PEST Analysis of Nestle: How politics

and social culture affect its growth

Mar 6, 2019 Kiesha Frue

In this PEST analysis of Nestlé, you’ll learn about how the world’s
largest food and beverage company is affected by four prominent
macro environmental factors. In each section, surprising information
about the company will be uncovered, including…

● Why Nestlé moved production from Britain to Poland?

● What caused a massive profit increase the last year?
● Why people are boycotting the company over controversial
news?

All of this is part of the PEST framework. Using it, the goal is to
understand how politics, the economy, social culture, and technology
impact a company’s growth and success. It’s easy for you to
understand and just as simple for you to do yourself.
Following this framework, let’s get started and learn more about
Nestlé, the second-largest Swiss company in the world.

Also read: SWOT analysis of Nestle

POLITICAL FACTORS: THE COMPANY’S ABILITY TO

IMPACT THE GOVERNMENT

Since Nestlé operates in more than 190 countries, any shift in

regulatory environments can massively impact operations.
Multinational firms like Nestlé have a greater risk of production
bottlenecks because of governmental policies and changes. Basically,
the more countries a business operations in, the greater the chance of
policy changes that may interrupt operations.

For example, the Brexit situation threw a wrench in Nestlé’s plans.

The change threatens the livelihood of production and food workers.
Europe is an important market for Nestlé production and profits. And
the instability of Brexit has disrupted the entirety of the UK food supply
chain. The Brexit change has been so catastrophic that Nestlé
discussed replacing production in Newcastle and York to Poland.
Since, even now, Brexit is still in the air, the company doesn’t have
faith in the future of the country. For that reasoning, it’s smarter to
move operations out of this volatile landscape.

Although political changes often affect the company, moving

operations out of the country affects the unstable environment for
Britain. Losing Nestlé means a loss of over 300 jobs, impacting the
already controversial political British climate. Keep in mind, not many
companies can impact political stability, but Nestlé can.

Nestlé also has to abide by the changing of food standards and

regulations. Each country has its own set of regulations. If Nestlé
doesn’t abide by them, they’ll be cut off; the products won’t be
purchasable, nor edible, in the eyes of the government.

Many food companies, like Nestlé, are experiencing problems

associated with the rising costs of ingredients. As such, many are
decreasing the amount of product they offer. This is a particular
problem for chocolate. People continue to buy chocolate treats at the
same (or even increased) price, without knowing companies are
shrinking the amount of product they get.

ECONOMIC FACTORS: A SURPRISING INCREASE OF

PROFITS AFTER A SLOW YEAR
Foreign exchange swings are an economic issue for Nestlé. As a
multinational firm, the company is easily impacted by the sway of
foreign-exchange rates and prices. If the currency weakens, it may
lead to profit loss, depending on the location. It could also result in the
reverse — a profit increase. Or cheaper options for the importing or
exporting of goods.

Within the last couple of years, Nestlé has been in an upswing for
profit. In fact, in 2018, the company’s profits increased by more than
40 percent. According to the company, profits changed from $7.6
billion to $10 billion. Much of this success is thanks to three things:
The United States market, the Chinese market, and selling off its
confectionery business.

This is a big difference, considering the company reported less than

stellar results from 2017. The company blamed a decrease in
consumer demand in the US and Brazil. But at that time, Nestlé’s
CEO Mark Schneider held faith that company profits would increase in
2018… and boy, was he right!

SOCIAL FACTORS: THE FOOD IS ADORED, THE

COMPANY… NOT SO MUCH
The social environment, including the attitudes, buying behaviors, and
changing demographics, all affect a business. What’s truly affected
food and beverage companies like Nestlé is the public’s obsession
with healthy eating. People want to consume less sugar and lower
calorie foods.

Nestlé knows this. If it didn’t, the company would be in a world of

trouble. Nestlé is focusing on reducing sugar, salt, and saturated fat in
some of its products. This requires reformulating existing products, but
it also opens the door for new versions of classic foods and drinks
Nestlé consumers love.

Although the food is still adored, the company is held less favourably.

Over the last couple of years, Nestlé ran into controversy regarding
the extraction and usage of drinking water. Nestlé takes spring water
from the land, leaving nothing or polluted water behind in its wake.
This has affected indigenous Canadian land, and locations like Flint,
Mich.

When the company does pay to take this water, the price is next to
nothing. Combine this with what previous Nestlé CEO Peter Brabeck-
Letmathe said about the rights to water being “extreme”, people have
become weary of Nestlé. Some are even boycotting the company,
although this can be difficult since Nestlé owns so many food
products.

TECHNOLOGICAL FACTORS: MORE WAYS TO

INCREASE PRODUCTION AND QUANTITY

Nestlé needs to spend more money on research and development. It

has more technology at its disposal to achieve greater feats in the
R&D department; social media, digital surveys, email marketing,
discounts… the list goes on.

It’s much easier to connect with audiences all over the world thanks to
evolving technology. It also means Nestlé has more options to
increase production, food quality, and food availability to consumers.

Some companies are adopting blockchain technology to have full

informational access to products — from development to delivery. This
is also an option for Nestlé, as it can decrease production time. At the
moment, it’s still a costly venture, and would need to be introduced
slowly to each of Nestlé’s production lines.
PEST ANALYSIS OF NESTLE: CONCLUSION

Nestlé is a massive company with ties to 194 countries. It has the

funds and presence to impact governments. It’s also on a profit
upswing, despite the major controversies about Nestlé’s ownership
and views about water rights. The company is in the position to adopt
new technology to learn more about what their consumers want, but if
they don’t clean up their public image, it might be for nothing.

