History• 1866-1905• In the 1860s Henri Nestlé, a pharmacist, developed a food for babies who were unable to breastfeed. His first success was a premature infant who could not tolerate his mothers milk or any of the usual substitutes. sold in much of Europe.• 1905-1918• In 1905 Nestlé merged with the Anglo-Swiss Condensed Milk Company. By the early 1900s, the company was operating factories in the United States, Britain, Germany and Spain.• 1918-1938• After the war Government contracts dried up and consumers switched back to fresh milk. However, Nestlés management responded quickly, streamlining operations and reducing debt. The 1920s saw Nestlés first expansion into new products, with chocolate the Companys second most important activity• 1938-1944• Nestlé felt the effects of World War II immediately. Profits dropped from $20 million in 1938 to $6 million in 1939. Factories were established in developing countries, particularly Latin America. Ironically, the war helped with the introduction of the Companys newest product, Nescafé, which was a staple drink of the US military. Nestlés production and sales rose in the wartime economy.
• 1944-1981• Nestlés growth in the developing world partially offset a slowdown in the Companys traditional markets. Nestlé made its second venture outside the food industry by acquiring Alcon Laboratories Inc..• 1981-1995• Nestlé divested a number of businesses1980 / 1984. In 1984, Nestlés improved bottom line allowed the Company to launch a new round of acquisitions, the most important being American food giant Carnation.• 1996-2002• The first half of the 1990s proved to be favorable for Nestlé: trade barriers crumbled and world markets developed into more or less integrated trading areas. Since 1996 there have been acquisitions including San Pellegrino (1997), Spillers Petfoods (1998) and Ralston Purina (2002). There were two major acquisitions in North America, both in 2002: in July, Nestlé merged its U.S. ice cream business into Dreyers, and in August, a USD 2.6bn acquisition was announced of Chef America, Inc.• 2003 +• The year 2003 started well with the acquisition of Mövenpick Ice Cream, enhancing Nestlés position as one of the world market leaders in this product category. In 2006, Jenny Craig and Uncle Tobys were added to the Nestlé portfolio and 2007 saw Novartis Medical Nutrition, Gerber and Henniez join the Company.
Overview• Nestlé is the worlds leading Nutrition, Health and Wellness Company. It is committed to increasing the nutritional value of our products while improving the taste. The Nestlé Company has aimed to build a business as the worlds leading nutrition, health and wellness company based on sound human values and principles• While Nestlé Corporate Business Principles will continue to evolve and adapt to a changing world, basic foundation is unchanged from the time of the origins of their Company, and the basic ideas of fairness, honesty, and a general concern for people.• In the 140 years since then, we have expanded around the world and developed a range of products designed to suit every taste, need and cultural preference. Our distinctive seal is recognised everywhere as a guarantee of quality and healthfulness
Our Brands• We believe that food plays a key role in achieving a well-balanced person. And so our philosophy is Good Food for a Good Life!• At Nestlé, our products are developed keeping our consumers, their preferences and health in mind.• Millions of consumers the world over trust Nestlé products for good reason: when they choose a Nestlé product they have the satisfaction of choosing quality, taste, variety, convenience and the good nutrition.• Brand Names• Milk, Dairy and Chilled Dairy• Beverages• Bottled Water• Baby Food• Food• Breakfast Cereals• Chocolate and Confectionary
Vision“The Nestlé global vision is to be the leading health, wellness, and Nutrition Company in the world”
Mission Statement“Good Food is the primary source of Good Health throughout life. We strive to bring consumers foods that are safe, of high quality and provide optimal nutrition to meet physiological needs. In addition to Nutrition, Health and Wellness, Nestlé products bring consumers the vital ingredients of taste and pleasure” 1. Customers Yes 2. Products or services Yes 3. Markets No 4. Technology No 5. Concern for survival, growth, and profitability No 6. Philosophy No 7. Self-concept Yes 8. Concern for public image No 9. Concern for employees No
Mission Statement (Proposed)“Good Food is the primary source of Good Health throughout life. We strive to bring consumers foods that are safe, of high quality and provide optimal nutrition to meet physiological needs with the best technology around the globe. In addition to Nutrition, Health and Wellness, Nestlé products bring consumers the vital ingredients of taste and pleasure that is matched by none. We want to excel as market leader in the industry with an ethical culture and care for its employees.”
