Read this paper to discover how Nestle has partnered with other firms. This report analyzes Nestle’s background, marketing strategy, and success factors. It also highlights the core factors that have been associated with its success and provides Nestle conclusion.
There are numerous companies that have tried going international with no avail. Of the few that have succeeded, many have been mired in international business controversies. For example, many food companies have been accused of having hazardous effects on health. Other companies have been accused of having poor quality in many of their other international branches. Nestle has neither experienced nor been associated with such accusations. The ease with which the company has grown since its inception is admirable. In addition, the company’s stand of high quality has allowed it to become one of the largest food companies in the world.
Being a multinational company, it has branches all over the world. Saltmarsh (2010) identifies 447 factories of Nestle round the globe. These factories are situated in 194 countries, meaning that there are countries that have more than one factory. In terms of employees, Nestle boasts of approximately 330,000 employees. It goes without saying that Nestle has managed to stay on the top of its competitors due to good customer relations, high-quality products, and excellent returns.
Yamey (2000) reveals that the company has a market capitalization of approximately 200 billion US dollars. The scholar goes further to explain that in the year 2013, Nestle’s sales had hit a 92.16 billion US dollar mark. The net profit was set at CHF 10 billion. Nestle has partnered with other firms to ensure that they offer the best products and services to their clients. In turn, their customers have shown appreciation through loyalty. This essay analyzes Nestle. It also highlights the core factors that have been associated with its success.
Nestle Company’s Background
Nestle is a multinational corporation that wholly focuses on food and beverages as its primary trade commodities. The company’s headquarters is in Switzerland. Nestle is considered the largest food company in the world, with reference to revenue measures (Smith, 2007).
It was formed in 1905 through a merger of Anglo-Swiss Milk Company and Farine Lactee Henri Nestle. Even though the company has invested in all types of foods and beverages, it is known for its baby food, water, coffee, tea, dairy, morning cereals, pet foods, and frozen foods. Some of its common brands include Nescafe, Kit Kat, Nesquik, and Nespresso. Smith (2007) explains that such brands give approximately US$1.1 billion to the company on a yearly basis. Figure 1 in the appendix shows the financial information for the last five years of the company. Table 2 and Chart 1 also summarize the company’s sales stand.
As mentioned, the company has focused wholly on food and beverages. However, it has made investments in other sectors of business. Nestle acquired several businesses a few years after it started operating. For example, it bought Crosse and Blackwell, Libby’s, and Rowntree Mackintosh. The company did not stop investing in other business opportunities. For instance, it heavily invested in the cosmetic industry. In addition, it acquired the Gerber Company in 2007.
The article “Nestle eyes sweet” (2011) identifies six more business ventures that Nestle has entered. The first is a 50-50 division between Nestle and Colgate-Palmolive for the product known as the Nestle Colgate-Palmolive. Another 50-50 division is between Nestle and Indofood for the Indofood Citarasa Indonesia product. Nestle also got a half-half deal with Snow Brand Milk Products company for their Nestle Snow product. The “Nestle eyes sweet” (2011) adds that Nestle and Coca-Cola teamed up to produce the Beverage Partners Worldwide project. Moreover, Nestle holds a 40% stake for the Lactalis Nestle Produits Frais with Lactalis. Lastly, there is a business partnership with General Mills over the Cereal Partners Worldwide project.
Like many other multinational companies, Nestle has also taken up the concept of corporate social responsibility. One such event is the World Cocoa Foundation, which is supported by numerous chocolate companies. The foundation aims to help farmers who focus on cocoa farming. The farmers learn about better ways of farming to ensure high-quality produce, leading to more income. Similarly, as Hawkins (2012) explains, Nestle is also part of the Sustainable Agriculture Initiative, alongside two other companies. The three companies have tried to instill best farming practices to help with better milk production and coffee and cocoa farming.
Yamey (2000) also adds that Nestle created the concept of Created Share Value, which is aimed at helping businesses identify the social issues that they can solve using a social value simulation. Nestle has focused on three aspects of the society in this project. The three elements are nutrition, water, and rural development. In the same breath, the company has set aside millions of dollars for cocoa farming, which will aid in the production of high-quality cocoa plants. Lähteenmäki-Uutela (2014) asserts that the company also started ‘The Cocoa Plan’ in the Netherlands with the aims of improving the lives of cocoa farmers. Many of these farmers live in poverty as the middlemen who buy cocoa from them pay very little money.
