Nestle 雀巢 SWOT 2010

Nestlé SA

Company Profile

Publication Date: 12 Aug 2010

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TABLE OF CONTENTS

Company Overview (4)

Key Facts (4)

SWOT Analysis (5)

Nestlé SA

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T ABLE OF CONTENTS

COMPANY OVERVIEW

Nestle (or “the company ”) is the largest food and beverage company in the world.The company's

products include beverages, milk based products, ice creams, prepared dishes, and pharmaceutical

products. Its key brands include Nestle, Nespresso, Maggi, Buitoni, Stouffer ’s, Dreyer ’s, KitKat,

Purina and Friskies among others. Nestle primarily operates in Europe, the Americas, Asia, Oceania

and Africa.The company is headquartered in Vevey, Switzerland and employs 278,000 people.

The company recorded revenues of CHF107,618 million ($99,398.1 million) during the financial year

ended December 2009 (FY2009), a decrease of 2.1% as compared to FY2008.The decrease in

revenues was primarily attributed to the fact that the company trades a wide range of currencies

and the weakness in these currencies against the Swiss Franc negatively impacted sales by 5.5%,

divestitures by 0.8% and acquisitions by 0.1%.The operating profit of the company was CHF15,699

million ($14,499.9 million) in FY2009, an increase of 0.1% over FY2008.The net profit was CHF10,428

million ($9,631.5 million) in FY2009, a decrease of 42.2% as compared to FY2008.KEY FACTS

Nestlé SA

Head Office Avenue Nestle 55

1800 Vevey

CHE

41 21 924 2111

Phone 41 21 924 4800

Fax https://www.360docs.net/doc/819577812.html, Web Address

107,618.0

Revenue / turnover (CHF Mn)

December Financial Year End

278,000

Employees NESN

Six Swiss Exchange Ticker

Nestlé SA

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Company Overview

SWOT ANAL YSIS

Nestle is engaged in the business of manufacturing and marketing branded food and beverages.

The company is the world's largest food and beverage company by sales. Nestle has a strong brand

portfolio. Many of Nestle's brands are associated with quality and are global leaders in their respective

markets. A strong brand portfolio allows the company to address varied age groups and customer

profiles. However, allegations of unethical business activities may have a significant impact on customer loyalty and attitudes towards the company.

Weaknesses Strengths

Increasing instances of product recalls hampering brand equity Ability to leverage strong brand name to

generate sales

Slow recovery of product volume as an impact of economic downturn in 2009Ability to customize products to the local

market conditions

Relative less sales exposure in emerging markets Strong focus on research and development

capabilities

Threats Opportunities

Compliance issue resulting in penalty payments T ransition to a 'nutrition and well-being'

company

Negative publicity because of allegations of unethical business activities Focus on enhancing business opportunities

in developing and emerging economies

Risk of strategically unviable reinvestments

and acquisitions

Booming out-of-home eating market Strengths

Ability to leverage strong brand name to generate sales

Nestle owns some of the best-known brands in the world across diverse product categories. For

example, Nescafe, one of its key brands is also one of the most recognized brands of the world,

ranked 25th amongst top 100 best global brands in 2009 and valued at $13,317 million, according

to the Interbrand, a brand management company.

Apart from the Nestle brand, the company also nurtures other strong brands across diverse product

categories.The company ’s top 30 brands earn around CHF80,713.5 million ($74,548.6 million) in

annual sales contributing approximately 75% of its total sales.This indicates the company's ability

to leverage its brand popularity to generate sales.

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Ability to customize products to the local market conditions

One of Nestle's key strengths is its ability to customize global products according to consumer preferences in the local market.This is achieved by ensuring that its subsidiaries understand consumer preferences in the local market and develop products that match them. For instance, its confectionery range sold in the UK is called Rolo, while it is known as Rossyia in Russia. Furthermore, the company’s coffee brand Nescafe, comes in many variations, adapted to local tastes and preferences. Customized products with the same underlying international quality standards ensure continued customer loyalty towards the brand and the company.

Strong focus on research and development capabilities

Nestle has strong research and development (R&D) capabilities.The company invests CHF2,000 million ($1,847.2 million) in R&D annually. Around 5,200 people work in food and beverage development and product testing centers.The company’s research and development activities are centered on three core functions which include Product Technology Centres (PTCs), Research and Development Centres (R&D Centres), and Application Groups.The Product Technology Centres are aligned with particular Nestle businesses to provide expertise for specific product categories, and together forming a hub for global product and process development.The Research and Development Centres work in close collaboration with the Product Technology Centres to meet regional R&D requirements and provide input to localize products as per consumer preferences. The Application Groups are located in Nestle factories and ensure that products comply with local taste preferences.They also work closely with the R&D centres and the Product Technology Centres to test scientific applications as close to the end consumer as possible.