Amul PESTLE Analysis

Posted in Companies, Total Reads: 337
PESTLE Analysis of Amul analyses the brand on its business tactics. Amul PESTLE

Analysis examines the various external factors like political, economic, social,

technological (PEST) which impacts its business along with legal & environmental

factors. The PESTLE Analysis highlights the different extrinsic scenarios which

impact the business of the brand.

PESTLE analysis is a framework which is imperative for companies such as Amul, as

it helps to understand market dynamics & improve its business continuously. PESTLE

analysis is also referred to as PESTEL analysis.

Let us start the Amul PESTLE Analysis:

Political Factors:

The political factors in the Amul PESTLE Analysis can be explained as follows:
Due to favorable political factors, the Amul company achieved a growth of 11.35%

across their operations units in Kolkata, Pune and Mumbai. The company focuses on

developing long lasting relationships with their milk producers by ensuring that they

pay them higher prices. The company has set its milk procurement operation in West

Bengal under “Amul Pattern”. This has resulted in significant progress to the socio-

economic conditions of the members of the producer’s community. In Maharashtra,

Punjab and Gujarat the company has established and maintained new milk societies.

The union has established milk societies outside Gujarat under “Anand Pattern”. They

provide high quality feed, veterinary services and artificial insemination services to

the cattle owned by the milk producers of such societies. For the international dairy

industry, the latest years have been quite difficult due to import and export hurdles

faced in Russia. Lower demand for dairy products in Chinese market, other upheavals

in European countries and product regulations leading to lower level of demand in

Germany has proved to be a barrier in company’s growth. If the Amul company

receives adequate support from the State as well as the Union level then by adopting

latest technologies, they would be able to achieve one of the highest rate of

procurement and progress the company name to a successful level.

Image: pixabay

Economic Factors:

Below are the economic factors in the PESTLE Analysis of Amul:

In many countries Amul has received significant benefits in terms of lower milk

procurement rates by almost 30 to 60 %. This further benefits the company in terms

of reduction in the price of its products such as milk powder and butter by 30%. The

price of the milk powder in India improved substantially from Rs.130 to Rs.150 which

affected the milk procurement prices by Rs.4 to Rs.5 per litre. The national as well as

the international markets are facing recessionary conditions. Increase in

transportation costs can significantly affect the ability of the company to deliver its

products to the end consumer. In the year 2019 an increase of 11.24%, in milk

procurement costs and an increase of 14% in Diesel costs lead to an increase in milk
transportation costs for Amul. During the same year there was an increase in Interest

and Bank Commission by approximately 10%.

Social Factors:

Following are the social factors impacting Amul PESTLE Analysis:

The individual buying decision is mainly the output of social factors like culture and

society. Friends, peer groups, families, reference groups can have a major influence

on the consumption pattern and buying behavior of the consumer. Amul has taken

advantage of these factors and has successfully targeted women and children. It has

created a strong and vital presence in the dairy segment. Vegan lifestyle is being

increasingly adopted by a large number of consumers. Increase in the number of

vegans would negatively influence the dairy industry as the lifestyle itself doesn’t

permit consumption of dairy products obtained from animals. The overall picture for

the company looks in a beneficial position as the Indian households are more

accustomed to morning tea and the people are in general more accustomed to milk

and milk products. The culture of fast food also promotes a certain type of lifestyle

that increases the consumption of ice creams.

Technological Factors:

The technological factors in the PESTLE Analysis of Amul are mentioned below:

Amul as global brand, understands the need to invest in different technologies and

updating the current technology as well in order to capture as well as retain the

current customers. The brand has invested 600-800 crore, in the current fiscal year
for setting up new milk processing plants. The company has also invested in order to

expand the capacity of the existing units as well. The entire industry in general in

adapting to a variety of latest technology that helps in supervising the productivity of

milking animals and dairy farmers. The idea is to identify any faulty practices and

take corrective steps in order to meet the market demand. The latest technologies

are equipped with smart chips of unique identities that are tagged, which help such

companies in registering the productivity and health records of individual animals.

Legal Factors:

Following are the legal factors in the Amul PESTLE Analysis:

The company has faced a lot of problems with regard to infringement malpractices

adopted by the local players in the market. In 1998, Amul noticed that Naroda based

Shri Shakti Dairy, was involved in manufacturing milk pouches under the name of

“Anul Shakti” and “Anul Taaza”. This was a distressing situation for the company as

the names were quite similar with its own brand names “Amul Shakti” and “Amul

Taaza”. The illegal brands were being advertised by a firm which was known as

Kuldeep Enterprises. The private dairy was making use of similar packaging as well

as brand name of Amul and selling them to the rural markets thus creating a

confusion in the minds of the customers. The company fought a 20-year, long battle

against the defaulters, finally winning the case from the Ahmedabad based private

dairy. Such factors can disrupt the market of the products of the company by

capturing the untapped potential and selling fraudulent products to such customers.

Environmental Factors:
In the Amul PESTLE Analysis, the environmental elements affecting its business are

as below:

Due to the effects of global warming that have been experienced by everyone, the

company understands that it is their moral responsibility to protect the environment.

The adoption of automization and the increasing use of modern technologies in its

everyday processing activities like water, fuel, gas and electricity has resulted in

substantial reduction in conservation of national resources. This has further led to

savings in electricity and fuel. On 14th December, 2018 the company, by the

government of India was awarded National Energy Saving Award for coveting the first

position in Food Processing Sector for energy conservation. The award has received

300 entries across India out of which Amul Dairy was declared as the winner of the

award. Amul took an oath in 2007 to plant a sampling and ensure that the sampling

grew into a tree. It encouraged farmers to create nurseries where samplings would be

grown and the company has been able to create 45 such nurseries as of now.

To conclude, the above Amul PESTLE Analysis highlights the various elements which

impact its business performance. This understanding helps to evaluate the criticality

of external business factors for any brand.