Nestle Market Analysis and Marketing Strategy

Nestle is one of the largest companies in the world in the drinks, food and snacks industry. The Swiss company, though renown worldwide for its chocolate, has successfully transformed itself into a truly global force in the food industry with expansion to other areas of the industry such as baby foods, beverages and frozen foods. Currently, the company which owns more than 2,000 brands employs around 340,000 employees and operates in more than 180 countries worldwide. The company started out in 1905 from a merger as a milk company specializing in infant formula products and condensed milk products and has since grown to be one of the largest international food companies and the clear global leader in the sector in terms of revenues and profitability.

Nestle is one of the largest companies in the fast-moving consumer goods (FMCG) sector and is the market leader in several of the sector’s markets, especially with revenues in consideration. The FMCG sector is currently dominated by companies in the snacks, food and beverages industry (Consultancy.uk, 2015). These companies include Nestle, Tyson Foods, Coca-Cola and Kraft Heinz.

The company has seven verticals namely liquid and powdered beverages, confectionary and cookies, ready prepared and cooked foods, dairy products, chocolate, drinking water and pet care. Even though the FMCG sector in large, there are a lot of players in the sector of all sizes and the competition is stiff since there are many international players in the market. In order for the company succeed in such a highly competitive sector, it must adopt effective marketing practices (Pride, Ferrell, Lukas, Schembri, & Niininen, 2015). Among the stiffest competitors facing Nestle are Procter & Gamble, Kraft Heinz, Coca-Cola, Unilever, Kellogg’s, Danone and PepsiCo.

BCG analysis

Given that Nestle is a company with both multiple products and it operates in multiple categories, BCG analysis is essential in order to better understand the company’s markets and better manage its business portfolio and to come up with an effective marketing strategy and plan (Pruschkowski, 2018). To gain a better understanding of Nestle, its BCG analysis should be done both by taking into consideration both its verticals and products.

In the liquid and powdered beverages, confectionary and cookies, chocolate, ready prepared and cooked foods and dairy products verticals, Nestle is a star, enjoying large market share and great opportunity for growth. In the pet care vertical, it is a question mark since Nestle has a small market share of a high growth market while the water vertical is a dog due to low market share of a highly saturated market that features both international and local players in each of their target markets.

Nestle has a wide range of products in its various verticals in different stages of the product pipeline (Immonen & Saaksvuori, 2008). In the liquid and powdered beverages sector, Nestle has two main products in the powdered beverages market, Nescafe and Nespresso, with Nescafe being a cash cow and Nespresso being a star. In the ready prepared and cooked foods, the Maggi brand, especially Maggi noodles, is a cash cow while in the bullions and dried food, the Maggi brand is a star, with its major competition being the Knorr brand from Unilever. In the chocolate vertical, KitKat and Munch are the main products from Nestle falling in the star category given that although the competition is stiff, the market segment has huge potential for growth and the company is in a position to increase both market share and revenue.

In the pet care vertical, the most known brand from Nestle is Purina, which also falls in the question mark category like the pet care vertical since there is high growth in the segment although it doesn’t enjoy dominant market share. In the water vertical, the company has many brands including Poland Spring, Perrier and Vittel, all of which can be considered to be in the dog category of the BCG matrix with low prospects for growth and attaining dominant market share.

PESTLE analysis

Given the understanding of the company’s product portfolio and the understanding of how it various products are positioned and performing in their markets, the next step is to carry out PESTLE analysis. The knowledge and insight from BCG analysis is used in determining how various external factors that can affect a business are to be handled in order to minimize business risks, leverage emerging opportunities and gain better insight in the business’ environment in a cost effective manner (Campbell, 2015). These are namely political, economical, social, technological, social and environmental factors.

There are many political factors that Nestle must take into account in its different markets. These include taxation, laws and regulation and compliance with various laws and regulations from different regions, governments and regulatory bodies and various import and export duties among other factors. Additionally, it must also account for global changes in the political landscape and regulations as well as regional political stability in its market.

Economic factors are important in determining the viability of both current and new markets, given that most of their target market is the middle and upper classes with enough disposable income to buy branded products. Additionally, economic factors play a huge role in price determination for their various products, which is critical in determining revenues, profitability and competitiveness of the products. Given the large scale of the company’s operations, changes in the prices of various inputs and expenses and market conditions like fuel cost and inflation also have a huge impact on the company’s bottom line and must be accounted for when strategizing and planning.