Nestle’s continued focus on R&D initiatives enables the company to increase its profitability. For example, powdered and liquid beverages products category achieved an organic growth of 9.5% in 2009 over 2008 since the segment benefited from the continued roll-out of renovated Nescafe brands such as Alta Rica, innovations such as Nescafe Green Blend. Strong R&D capabilities allow Nestle to renew its product line at regular intervals, while boosting revenue growth.

Weaknesses

Increasing instances of product recalls hamper brand equity

Nestle has a history of recalling a number of products from the market. For instance, in 2009, the company recalled refrigerated and frozen Nestle T oll House cookie dough products when Nestle USA, a subsidiary of Nestle, was notified by the United States Food and Drug Administration (FDA) and the Centers for Disease Control (CDC) of a possible link between reported illnesses caused by E.coli 0157:H7 and the consumption of uncooked cookie dough. Moreover, in 2008, Nestle USA, recalled Nestle Nesquik Strawberry Powder, fearing that it may contain small fragments of aluminum. During the same period, reports of small chunks of blue plastic in Lean Cuisine brand frozen chicken dinners have led Nestle Prepared Foods Co. a subsidiary of the company, to recall around 900,000 Nestlé SA Page 6

pounds worth of meals. Earlier, in 2008, Nestle recalled a UHT pure milk product in Hong Kong after samples containing a tiny amount of the chemical melamine were discovered in the product. Several product recalls like these indicate inadequate quality assurance and quality control systems for Nestle. Also, recurrent product recalls affect the brand image of the company, which would lead to low customer loyalty and brand equity.

Slow recovery of product volume as an impact of economic downturn in 2009

Nestle’s volume trends, like many of its peers, dipped in the economic downturn. Although, the industry has been on course of recovery since 2009 but it has not been led by due to the company’s diversified profile, relative higher pricing and a smaller relative contribution from emerging markets. This signifies that Nestle, which is a market leader in few of its products category, has found it difficult to manage the growth of its product volume since coming out of the 2009 recession. Price growth at Nestle has especially been pushed higher by confectionery, petcare and its beverages operations. Also, the more limited volatility in the company’s growth metrics is attributed by Nestle’s more diversified products profile. Such factors, coupled with reduced and cautioned consumer spending would lead to slow growth in volumes sales of the company and profitability.

Relative less sales exposure in emerging markets

A key element where Nestle trails its large European competitors is in emerging markets presence. The company owns 220 factories in emerging markets and its sales in emerging markets reached almost CHF 35,000 million ($32,326.7 million) in FY2009. However, in the geographic mix, emerging markets represent about a third of sales for Nestle compared to about 40% for Groupe Danone and 50% for Unilever. Following the economic downturn of 2008-09, the emerging economies are set grow at a faster pace as compared to the matured markets such as the US, Japan, and certain European countries. As per the estimates provided by the International Monetary Fund (IMF), the US economy would grow at 2.7% in 2010 whereas the Indian and Chinese economies would grow at 7.7% and 10% respectively in 2010. As a result, Nestle would benefit less from the upswing seen in these markets in 2010.

Opportunities

T ransition to a 'nutrition and well-being' company

Nestle is primarily focusing on nutrition and well being product offerings.The company is combining taste and nutrition to create a proposition for consumers and ensure accelerated profitable growth. The company is doing this across its portfolio by reducing trans fatty acids, salt and sugar or increasing micronutrients such as vitamins and minerals.The company is also improving nutritional density of its products by adding whole grains, calcium, Omega-3s and antioxidants.

As a result in 2009, Nestle renovated 7,252 products for nutrition or health considerations. Furthermore, during the same year the company’s brands, Milo enhanced its position with consumers Nestlé SA Page 7

in Zone AOA, whilst Nesquik enjoyed a resurgence in Europe following a renovated recipe with an improved nutritional profile.

Additionally, Nestle is also efficiently utilizing its R&D capabilities to position itself in the health and wellness market. For instance, in preventive nutrition, it is pioneering the use of probiotics in its products to reduce gastrointestinal diseases.The company is also working on scientific innovations to address obesity and diabetes. Other personalized nutrition initiatives address the special nutritional needs of patients with Alzheimer's disease and illness related to ageing. In specialized areas such as genomics, proteomics and metabolomics, it is investigating the unknown territories of genes and proteins with the aim of adapting foods to meet very individual needs.

Nestle's strategy to strengthen its position as a nutrition and well-being company comes at a time when consumers are increasingly become health conscious.This is evident from the fact that the global organic food market grew by 9.7% in 2009 to reach a value of $60,000 million. In 2014, the global organic food market is forecast to have a value of $96,500 million, an increase of 60.7% since 2009. Also, the global functional drinks market grew by 6.4% in 2009 to reach a value of $40,240.7 million and is forecast to have a value of $53,478.3 million in 2014, an increase of 32.9% since 2009.

Rising health awareness among consumers is leading to higher demand for low carbohydrate and low calorie foods worldwide. Consumers are increasingly aware of the risks associated with obesity and poor dietary habits. Hence, by enhancing its focus on developing healthy food products and by positioning itself in health and wellness market, Nestle would be able to capitalize on the health conscious trend.