Nestle CEO’s Background
Paul Bulcke, a 61-year-old Belgian businessman, is the current Chief Executive Officer of Nestle. He has been honored on more than one occasion for his brilliant business strategies. Even though he was taken in as the CEO of Nestle in 2007, he officially started his tenure in 2008. Bulcke gets his success in business from both experience and education. He studied as a commercial engineer and later on took up the Executive Development course at one of the leading schools in Switzerland; the International Institute for Management Development (Nestle, n.d.).
Even though Bulcke became the CEO in 2007, he had been working for Nestle since he was 25 years old. Nestle (2015) reveals that he had worked in several departments in several countries before he was given the opportunity to be the CEO. Bulcke worked in Portugal, Germany, Chile, Peru, Czech Republic, Spain, Belgium, Ecuador, and in the headquarters in Switzerland. He also held the position of Head of America, before he was appointed the CEO. Part of his job as the Head of America was to manage all the factories and business matters that affected Nestle America (Nestle, n.d.).
His achievements and efforts have been recognized all over the world. Bulcke has received numerous awards in appreciation of the work he has done so far. For example, he received a VMA award from the Vlerick Leuven Gent Management School. The award was given to recognize his lifelong career and exceptional leadership and management skills (Nestle, 2015).
On a more personal angle, Bulcke is married with three children. He also speaks six different languages. He explained that learning the six languages was crucial for his career, as he lived in various countries for a while.
Nestle Success Factors
As mentioned, Nestle is one of the largest food and beverage companies in the world. Its success can be attributed to various factors. However, only three factors that led to the success of Nestle will be analyzed. The three factors are quality, marketing, and globalization.
Campbell (2011) reveals that Nestle has maintained very high-quality products all over the years. One common mistake many companies make is relaxing on the quality of their products once they become international. This has not been a problem for Nestle. In fact, it can be argued that the company strives to keep improving the quality of its products. As mentioned, Nestle has invested a lot of time and money in cocoa farming.
The company has taken direct initiatives to teach cocoa farmers in different areas how to come up with the best types of crop. It suffices to mention that for the cocoa products to be of high quality, the plants that are used in the cultivation process also have to be of high quality. Many companies that deal in food do not take the time to invest in the farmers. It is the farmers who ensure that the seeds the company gets are high quality, thereby ensuring that the end product is also rich.
The Sustainable Agriculture Initiative mentioned, for example, instills best practices in farmers. The farmers learn how to pick the best seedlings for planting. They are also taught how to lay the ground, weed, nurture, and even harvest the plants to ensure that they come out right. The whole process not only ensures that the company gets the best products, but it also ensures that the farmers get more profits. With more profits, the farmers can plant more seedlings and provide high-quality plants to the company.
It suffices to mention that many businesses suffer and produce low-quality products due to cultural influence in different countries. For instance, if a company goes to South America, then it has to take up the culture of the people in South America in order to get profit. There are some countries that force international companies to take up the locals as the employees (Czinkota & Ronkainen, 2010). Whereas other companies do this without hesitation, Nestle takes time to train the locals on how their products should be handled. Employees in the factories go through an intensive training session that teaches them the standards they always have to maintain (Kotler & Keller, 2009).
In the same breath, the company has maintained high standard, quality products by always ensuring they know what the customers want. For example, as Paetzold (2010) reveals, the company uses surveys to ensure it knows what its clients want. The surveys are designed to highlight the things customers like about the company, as well as the things the clients do not like about the company. The data is then used to improve the quality of service and products manufactured.
As mentioned, Nestle has invested in other business ventures that have also led to the production of food. For example, the product known as Nestle Snow is manufactured in partnership with Snow Brand Milk Products. Such ventures are analyzed keenly to ensure that the other company also has high standards of quality. Secondly, Nestle ensures that such products are of high quality by using research. Srinivasan (2008) explains that for every new product introduced, the company calls some clients and asks them to comment on the taste and the quality of the product. They then use the data collected to improve on the product.
The second success factor that will be analyzed is marketing. Marketing also involves advertising and attracting the target market to buy one’s products. Nestle has invested a lot in marketing and advertising. Sehgal (2011) argues that one factor that led to the failure of many companies that operated in the 1950s was technology. However, Nestle has embraced technology and used it to its advantage.