Social factors have a large bearing on the opportunities and threats that face businesses and this is especially more so in the FMCG sector and the food industry in particular. These factors include the local culture, values and norms, fashion and lifestyle among other social demographic patterns and trends. Social factors are important in determining emerging markets, detecting the change in customer preferences, cultural differences in various markets as well as current and future consumer behavior and psychology. This knowledge is essential in determining how a business reacts to the ever changing business environment in order to maximize their returns while minimizing their risk.

Technological factors

Technological factors play an important role in changing business environment, creating disruptions that can pose both challenges and present new opportunities for businesses. Various advances in technology can affect any part of the business including production (new product developments like using 10% less sugar without changing the sweetness of products), logistics (determining more optimal ways of delivering products to the end consumers) and marketing (rise of social media and other online channels) to name but a few. By being aware of technological changes in the industry, Nestle is better positioned to leverage new technology in a cost effective manner to meet business objectives and delivery quality products to diverse consumer markets.

Legal factors have a very important bearing on the operations of any business since it determines at the very least of a business can carry out its operations in a given jurisdiction. Such factors include licensing, obtaining various required permits, auditing and compliance with various standards. Additionally, business in food industry not only have to comply with rules and regulations that affect other business but also comply with regulations set by other governmental and controlling bodies like food and health safety laws and regulations. All these factors play an important role in determining how favorable or unfavorable the operating conditions directly attributable to the actions and policies of external stakeholders with authority are for the industry in general and a business in particular are.

Environmental factors can also be favorable on detrimental to a business’ operations. Some of the factors like extreme weather conditions can have impact on several areas of business operations e.g. by making inputs or transportation costs more expensive, environmental regulations affecting business operations for example in packaging or affecting sales as customer preferences change with the weather. Additionally, consumers the world over are increasing more environmentally conscious and using their purchasing power to reward and punish businesses based on the environmental practices. Nestle must also take into account the diversity in the physical environment they operate in and the different rules and regulations of different regions.

Of all these factors, social factors are the ones most likely to affect Nestle. The company has a wide presence in many countries and regions, which means they have already been exposed to different political, legal and environmental factors of the regions they already serve. The company has shown its innovativeness in dealing with different economic factors in various regions e.g. by offering small packing in lower middle income countries and combining both prestigious brands that can command high price with brands that compete on price depending on market conditions. Although the company fairs well in dealing with social factors e.g. using local ingredients and taking local tastes into account, this is an area they could improve and likely to pose the most challenges due to the ever changing preferences and demographics of any society.

Nestle liquid and powdered beverages vertical analysis

Given the wide range of verticals and products that Nestle offers, it is important to approach the products and their vertical separately even when developing a holistic marketing for their product portfolio (Aerk, 2009). The focus shall be on the largest contributor to Nestle in terms of revenue generation, the liquid and powdered beverages vertical, as shown below for revenues for the year 2017 (Statista, 2018). Special emphasis will be on powdered beverage products like Nescafe and Milo, the main offering from Nestle against its competitors and a focus on Milo, its flagship brand in the powder cocoa/ chocolate segment.

Competitor review

Understanding the competition facing a business is critical not only for marketing purposes but also affects the strategic management of a business (Fleisher & Bensoussan, 2015). In the liquid and powdered beverages vertical and especially in powdered beverages, its main competitor is Kraft Heinz. While Nestle dominates some of the sectors of the powdered beverages with brands like Nescafe (instant coffee segment), Kraft Heinz is the market leader in others with brands like Cadbury drinking chocolate (powdered cocoa/ chocolate segment). The company is facing stiff competition from Kraft Heinz especially in the cocoa/ chocolate and coffee market segment. While at first glance Coca-Cola may appear as a direct competitor to Nestle in the vertical compared to other companies, it offers alternative products in the vertical but its target market is cold beverages while Nestle product in the powdered beverages market segment are in the hot beverages category, where Kraft Heinz offers directly competing products. There is also more competition across the various verticals between the two companies and their various product offerings.

Nestle powdered beverages SWOT analysis

To determine the most effective marketing strategies and plans to deploy in face of competition in the beverages vertical, it is essential to carry out SWOT analysis. The aim of SWOT analysis is to identify the strengths, weaknesses, opportunities and threats (SWOT) that a business faces. In relation to its competitors, SWOT analysis reveals the following information.

