SWOT analysis of Nestlé

| January 7, 2017

This is Nestlé S.A. SWOT analysis. For more information on how to do a SWOT analysis please refer to our article.

Company Background

Key Facts
Name Nestlé S.A.
Founded 1866
Logo
Industries served Beverage, Food
Geographic areas served Worldwide (189 countries)
Headquarters Vevey, Vaud, Switzerland
Current CEO Paul Bulcke
Revenue (Swiss franc) 88.785 billion (2015) 3.1% decrease over 91.612 billion (2014)
Profit (Swiss franc) 9.467 billion (2015) 36.7% decrease over 14.904 billion (2014)
Employees 335,000
Main Competitors ConAgra Foods, DPSG, Hansen Natural Corporation, Kraft Foods Group, Mondelēz International, Monster Beverage Corporation, National Beverage Corp., PepsiCo Inc., Snyder’s-Lance, The Coca-Cola Company, The Kellogg Company and many other beverage, food and snack companies.

Nestlé S.A. is the world's leading nutrition, health and wellness company based in Switzerland. It is the largest food and beverage company in the world measured by revenue generating CHF88.785 billion or US$89.772 billion in 2015 alone.[1]

Nestlé sells 2000 different brands over 7 food and beverage categories. The company’s main products are: powdered and liquid beverages; milk products, ice cream; confectionary and pet care products.

It owns several major consumer brands such as Nescafé, Nestea, Nestle, Purina, KitKat and Vittel, including many other prominent brands.

You can find more information about the business in its official website or Wikipedia’s article.

SWOT

Nestlé SWOT analysis
Strengths Weaknesses
  1. Unmatched research and development capability
  2. Strong geographic presence, with one of the best geographically diversified revenue sources
  3. Unrivaled product and brand portfolio
  4. Environmental sustainability efforts
  5. Ownership of some of the most recognizable brands in the world
Weaknesses
  1. Criticism over high water usage, selling contaminated food, anti-unionism, forced child labor and using other unethical practices
  2. Contaminated food recalls
Opportunities Threats
  1. Clear and accurate labelling indicating of any harmful products
  2. Transparency in material sourcing
  3. Growing number of small Silicon Valley based food startups
  4. Growing ready-to-drink (RTD) tea and RTD coffee markets
Threats
  1. Poor quality water and its scarcity
  2. Increased competition in the beverage and food industries
  3. The price of coffee beans could significantly rise due to major weather disasters

Strengths

1. Unmatched research and development capability

According to Nestlé, one of its key competitive advantages is research and development (R&D) capabilities.[1] The company spent CHF1.678 billion or US$1.697 billion on R&D in 2015. This accounted for 1.89% of the total revenue. In comparison, The Coca Cola Company spent 0% of its revenue on R&D and PepsiCo, Nestlé’s chief rival, spent only 1.2% or just US$754 million of its revenue on R&D.

Figure 1. R&D spending by the largest food and beverage companies (in US$ billions)
R&D expenditure Revenue % of revenue
Nestlé S.A. 1,697 89.772 billion 1.89%
PepsiCo 0.754 63.056 billion 1.20%
Mondelēz 0.409 29.636 billion 1.38%
Coca-Cola 0 44.294 billion 0%

Source: PepsiCo SWOT analysis[2]

Nestlé’s R&D capabilities also stem from its R&D network. The company has the largest R&D centers’ network of any food or beverage company in the world, with 34 R&D facilities and over 5000 people working in them.

Nestlé’s superiority in R&D against its rivals provides a sustainable competitive advantage and long-term success.

2. Strong geographic presence, with one of the best geographically diversified revenue sources

Nestlé operates and sells its products in 189 countries, reaching almost the entire world. The company has divided its operating segments into 3 geographic areas: The Americas (AMS), Europe, Middle East and North Africa (EMENA) and Asia, Oceania and sub-Saharan Africa (AOA). None of the regions earn over 50% of the total revenue.

Nestlé, unlike most of its rivals, does not rely on any single country or a few different countries to generate most of its revenue. The U.S., which is the single largest company’s market only generates CHF25.293 billion or 28.5% of the total revenue. The next largest market, China, generates CHF7.06 billion or 8% of the total revenue.[1]

In comparison, PepsiCo and The Coca Cola Company earn 56% and 46% of their revenue from the U.S. alone, respectively.[2] This proves that Nestlé’s strong and diverse geographic presence, gives it a competitive advantage over its rivals, especially when the U.S. market is negatively affected.

