Nestle India Limited

Porter’s Five Forces Model

New entrants: - There has hardly been any new entrant in this field because the existing firms like Amul, Brittania and, of course, Nestle, are enjoying considerable brand loyalty. Entry barriers are quite high as any new entrant will have to face considerable competition from these brands.

Substitute Products: - Though it may seem like there can be no substitute for dairy products, the trend is changing fast. Confectionery shops are opening everywhere enticing people to switch to confectionery and instant foods. Emergence of departmental stores like Spencer’s are also providing ready to eat options. Nestle needs to keep a watch over these trend and innovate accordingly.

Suppliers: - The main suppliers in this case are farmers. Their bargaining power is not very high. Nestle should look to enter into long term formal contracts with its suppliers. Since the supply has been fairly stable and is expected to be so in the coming future, we can say that Nestle faces low pressure in this area.

Buyers: - This is by far the most complex area for Nestle. Dairy products are almost perfect substitutes with their hardly being any scope for product differentiation. The switching costs for customers from one brand to another are also low. So Nestle needs to cater to the different tastes and wide variety of demand in order to attract customers.

Rivalry amongst existing firms: - Nestle faces highest pressure from existing firms like Amul, Unilever, Kraft, Britannia, etc. These competitors offer the same quality products at the same prices.

SWOT Analysis

Strengths: -

1) The company has a very long history of over 140 years. This means that the brand name is firmly entrenched in the consumers’ brands. Brands like Nescafe, Maggie and Cerelac are almost generic to their product categories.

2) It is a truly global company as it has operated factories in over 140 countries. It has a fair idea of markets around the world and can make fair estimates of market conditions.

3) Its low cost of operations gives it an edge over competitors.4) It produces a wide variety of products which run into thousands.5) Nestle has a worldwide network of research and development centres in 17 locations across

four continents. An international staff of 3500 engaged in the search for innovative new products and the renovation of existing ones.

Weaknesses: -

1) A major weakness of Nestle is that it is entering into markets that are already mature and may give tough competition to new entrants.

2) Exports are another of concern, around 67% is that of instant coffee to Russia, this constitutes of a big chunk of the total products to a single location.

3) They were not as successful as they thought in some markets especially in France.

Opportunities:-

1) Consumers in the developing nations increasingly have more disposable incomes at their disposal and hence are ready to switch from local produce and local brands to Nestle’ brands which are pricier but offer better quality

2) The health conscious are growing in number and Nestle’ with their immense repertoire of health products and their expertise in marketing can make full use of the changing needs of the market.

3) The market for dairy substitutes has also been growing steadily and there’s some headway to be made in that direction too

Threats:-

1) The company has been subject to a lot of criticism over the years for their marketing of baby foods and breast-milk replacements in third world country

2) People making healthy choices in their diets can also make it very difficult for Nestle to convince consumers of the ‘healthiness’ of their products due to the company’s long standing association with food that is considered ‘unhealthy’ or ‘guilt food’.

3) Due to the recent criticism of various food companies there has been a trend towards over-regulation of the market which heavily increases the cost of production.

Identification of company’s strategies

1. Nestlé is strengthening its production capacity in Europe, investing more than CHF 54 million (13billion Hungarian Forint) to extend its Purina pet food factory in Hungary.

2. Nestle opens new factory at Angola The factory in Angola is Nestlé’s first in the country. Located in Luanda, it is a ‘finishing centre’ for packing products such as Nido milk powder.

3. Nestle acquires Pfizer nutrition to enhance its position in global infant nutrition.4. Nestlé is centralizing its work in clinical development with the opening of a new unit dedicated

to the management of clinical trials. s5. Nestlé’s India specific strategy is for health care. They want to target nutritional deficiency.

Nestlé S.A. is investing CHF 50 million in a new research and development centre in Manesar, Haryana, which will become operational towards the end of 2012.

6. Nestlé is targeting the rural market with its affordable, fortified ‘Popularly Positioned Products’ (PPP). PPP products in India include the iron-, iodine- and vitamin A-fortified Maggi

Masala-ae-Magic spice mix and Maggi 2-Minute Noodles with added calcium and protein. Nestlé India has a factory in Uttarakhand dedicated to PPP production

7. Nestle is going to diversify in chocolate category to compete with kraft-cadbury competition. They want to build on Munch brand.

Recommendations:-

1. Improving the image of the company must take first priority and given the amount of resources at their disposable it should not be much of a problem.

2. Discontinuing products and marketing practices which have come under heavy scrutiny in recent times can be a good way of amending its relationship with disgruntled consumers.

3. Improving market penetration with buying out local products as well as some minor players on the global scene may help in improving the reach of the company.

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