first product in Switzerland which is a nutritious gruel specially desire for children. The company logo and name, meaning as ‘little nest’, symbolizes ‘security, family and nourishment’, comes from Henri’s Surname.
Started from 130 years ago, NESTLE became the largest food company in the world with the successful of product innovations and business acquisition. Until now, NESTLE still continues expanding its product portfolio such as chocolates, cereals, yoghurts and even expand to pharmaceutical and cosmetics products. Today, NESTLE operates factories in most of the countries in the world.
PESTEL Analysis
P – Political Factors
The political changes might be the most unpredictable changes in business environment. Such as changes in regulation, and the decisions that will impact the economy.
The changes of regulation affect most of the companies. Of course, it is also unavoidable by Nestle. Any regulation changes and marketing actions related to food products give an impact to Nestles products. For example, if a country decided to prevent selling of high sugar products like chocolates, kids breakfast cereals due to increase of diabetes rate, Nestle might need to stop selling or change the product recipe to continue selling them in that country.
Besides that, the economy impact from government decisions such as adjusting the tax like tariff rate will increase the cost of the products. If a tariff increase, company has to make their decision to absorb the tariff which impact directly to the company’s benefit or adjusting the product price which may affect the customer’s decision to buy the product.
E – Economic Factors
Economic factors, an element in PESTEL related to how goods, money and services impact to the company business. Recession and inflation can give a direct impact to the company revenue.
Both recession and inflation change buying attitude of the customers depends on their purchasing power. During the economy recession period, low demands cause business revenue decrease. Many company try to reduce wages by reduce the employee numbers and keeping wages by stop hiring new employees which increase unemployment rate. Hence, with lesser job supply, people tends spend less and it affects the volume of the goods sold. Next, inflation increase the goods price, which lowers the purchasing power of the consumers, also brings the same effect as economy recession.
S – Social Factors
Social factors including the study of the social, cultural change that affect the business change. For food and beverages industries, social always have the health consciousness to the products. Other than that, family structure change and also beliefs can affect the sales of the food products.
Nowadays, increase of health consciousness makes social make the preferences to the healthier food products. When choosing the food products, people will more likely choose the less sugar products due to too many sugar can lead to diseases like diabetes. Other than that, nutrition contains of the food products also always take into consideration when purchasing the food products.
Family structure change, like the family with more kids will prefer prepare food at home than eating at the restaurant to reduce family spending in the same time maintain the relationship among family members. Other than that, most of the family will insist prepare breakfast even they have to rush for work after sending the kids to the school because they believe a good breakfast give helps their kids do better at the school.
T – Technology Factors
Technology factors relate to the existence and development. It affects the efficiency of the day to day operation. Automation can increase the production speed and reduce day to day operational cost. Other than that, technology advance like internet connectivity has change the way of consumer purchase.
As a manufacturer of packaged food and beverages, it requires a lot of human resources in the production line due to high volume of productivity. Machine can automate most of the unskilled tasks and works faster and lesser mistakes. It can replace workers in the production line to perform the repeating job well which can reduce day to day operational cost like salary at the same time increase the productivity drastically .
Internet connectivity provides opportunity to most of the companies. Nowadays, more people started to purchase online due to its convenience. Moreover, internet connectivity makes the products like advertisement, launching of new product, promotions can be deliver to customers more easily, with a cheaper cost compared to social media like television advertisement.
E – Environmental Factors
Environmental factors also bring impact to the business. I may seem not impact so much to the business, but once it happens, it can create huge loss to the business, or even stops the business from running. Nestle needs natural resources like corn, wheat and coco to produce their products. Without these resources, all the products related to these resources cannot be produce. Climate, weather and pollution will affect these natural resource’s quality and productivity.
Climate and weather change brings a short term impact to the business. When the supplier’s region encountered climate or weather change which will affect the productivity of the resources, Nestle can still find the supplies from other regions. But, if the pollution affects the amount of natural ingredients supply, it can cause the ingredients price changes, which affects the productivity cost.
L – Legal Factors
Legal factors are factors that affect business which are cause by law and regulation of the countries. For example, consumer laws and employment laws can affect company procedures and operational flows.
Consumer law is a low that desire to protect consumer rights in the marketplace. Most of the countries will enforce company list down the detailed information of the company products. It exposed the ingredients used to create food products to the competitors.
Employment law define how should company treat the employees, including the salary. For example, if the government enforced to increase the minimum wages must pay to a production line worker, the company daily operational cost will be affected.