Focus on enhancing business opportunities in developing and emerging economies

The most significant growth opportunity for Nestle is in the developing and emerging economies (D&E) economies, most notably China and India. Population of D&E economies is expected to increase by 3,300 million between 2000 and 2050, and this is expected to drive demand for food and beverage products.

Nestle has been active in D&E economies through its subsidiaries in Asia-Pacific, Africa, the Middle East, Turkey, and Latin America region. Sales in emerging countries accounted for almost 32.5% of total revenue and reached CHF35,000 million ($32,326.7 million) in 2009.The company expects to double its sales in emerging markets in by the year 2020.

As per the economic growth estimates provided by the IMF, the advanced economies are set to grow at 2.1% and 2.4% respectively in 2010 and 2011 respectively. In comparison, the developing and emerging economies are forecasted to grow at 6% and 6.3% in 2010 and 2011 respectively. Therefore in the future, Nestle's growth would be driven by high growth D&E economies, as its mature markets become saturated and their growth continues to remain stagnant in the near future. Booming out-of-home eating market

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The out-of-home eating market is witnessing significant boom phase. Although, the global restaurants sector shrank by 2.9% in 2009 to reach a value of $1,443.4 billion, it is forecast to have a value of $1,792.2 billion in 2014, an increase of 24.2% since 2009. Also, as per, National Restaurant Association (NRA) 2008 Restaurant Industry Forecast, consumers in North America will spend $580.1 billion at restaurants in 2010. Presently almost 40% of the consumer food and beverages spend is out-of-home in North America, Brazil, Russia. India and China are also showcasing similar trends, and many Western European countries are not far behind.

With sales of CHF5,800 million ($5,357 million) and 10,000 employees in 97 countries, Nestle Professional is the world's leading manufacturer in this highly fragmented out-of-home market. A fragmented nature of the out-of-home market offers Nestle with the opportunity to position itself as a market leader given its economies of scale.The company intends to double Nestle Professional's sales in the next ten years. Nestle can leverage this opportunity to boost its top line in long run. Threats

Compliance issue resulting in penalty payments

Nestle has been forced to pay fine amounting to thousands of US dollars during recent times. For instance, in early 2009, Nestle and The Coca Cola Company (TCCC) was asked to pay $650,000 fine as part of a pact with 27 states to resolve a marketing dispute over claims that their Enviga-brand green tea beverage, product joint developed by TCCC and Nestle will burn extra calories resulting in weight loss. During the same period, The Hellenic Competition Commission fined Nestle E30 million ($38.5 million) for 'abusing' its dominant position in the instant coffee market.The state competition commission accused Nestle of taking steps to shoulder out other coffee providers in its deals with supermarkets, restaurants and distributors. Nestle's reputation is based on consumers' trust. Any further major event triggered by a serious compliance issue could impact Nestle's reputation. Negative publicity because of allegations of unethical business activities

Nestle has been criticized by various social organizations for alleged unethical business activities. For instance, the company has faced warnings over the past several years as it sourced cocoa from farms in the Ivory Coast, which employed child labor.The charges against the company include trafficking, torture, and forced labor of children who cultivate and harvest cocoa beans, which the company imports from Africa.

Furthermore, public criticism Nestle has faced revolves around artificial infant milk substitute. Most of the major allegations against Nestle involve a breach of the World Health Organization (WHO) International Code of Marketing of Breast milk substitutes.These are not legally enforceable regulations, but health guidelines generally accepted by governments around the world. Nestle was further criticized for advertising and marketing its products in ways that undermine breastfeeding, giving away free samples and promoting the use of its infant milk substitutes. Such criticisms lead Nestlé SA Page 9

to negative publicity and may have a significant impact on customer loyalty and attitudes towards the company.

Risk of strategically unviable reinvestments and acquisitions

Nestle currently has a large amount of cash on its balance sheet after the disposal of its remaining stake in Alcon. Nestle have realized in excess of $ 40,000 million in cash from the company. However, such a scenario would not be optimal as the cash on the balance sheet yields a lower return than the company earns on its food and beverage operations and it also increases the company’s average cost of capital.

Also, in January 2010, the company acquired Kraft Foods' frozen pizza business.The business includes leading pizza brands such as DiGiorno, T ombstone, California Pizza Kitchen, Jack’s and Delissio.The US is the largest pizza market in the world with consumer sales of about $37,000 million.With estimated sales of $2,100 million in 2009, Kraft Foods is the leader in the frozen pizza category and has enjoyed double-digit growth in the US and Canada over the last four years. However, such an acquisition raises questions the company’ strategy on health issues as more consumers are shifting away from high calorie products towards healthier alternatives such as salads and home cooked meals. Also, the target consumers for such products are only limited to mature markets which bore the maximum brunt of the economic slowdown of 2008-09. Hence to be dependent on few markets with reduced consumer spending for revenues returns at the cost of expensive acquisitions raise questions on the company’s reinvestment policies.

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