The first method of marketing that the company has used effectively is traditional media. Traditional media refers to televisions, newspapers, and radios. For a long while, these were the only possible ways of advertising. The company has created catchy adverts that have been played and printed on traditional media. In addition, it has included its clients in the adverts. For example, as Hitt, Ireland and Hoskisson (2013) point out, the company has very interactive adverts. They try to make the viewer do something while watching the advert. In turn, such adverts stick in the mind, such that when the person goes out shopping the next day, they will see the Nestle product and remember the advert. In turn, they are more prone to buy the product.
Nestle has also invested in online marketing. There are various ways a company can market its products and services online. The first way is through the creation of a web page (Saltmarsh 2010). The web page shows the clients the products that the company offers. In addition, it shows the contacts that the clients can use to talk to a representative of the company. In addition to a web page, Nestle has also invested heavily in social media. The social media platform offers numerous avenues for marketing. For example, Twitter, Facebook, Google+, and LinkedIn are all avenues for marketing on the social media.
Indeed, Nestle is in all these social media sites. Barney and Hesterly (2010) assert that Nestle also gets marketing done through affiliates. These are people or companies that promote the products and services of a company and direct clients to the company’s web pages. Affiliates help make the company more pronounced for people who would have not known the company. Lastly, Nestle uses reviews to market its products. Bamford and West (2010) explain that reviews are the comments that people make about a product or a service. Even though there are some people who leave negative reviews about a product, a majority agreed that Nestlé’s products are of high quality.
Nestle also markets its products through its already recognized brand. As Waters (2010) explains, it is much easier for a client to buy a product they have heard of than one they have not. At this juncture, it is only fair to appreciate the efforts of other leaders of the company, who came before Bulcke. They ensured that the company was a worldwide household name. Consequently, the name itself is a selling point. For example, if a new company went international right now, then many people in the countries where the product had not invested would not know it. They would, for a while, use the products they know.
In such instances, the new product has to market itself through constant advertising and campaigns in order to make people start using it and commenting on it. The previous CEOs of the company went through this to ensure that Nestle is the worldwide household name it is today.
Word of mouth has also helped the company market its products (Darley, Luethge & Blankson, 2013). Even though, many people use social media and the Internet, many trust the words and recommendations of friends and families. Advertisers have taken wind of this; therefore, these days many companies use celebrities and role models to pass on the word about their products. For example, if a woman tells her daughter to try a product, then she will mostly try it. However, if it was a complete stranger at the supermarket doorway telling the same daughter to try the same product, then she would probably decline.
When it comes to celebrities, many people will do what a celebrity they relate with does. For example, if Nestle used Beyonce in their adverts to tell people about their products, then the people who relate to the musician would probably buy Nestle. Waters (2010) and Brady (2011) explain that this happens because the target market wants to feel closer to the celebrity, and they also want to feel ‘cool’.
Globalization has also helped significantly in ensuring the success of Nestle. Bamford and West (2010) define globalization as the opening of an international market where anyone can trade. It is this concept that has allowed companies like Nestle to operate in many countries all over the world. As mentioned, the company has numerous factories. However, these factories are not in all countries. To make up for this, Nestle has developed depots in almost all countries in the world for easier supply.
Globalization has led to the expansion of the coffee industry. Coffee companies have moved to other countries and promoted Nestle in the process, thereby supplying coffee products. For example, Java, a South African coffee shop, is now an international coffee shop. On its menu, it has coffee products that use Nestlé’s products; thus it markets Nestle.
Globalization has also allowed employees in Nestle to move from one country to another. For example, the current CEO moved to Portugal, Germany, Chile, Peru, Czech Republic, Spain, Belgium, Ecuador, and Switzerland. Such movements expose the employees to different business environments that make them better at their jobs. For instance, the business environment in Peru is very different from that in Germany because the two countries have different cultures, which affect the product in two ways. The first way is the packaging of the products. One might find that the packaging is done with a cultural aspect in mind. Additionally, it might affect the advertising messages used in the promotion and marketing of the product.
Kerin (2012) explains that advertising in different countries requires different strategies. In a country like the US, advertisements ridicule the competitors directly, which is different from other countries like Zimbabwe, where advertisements are conservative. The wrong type of advertisement can lead to fewer sales, as the public can associate the product with the bad advertisement.
It suffices to mention that Nestle has used the different strategies of entering a foreign market to its advantage. Bamford and West (2010) explain that there are several ways of penetrating a foreign market. The first and most common is partnering with a local company. It is assumed that many people do not trust foreign companies; thus, partnering with a local company can get more people interested in the new company’s products. Additionally, it can allow the foreign company to avoid legal problems, as the local company can inform them of the things they can do in that particular country.