Porter’s Five Forces Analysis
Competitive Rivalry
The food industry is always a big piece of cake due to it can get the customer anywhere. Hence, every company put their all might to get the largest share in the market makes the competition becomes fairly strong. The target customers are different for every company in food industry, it can be focus on kid food product, breakfast products and many other categories. Nestle have to compete with some big companies such as Kellogg’s and Group Danone which selling similar products like breakfast cereal. Even with more 150 years background history, as a biggest company in food industry, Nestle still facing big challenge to compete with these firms. These firms holding certain amount of market shares and they can have a chance to surpass Nestles market share value. Hence, the thread of competitive rivalry is high.
Threat of New Entrants
Today, diversification of food industry makes the new entrant harder to enter into the industry. The new entrants have to compete with current market players, which hold the majority of market shares. Not only from that, the existing market players understand well of the consumer needs with the years of experience, customer’s feedback and also the statistic of research. They have created a loyal customer base over time and consumers are not easily to change the daily brand if they still satisfy with current products. Although there are large number of new entrants enter the industry every year, but not many of them successful grab the market share. Lastly, the existing companies can produce and deliver the products at a lower cost which comes from their distribution networks and economies of scale that already developed for years. Hence, the thread of new entrants is low.
Bargaining Power of Suppliers
Nestle supplies huge amount of food products due to its huge customer base. Therefore, Nestle always an ideal buyer for the suppliers. Suppliers will rarely bargain the prices because there is always someone else waiting for the chance to supply to Nestle with lower price. Nestle keep the business relationship in long term with its suppliers to ensure the ingredients quality. Not only for that, suppliers have to sign a contract with Nestle to ensure they will keep the quality of the raw materials provided. Hence, the bargaining power of suppliers is low.
Bargaining Power of buyers
Due to the strong competition between the rivalries in the food industries, with the various choices of the brands, the bargaining power of buyers is high. The consumer needs very low or no cost just to switch to other brands. Nestle have to make sure the customers remain satisfy with the products, or else once the customers switch the brands with dissatisfaction, Nestle will hardly to get the customers back again.
Threat of Substitutes
Since Nestle is inside the food industry market, many products of Nestle, such as cereals, chocolates, milks can easily be substitutes because consumers have various kind of choice of brands with the same products. Other than that, the increase of public health awareness also led to the substitutes to certain products of Nestle to other healthier food, such as fast noodles. Since many years ago, Nestle strives to make its product in healthier aspects to tackle the substitutes. Hence, the threat of substitutes is high.
Four Strategic Recommendations
From the research above, there are some recommendations for Nestle to make the business better:
- Automate the production process
- Make good use of current internet technology.
- Increase the healthy aspects of the products.
- Increase company uniqueness among the competitors.
Nestle provides daily consumption products to people around the world, hence it requires massive amount of productivity to supply for the demand. Automate the production process not only reduce the daily operational cost, but also increase the productivity drastically. Other than, automation can reduce the possibility of errors causing by human mistakes.
Secondly, today’s internet technology boom creates opportunities to most of the business. It has the ability to spread the information effectively among people. People will share the information over the internet if they found something interesting. Nestle can grab this opportunity, create some activities that attracts people to participate, like create a contest over the internet with rich prizes to make the company more well known among people, at the same time keeping people remind on the company.
Next, people today are more concern about the healthier lifestyles. A product with only good taste with no good nutrition contains will be less likely to be consider by consumer nowadays. For example, people having the fast noodles as meal because of its convenience, the bad rumours about the fast noodles make most of the people resist to having fast noodles as a daily meal. Nestle can research to increase the nutrition contains of their fast noodle products to change people’s perception that fast noodles is not good for health.
Last but not least, due to the massive choice of similar products in food industry, having the acquaintance is not just a factor to make a company success. There are always other companies that are also having high familiarity among the consumers. Hence, unique among the similar products is important. It gives people more reasons to choose your products among the similar products in the market. For example, if Nestle can shows people that their fast noodles and chocolates is delicious in the same time makes them healthier, definitely, more people will choose Nestles when they buying fast noodles and chocolates.
Conclusion
Nestle having the advantage that strong brand recognition. It also have massive loyal customer base around the world. Although it has a big advantage in the market, but if Nestle stops improving themselves to remains competence in the market, it can be easily substitutes by other competitors. Just like Nokia, the largest cell phone manufacturers in the world in the past, has failed in the market today. They are too confident with their own brand, reluctance to change and less innovative after succeed in the market makes the company fall behind, from world’s dominant brand until now being eliminated. Nestle has to always remind themselves from the lesson of Nokia’s falling, keep improving and innovating their product to make themselves remains on the top of the market share.
References
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