Investment Projects• Total capital expenditure for the year reached P KR 2.3 billion, with the most significant projects listed below:• Investments in 2010 of approximately P KR 2.6 billion are planned for milk collection field development, and upgrading of existing production facilities as part of our long-term infrastructure plan.
IFE Internal Factor Evaluation Matrix Key Internal Factors Weight Rating Weighted Score Strengths Socially Responsible Company 0.03 3 0.09 Nestle products enjoy strong brand image 0.07 3 0.21 Sales force as a major physical resource strength 0.05 3 0.15 Quality product distribution networks in country 0.08 2 0.16 Net Profit increased by 94% in 2009. 0.20 4 0.80 Price earning ratio decreased from 38.9 to 18.8 0.05 3 0.15 Export Sales increased by 48% to PKR 3.3 billion 0.18 4 0.72 Weaknesses Lack of awareness among target market 0.04 2 0.08 Nestle milk always stands at last because of low advertisement. 0.09 2 0.18 Revenue from confectionary decreased by 14% 0.08 2 0.16 Low credit sales and profit margin to retailers 0.05 2 0.10 Weak promotional activities through websites 0.05 3 0.15 Cant launch expensive brand due to low income groups 0.03 1 0.03 Total 1.00 2.99
Key Ratios: Overall Comparison (2009) Ratios 2009 IndustryLiquidity Ratios:Current Ratio 1.11 1.19Quick Ratio 0.37 .42Solvency Ratios:Long Term Debt to Equity 1.94 .47Long Term Debt to Assets 0.89 .126Debt-to-Equity Ratio 1.37 1.1Times-Interest-Earned Ratio 10.49 7.2Activity Ratios:Inventory Turnover Ratio 9.2 4.56Average Age of Inventory (Days) 40 102Total Assets Turnover Ratio 2.3 1.23Receivable Turnover Ratio 119.5 67.74Average Collection Period (Days) 4 5Fixed Assets Turnover 3.51 1.23Profitability:Gross Profit Margin 29% 30.86Net Profit Margin 7% 5.8Return on Assets 44% 41.41Return on Equity 40% 48.9Earning per Share 66.27 91.62Price-Earning Ratio 18.8 25.45Growth RatiosSales +20%Net Income +94%Earning Per Share +94%
EFE External Factor Evaluation MatrixKey External Factors Weight Rating Weighted ScoreOpportunitiesFew and weak competitors in the market 0.12 2 0.24Disposable income increased by 3.6% 0.07 3 0.21Consumer expenditure on food has increased by 3.6% 0.09 4 0.36Population density increased by 2.18% (per sq.km) 0.05 3 0.15Credit policy can be adopted to increase sales 0.03 3 0.09Potential in cold dairy market 0.02 3 0.06All companies contribute only 2% to processed milk market 0.12 4 0.48Pakistan as 7th largest milk producing country with milk output of 200 billion liters 0.12 3 0.36Increase in consumer food industry by 14% 0.05 4 0.20ThreatsEngro and Shakarganj as major competitors 0.14 3 0.42Market segment growth could attract new entrants 0.04 2 0.08Taste of the consumer has already developed 0.02 2 0.04Legal & ethical issues 0.01 2 0.02Economic slow down can reduce demand 0.01 2 0.02Effect of seasonality upon sales 0.05 3 0.15Strong advertisement by major competitors 0.08 3 0.24Total 1.00 3.02
SPACE SPACE MATRIXFinancial StrengthNestle’s net sales increased by 20% in 2009 as compared to 2008 3Net profit increased by 94% in 2009 as compared to 2008 5Debt equity ratio changes from 63:37 to 66:34 3Price earnings ratio in 2009 was 18.8 as compared to 2008 38.9 5Return on capital employed increases by 40% 4Average financial strength 4Industry StrengthIncrease in consumer food industry by 14% 5All companies contribute only 6% to processed milk market 4Market segment growth has attracted new entrants to increase profit potential 5Due to ease of entry in market, Engro foods, Shezand foods and Shakarganj are properlyutilizing their resources 4Average Industry Strength 4.5Competitive AdvantageNestle enjoys strong customer loyalty -2Quality product distribution networks in country -1Nestle extended product life cycle is being ensured due to quality brand extension strategy -2Nestle product are market leaders in many product categories -2Average competitive advantage -1.75Environmental StabilityEconomic slowdown can reduce the demand -2Fluctuating rate of inflation in the country -2Price range of competing products -1Average Environmental Stability -1.75