The second way of penetrating a market is through franchising. In this case, the company allows local companies to buy the name of the company and use it for their services and products, while marketing the company at the same time. For example, if Nestle wants to open a branch in St. Ives and Knights, then it can allow the locals to buy the name of the product they want to introduce. If the product is Nescafe, it can allow a local to start a coffee shop by the name Nescafe. This would make it easier for the company to penetrate the market because the locals would have already known about the product before the company penetrates the market. Thus, putting a coffee container with the name Nescafe on supermarket counters would be easier and more profitable.
Indeed, there are quite a number of factors that have added to the success of Nestle. For instance, good customer service, uniqueness, innovation, and technology have been critical to the success of the company. However, the three factors discussed are the most influential factors.
In conclusion, Nestle is indeed one of the largest and most successful companies in the world. The company has focused on food and beverages as its main trading commodities. Despite this, it has invested in other business ventures; for instance, it has invested in the cosmetics industry. The current CEO of the company, Paul Bulcke, has been described as one of the best business people in the world because has ensured that the company has maintained its standards for quality and become more profitable. Many scholars and business critics were shocked by the appointment of Bulcke as the CEO because he appeared calm and reserved.
However, he has proven that he is a ‘calm strength’, a term he has so often described himself with. His calmness comes in handy when managing such a big company because he is always level headed. His leadership skills have been described as participatory. He encourages the employees to speak their mind and give suggestions when they feel the need. In fact, he changed the organizational culture that was rigid and stiff immediately after he was appointed CEO.
He introduced a more flexible communication model that allowed information to flow from all angles. He has argued time and again that communication is necessary for any business to prosper. Even though the company attributes its success to many things, three factors stand out. These three factors are marketing, globalization, and quality. Other factors that helped in the growth of Nestle into the largest food company in terms of revenue in the world include good customer service, embracing innovation, technology, and ensuring uniqueness of its products.
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Appendix 1: Nestlé’s Financial Summary
|EQUITY AND LIABILITIES|
|Share Warrants & Outstandings|
|Deferred Tax Assets / Liabilities||215.47||162.08||32.94%|
|Other Long Term Liabilities||0.00||0.00||0.00%|
|Long Term Trade Payables||0.00||0.00||0.00%|
|Long Term Provisions||1,193.39||1,014.75||17.60%|
|Total Non-Current Liabilities||2,598.34||2,226.78||16.69%|
|Other Current Liabilities||500.25||558.03||-10.35%|
|Short Term Borrowings||0.01||0.24||-95.83%|
|Short Term Provisions||213.88||41.06||420.90%|
|Total Current Liabilities||1,347.18||1,138.73||18.31%|
|Less: Accumulated Depreciation||1,523.91||1,216.44||25.28%|
|Less: Impairment of Assets||9.94||6.85||45.11%|
|Lease Adjustment A/c||0.00||0.00||0.00%|
|Capital Work in Progress||294.71||344.08||-14.35%|
|Intangible assets under development||0.00||0.00||0.00%|
|Pre-operative Expenses pending||0.00||0.00||0.00%|
|Assets in transit||0.00||0.00||0.00%|
|Non Current Investments||224.12||0.00||100.00%|
|Long Term Loans & Advances||123.94||125.45||-1.20%|
|Other Non Current Assets||0.47||0.00||100.00%|
|Total Non-Current Assets||4,012.55||3,673.80||9.22%|
|Current Assets Loans & Advances|
|Cash and Bank||749.36||236.96||216.24%|
|Other Current Assets||10.06||5.18||94.21%|
|Short Term Loans and Advances||95.14||49.97||90.39%|
|Total Current Assets||2,301.72||1,490.12||54.47%|
|Net Current Assets (Including Current Investments)||954.54||351.39||171.65%|
|Total Current Assets Excluding Current Investments||1,674.76||1,125.26||48.83%|
|Miscellaneous Expenses not written off||0.00||0.00||0.00%|
|Book Value (in ₹)||0.00||186.52||-100.00%|
|Adjusted Book Value (in ₹)||245.67||186.52||31.71%|
Figure 1: Nestlé’s Financial Summary.
Appendix 2 – Nestlé’s Sales Summary
|Activity||Percentage of sales|
|Chocolate and candies||11|
Table 1: Sales by activity.