Figure 2. Nestlé’s main markets

Source: Nestlé’s annual report[1]

3. Unrivaled product and brand portfolio

Nestlé’s product portfolio is wider than any of its rivals in the industry. The company offers over 2000 different product choices in 7 main categories:[3]

  • Powdered and liquid beverages. Brands include: Nescafé, Nescafé Dolce Gusto, Nespresso, Nestea.
  • Milk products and ice cream. Brands include: Nestlé, Dreyer’s, Movenpick.
  • Prepared dishes and cooking aids. Brands include: Maggi, Chef, Buitoni, Stouffer’s, Wagner.
  • Nestlé Nutrition. Brands include: Wyeth, Nan, S-26 Gold, Beba, Lactogen.
  • PetCare. Brands include: Purina, Friskies, Pro Plan, Felix, Gourmet.
  • Confectionary. Brands include: Nestlé, KitKat, Cailler.
  • Water. Brands include: Pure Life, S.Pellegrino, Vittel, Perrier.

Wide product portfolio allows Nestlé to better satisfy various consumers’ needs and target wider consumer segment. The company is also less affected by the changing consumer tastes or consumer backlash against one of its brands.

4. Environmental sustainability efforts

Nestlé prides itself on company’s sustainability efforts. The company’s environmental initiatives have helped to reduce waste, packaging material usage and to keep the environment cleaner.

Since 1991, the company has saved 500 million kg of packaging material by redesigning its packages. Nestlé uses recycled materials and chooses materials from renewable source whenever possible.

By 2016, 105 of Nestlé’s factories have reached zero waste in production, one of the best results in the industry.

Few of the company’s rivals could match the company’s efforts in sustainability, which result in lower production costs, cleaner environment and happier communities.

5. Ownership of some of the most recognizable brands in the world

Nestlé owns and markets a few well recognized brands, such as Nestlé, Nescafé, Maggi, Purina, KitKat and Nan. According to Forbes[4] and Interbrand[5], Nescafé brand is the 32nd and 36th most valuable brand in the world, and is worth US$16.3 billion and US$12.5 billion, respectively. Nestlé brand also ranks as the 49th and 56th most valuable brand in the world in Forbes’ and Interbrand’s lists.

Brand value is closely related to brand recognition. Nestlé’s brand recognition is also increased by its presence in 189 countries.

Brand awareness helps the company to introduce new products and sell the current products more easily.

Weaknesses

1. Criticism over high water usage, selling contaminated food, anti-unionism, forced child labor and using other unethical practices

Being the largest food company in the world attracts lots of attention. Most of that attention is criticism over the companies’ practices and Nestlé is no exception to that.

Over the years, the company has been criticized for a number of its practices:

  • Unethical marketing of baby formula;
  • Claims that water should be privatized;
  • Asking for a debt payment from a famine struck country;
  • Misleading labeling;
  • Sourcing materials from suppliers using child and forced labor;
  • Anti-unionism.

The latest criticism is over the company’s uncontrolled water usage in California, where prolonged drought is hurting the state. California state has experienced water shortages over the last few years and many restrictions have been placed on businesses and residents to reduce their water consumption. On the other hand, Nestlé, which drains the water from aquifers in reservations’ areas, isn’t controlled by state laws and does not have to restrict its water usage.[6] Nestlé’s inability to address the communities’ needs and problems in California, but instead increasing the problems even more, draws lots of criticism.

Negative publicity results in damaged brand reputation, lost consumer confidence and declined sales. Few of the company’s rivals receive as much criticism as Nestlé.

2. Contaminated food recalls

Nestlé is a huge food company selling tens of thousands of different food products daily. Even with strict quality control measures the company often has to recall its products in various markets due to some form of contamination. In 2014, Nestlé recalled and destroyed 37,000 tons of contaminated Maggi noodles in India. This resulted in hundreds of millions in lost sales and damaged brand reputation. Recently, the company had to recall various prepared dishes in the U.S., which may have contained pieces of glass. The company has to recall some of its products almost monthly. Such negative publicity heavily affects Nestlé’s business.

Opportunities

1. Clear and accurate labelling indicating of any harmful products

According to the study done by Delloitte,[7] consumers are more likely to buy products that are clearly and accurately labeled. Almost 62% consumers are more likely to choose products that are free of any harmful products. 51% of the surveyed said that their decisions will be influenced by clear and accurate labelling and 47% would like to see clearly displayed information.

Nestlé, which has a history of providing misleading nutritional information on its labels should improve its practices and clearly label the products and include all the necessary information in addition to nutritional values.

2. Transparency in material sourcing

Consumers are becoming more and more conscious of where the food came from and how it was grown or made. Many young consumers are placing sustainability as an important decision making factor when buying their food. Social responsibility of buying ethically grown, sustainable foods is often more important that price.

Nestlé could start sourcing all of its materials from sustainably grown plantations and farms.