Strengths

Nestle is a world renowned brands that has a plethora of product brands that are also well known, a strong research and development programme, deep penetration of the products in the market and a highly efficient and wide distribution network. This is essential in ensuring that the cash cows and star product owned by Nestle continue to perform well while the company’s brand name serves it well with product brands in the dog and question mark category to grow.

Weaknesses

The company has two major weaknesses namely being involved in several controversies and a brand structure that is undifferentiated. Some of the controversies, consumer and legal issues that have tainted the brand’s image in the past include Maggi lead controversy, claims of child labor in Ghana and Turkey and the use of forced labor and chocolate price fixing. Due to the undifferentiated nature of the many product brands it offers, managing the brands is difficult, sometimes even resulting in some of the brands competing.

Opportunities

There are several opportunities that can help Nestle increase the market share, revenue and in general their business operations. These are creating a better brand image, increasing the reach and efficiency of its distribution system, a global increase disposable income trend and agglomerating brands. The company should also pursue ways of expanding its markets, forming strategic alliances with other stakeholders and also consider buyouts and mergers.

Threats

Nestle faces the same challenges as any other business in the FCMG sector namely threats posed by substitute products, new entrants into its markets and the rising costs on inputs as other business expenses. The business faces constant pressure from entrenched and new businesses alike in all its verticals and especially the liquid and powdered beverages vertical. Rising costs of inputs and fuel prices have a direct impact of the company’s profitability.

Currently, Nestle is second in the powdered cocoa/ chocolate segment to Kraft Heinz’s Cadbury brand, with its main brand in the segment being Milo. The company should market the Milo brand more and ensure that their complex distribution system is improved to serve emerging markets and rural areas where, where often it fails. Additionally, it should increase marketing efforts for the brand to increase the brand’s image and recognition. It should also consider smaller packages especially in lower middle income economies, something the Cadbury brand has successfully leveraged and which it has achieved with Nescafe.

Market segments and target market analysis

Nestle, being a global company, essentially has a heterogeneous consumer market since people in different regions and with varying demographics have difference needs, tastes and preferences. This is also true for the powdered beverages segment since different people will have differences in their choice of powdered beverages. Despite these difference, in the various market segment form homogenous groups that can help in making marketing efforts more coherent. Given these facts, the mixed marketing approach is the best one for Milo, with its efficacy already proven in the food industry.

The primary target market for the Milo brand in particular and most of the products offered in the powdered drinks category are the upper and middle upper classes. This enables brands like Milo to leverage the prestige associated with their brand to sell their products at a premium compared with the competition. The secondary target market for Milo is the lower middle class that is likely to shift to more premium brands as disposable income rises. From this information, we can derive the shown perceptual map.

From the perceptual map, it can be seen that while Milo charges a slightly higher price than Cadbury does for its drinking chocolate and other cocoa/ chocolate powdered beverages products, Cadbury is the clear winner in terms of market share.

There are several things that Milo can do in order to increase their market share. These include market expansion, agglomeration of brands, improved efficiency and reach of their distribution systems and expanding to new markets. While the premium model is may seem counterintuitive, it is actually perfect for marketing Milo.

However, the company should do more to increase the brand’s appeal as a premium product and smaller packaging should also be considered to increase volume of sales. This will make the brand affordable to those currently with little disposable income but likely to have more as time passes like students, newly employee people and young people with families as well as young families. By getting such customers early, the company is more likely to cultivate brand loyalty early in a commoditized market.

References

Aerk, D. A. (2009). Brand portfolio strategy: Creating relevance, differentiation, energy, leverage, and clarity.

Campbell, P. (2015). Pestle analysis in a day. CreateSpace Independent Publishing Platform.

Consultancy.uk. (2015, August 17). 50 largest consumer goods / FMCG firms of the globe. Retrieved from https://www.consultancy.uk/news/2453/50-largest-consumer-goods-fmcg-firms-of-the-globe

Fleisher, C. S., & Bensoussan, B. E. (2015). Business and competitive analysis: Effective application of new and classic methods.

Immonen, A., & Saaksvuori, A. (2008). Product lifecycle management.

Pride, W. M., Ferrell, O. C., Lukas, B. A., Schembri, S., & Niininen, O. (2015). Marketing principles.

Pruschkowski, M. (2018). The BCG matrix and its support of management decision making.

Statista. (2018). Nestlé: sales worldwide by product category, 2017 | Statistic. Retrieved from https://www.statista.com/statistics/413559/global-sales-of-nestle-by-product-category/