QSPM Acquisitions No Aquisitions Shangrilla & Young’s food Key factors Weights AS TAS AS TASOPPERTUNITIESFew and weak competitors in the market 0.12 4 0.48 2 0.24Disposable income increased by 3.6% 0.07 - -Consumer expenditure on food has increased by 3.6% 0.09 3 0.27 1 0.09Population density increased by 2.18% (per sq.km) 0.05 3 0.15 2 0.10Credit policy can be adopted to increase sales 0.03 - -Potential in cold dairy market 0.02 - -All companies contribute only 2% to processed milk market 0.12 - -Pakistan as 7th largest milk producing country with milk output of 200 billion liters 0.12 - -Increase in consumer food industry by 14% 0.05 4 0.20 2 0.10THREATSEngro and Shakarganj as major competitors 0.14Market segment growth could attract new entrants 0.04 3 0.12 4 0.48Taste of the consumer has already developed 0.02 1 0.02 4 .08Legal & ethical issues 0.01 - -Economic slowdown can reduce demand 0.01 2 0.02 3 .03Effect of seasonality upon sales 0.05 - -Strong advertisement by major competitors 0.08 1.00
QSPM(Continued) Acquisitions No Aquisitions Shangrilla & Young’s food Weights AS TAS AS TAS Key factorsSTRENGHTSSocially Responsible Company 0.03 - -Nestle products enjoy strong brand image 0.07 2 0.14 1 0.07Sales force as a major physical resource strength 0.05 - -Quality product distribution networks in country 0.08 - -Net Profit increased by 94% in 2009. 0.20 3 0.60 1 0.20Price earnings ratio decreased from 38.9 to 18.8 0.05 2 0.10 1 0.05Export Sales increased by 48% to PKR 3.3 billion 0.18 3 0.54 1 0.18WEAKNESSESLack of awareness among target market 0.04 - -Nestle milk always stands at last because of low Advertisement. 0.09 - -Revenue from confectionary decreased by 14% 0.08 - -Low credit sales and profit margin to retailers 0.05 1 0.05 3 0.15Weak promotional activities through websites 0.05 - -Cant launch expensive brand due to low income groups 0.03 2 0.06 4 0.12Total 1.00 2.75 1.89
Matrix AnalysisAlternative Strategies Space BCG Grand Strategy Matrix CountBack ward integration X X 2Forward integration X X 2Horizontal integration X X X 3Product Development X X X 3Market Penetration X X 2Market Development X X 2Related DiversificationUnrelated diversificationRetrenchmentDivestitureLiquidation
Decision• This seemed to an important step where we had to choose either to go for a horizontal integration or more product development. The interesting fact was that from 2008-2009 Nestle Pakistan introduced three new products into the market• The major new product launches the year 2009• Included: NESQUIK milk enhancer, NIDO BUN YAD, LACTOGEN GOLD, and CERELAC fruit cereals.Our Recommendation:• Considering this fact now we recommended Nestle Pakistan to Acquire Shangrila foods and young’s food to excel as a market leader for the year 2010.
Why Horizontal strategyReason Behind• Nestle SA expands globally either through its own brand or the acquisitions of National brands, considering this fact it seems a critical time for Nestle SA to expand through a National brand.
Evaluations• NESTLE annual financial reports• Sales and profits reports (on-line and off-line) based on sales of newly acquired companies.• Frequent management meetings between the Top Management at the cooperate levels through Evaluation reports