3. Growing number of small food startups

There is a growing number of food startups that are looking for ways on how to disrupt the food industry. According to CB Insights,[8] food startups raised nearly US$5.5 billion in 2015, indicating a significant support for the food startups. These new startups are developing the next generation foods and drinks, provide various solutions on food delivery, new meal kits, specialty foods and introduce new ways to grow and sell the food.

In the current situation, where the established brands are losing sales and the capital is still very cheap, Nestlé could increase its investments in startups that will help the company to meet the future challenges and increase the sales.

4. Growing ready-to-drink (RTD) tea and RTD coffee markets

According to the Beverage Marketing Corporation Report,[9] RTD coffees is the fastest growing liquid beverage sector in the U.S. for the last 3 years. While the whole beverage industry grew only slightly, RTD coffees grew by a staggering 37%. Healthy beverages, such as RTD teas were also growing over 4% annually.

Figure 3. RTD coffee growth compared to the growth of the whole liquid beverage market in the U.S. (in percentages)

Source: Beverage Marketing Corporation[9]

Even though Nestlé is one of the biggest coffee sellers in the world, the company doesn’t have any significant brands in RTD coffee or RTD tea markets. The are many smaller brands that could be acquired in the industry or the company could push its own RTD brands to the U.S. market to take the advantage of the growing RTD sectors.

Threats

1. Poor quality water and its scarcity

Beverages, make over 25% of the total Nestlé’s sales and water is used in all of their production. Bottled water products alone generate 8% of the total company’s revenue.

Water is scarce and is becoming even more scarce due to the factors such as climate change, growing populations, overexploitation of resources, the increasing demand for food products, increasing pollution and the poor management of waste water. Demand for water is increasing, and it will likely become more difficult for Nestlé to access both clean and inexpensive supplies of drinking water, resulting in potentially increased production costs and therefore lower profitability.

The company also currently receives lots of criticism and negative publicity over its high use of drinking water near the communities suffering from droughts. In the future, water scarcity will likely become a more significant problem that will negatively impact company’s operations.

2. Increased competition in the beverage and food industries

According to Nestlé, competitive rivalry is one of the key threats affecting the company. The beverage and food industries are highly competitive and consist of numerous small, large and multinational companies. Beverage, food and snack products compete primarily on the basis of brand recognition, taste, price, quality, product variety, distribution, advertising, packaging, convenience, service, marketing and promotional activity, as well as the ability to anticipate and respond to consumer trends.[1]

Food and beverage markets are growing very slowly and with so many new startups, Nestlé will find it hard to compete in the future.

3. The price of coffee beans could significantly rise due to major weather disasters

Coffee generates over 10% of the company’s total sales and coffee beans are the major raw material used in its production. Therefore, Nestlé’s profit margins are dependent, to some extent, on the price of coffee beans, which over the past several years has been very volatile.

The major reasons for such price volatility are droughts, unusually high or low temperatures and many other weather disasters in Brazil and other coffee-growing countries. In addition to those factors, growing demand has increased competition for the best quality coffee beans and has pushed the prices up significantly.

Sources

  1. Nestlé (2017). Annual report 2015. Available at: http://www.nestle.com/asset-library/documents/library/documents/annual_reports/2015-annual-review-en.pdf Accessed 6th January, 2017
  2. Strategic Management Insight (2017). PepsiCo SWOT analysis 2017. Available at: https://www.strategicmanagementinsight.com/swot-analyses/pepsico-swot-analysis.html Accessed 6th January, 2017
  3. Nestlé (2017). Brands. Available at: http://www.nestle.com/brands Accessed 6th January, 2017
  4. Forbes (2017). The World’s Most Valuable Brands. Available at: http://www.forbes.com/powerful-brands/ Accessed 6th January, 2017
  5. Interbrand (2017). Best Global Brands 2016. Available at: http://interbrand.com/best-brands/best-global-brands/2016/ranking/ Accessed 6th January, 2017
  6. Smith, S. E. (2015). 5 shocking scandals that prove it’s time to boycott Nestlé. Available at: http://www.dailydot.com/via/nestle-california-bottled-water/ Accessed 6th January, 2017
  7. Renner, B., Ringquist, J. (2016). Consumer Trends in The Food Industry. Available at:https://www2.deloitte.com/us/en/pages/consumer-business/articles/us-food-industry-consumer-trends-report.html Accessed 6th January, 2017
  8. CB Insights (2016). The Periodic Table of Food Tech. Available at:https://www.cbinsights.com/blog/periodic-table-food-tech-startups/ Accessed 6th January, 2017
  9. Beverage Marketing Corporation (2016). Press Release: The U.S. Liquid Refreshment Beverage Marketing Accelerated in 2015, Reports Beverage Marketing Corporation. Available at: http://www.beveragemarketing.com/news-detail.asp?id=335 Accessed 6th January, 2017

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