St

STRATEGIC MANAGEMENT

REPORT ON NESTLÉ SA FOR BUSINESS

SHR016-3

Student Name : NARESH RAMRATAN

Student ID : 1917453
Date : 8th November, 2019
 Table of Contents
INTRODUCTION 1

ANALYSIS 2

INTERNAL ANALYSIS AND CORE COMPETENCIES 2

EVALUATION OF NESTLÉ’S STRATEGY 3
STRATEGIC POSITION OF NESTLÉ 4
VALUE PROPOSITION OF NESTLÉ 4

CONCLUSION 5

RECOMMENDATIONS 6

REFERENCES 7

APPENDIX 1: RESOURCE-BASED VIEW ANALYSIS OF NESTLÉ SA 9

APPENDIX 2: VRIO ANALYSIS OF NESTLÉ SA RESOURCES 10

APPENDIX 3: SWOT ANALYSIS OF NESTLÉ SA 12

APPENDIX 4: R&D EXPENDITURE BY A FEW OF THE LARGEST FOOD & BEVERAGE COMPANIES IN 2015 13

APPENDIX 5: ROADMAP OF NESTLÉ SA 14

APPENDIX 6: NESTLÉ SA SALES BY GEOGRAPHIC AREAS IN 2018 15

APPENDIX 7: NESTLÉ SA PERFORMANCE 2018 16

APPENDIX 8: NESTLÉ SA ANNUAL REVENUE AND GROWTH FROM YEARS 2014 - 2018 17

APPENDIX 9: NESTLÉ SA KEY FINANCIAL COMPARISONS 2017 VS 2018 18

APPENDIX 10: NESTLÉ SA AND INDUSTRY LIFE CYCLE 19

APPENDIX 11: FOOD & BEVERAGE INDUSTRY ANALYSIS USING PORTER’S FIVE FORCES ANALYSIS 20

APPENDIX 12: KEY FOOD & BEVERAGE INDUSTRY DEVELOPMENTS & THEIR IMPACT 21
Introduction
According to the 2019 Forbes Global 2000 list, Nestlé is the global leader in the Food and Beverage (F&B)
industry, with revenues of CHF$91.44 Billion in 2018. From its humble beginning over 150 years ago, the Swiss
multinational now operates in 191 countries, has 418 factories and 308,000 employees globally. With more than
2,000 brands in seven F&B categories, Nestlé has established itself as a global household name. The company’s
main product categories are: powdered and liquid beverages; water; milk products and ice cream; nutrition and
health science; confectionary; and pet care.

In this report, I will be looking at Nestlé within the F&B Industry. The objectives of this report are to:
1. Identify and Discuss the Core Competencies of Nestlé
2. Evaluate the Current Strategy of Nestlé
3. Identify the Strategic Position and Value Proposition of Nestlé

This Researcher will use the case study provided, a range of sources (pertaining to the Nestlé and the F&B
industry) and various analytical tools to assess the company and present his findings and make
recommendations based on those findings.

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Analysis
Johnson et al (2009, p. 3) define Strategy as "the direction and scope of an organisation over the long term,
which achieves and sustains competitive advantages in a changing environment through its configuration of
resources and competences with the aim of fulfilling stakeholder expectations." From this definition, the
utilization of an organisation’s resources is core to developing a successful strategy. Resources are internal
assets that an organisation possesses and are, therefore, a critical aspect of an organisation's internal
environment.

Internal Analysis and Core Competencies

The Resource-Based View (RBV) Analytical tool (Appendix 1), The VRIO Analytical tool (Appendix 2), and The
SWOT Analysis tool (Appendix 3) were used to the evaluate Nestlé’s Resources.

In an RBV and VRIO Analysis, resources are given a major role in helping companies to achieve higher
organizational performance. They look at the resources of Nestlé to determine its strategic advantages that are
unique to the organisation. The resources that exhibited all four of the VRIO attributes are those resources that
enable Nestlé to gain and sustain competitive advantages. These are identified as the core competencies of the
company. "Core competencies are taken to mean the skills and abilities by which resources are deployed
through an organisation's activities and processes such as to achieve competitive advantage in ways that others
cannot imitate or obtain" (Johnson 2009, p.65). The SWOT analysis confirmed that the critical success factors
(Strengths) of the Nestlé’s Corporate Strategy can be traced to the company’s resources.

From the Internal Analysis, the core competencies of Nestlé identified are:
1. Financial Resources
2. Unrivalled Diversified Product and Brand Portfolio
3. Unmatched Research and Development (R&D) Capability
4. Diversified Geographical Presence
5. Global Brand Recognition and Reputation

These are key to the success of the Nestlé’s strategy. These five inter-related core competencies give the
company a competitive edge over its rivals and are the main reasons for Nestlé being the market leader in the
industry. The company uses its strong financial resources to generate more revenue and profits, and maintain
its current successful strategy by investing in: innovation; technologies; acquisitions and mergers; brands; R&D;
and in growth and expansion e.g. new R&D centre opened in Ireland in January 2019 (Marketline 2019, p.10).
Having strong financial resources also enables Nestlé to seize lucrative opportunities and invest in the expansion
of high growth regions such as coffee e.g. expansion of the new coffee factory in Egypt - January 2019
(Marketline 2019, p.55); and the Strategic Alliance with Starbucks - August 2018 (Marketline 2019, p.55).

Nestlé has the largest diversified portfolio in the industry with over 2,000+ brands with over 10,000+ products
for all the market segments in the industry. This is a sustained competitive advantage that is supported by an
unmatched innovative capability stemming from the largest R&D network in the industry. This industry-leading
R&D capability supports their Nutrition, Health and Wellness (NHW) strategy and their innovation initiatives.
Nestlé has the largest R&D expenditure in the industry (Appendix 4 shows a comparison of Nestlé’s R&D
Expenditure with some of its main competitors). In 2018, CHF$1.7B was invested in R&D (Nestlé Annual Review,
2018). The R&D capabilities enable them to stay ahead of their rivals by enhancing the extensive product
portfolio through rapid innovation and bringing products to the market faster. According to Nestlé (2019),
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“Innovation helps to preimmunize their offering and contributes to margin improvement.” In 2018, 22% of its
sales came from premium products.

Nestlé has an unmatched geographical presence in 191 countries across the globe. This encompasses one of the
company’s operational pillars – to be able to deliver its diversified portfolio to consumers “whenever, wherever,
however” (Appendix 5). This resource is a key driver for global sales. Nestlé, unlike most of its rivals, does not
rely on any single country or a few different countries to generate most of its revenue. In 2018, the single largest
company’s market (USA) only generated 30.8% of the total revenue. Their next largest market, China, generated
7.8% of the total revenue. The rest of the world accounted for 61.4% of the total revenue (Appendix 6). This
shows that Nestlé’s strong and diverse geographic presence gives it a competitive advantage over its rivals which
depend on the USA and China for most of its revenue.

"Wide geographic presence also mitigates the company's business risks and allows it to attain economies of
scale and global recognition” (Marketline 2019, p. 54). Nestlé is the world’s largest F&B company and has existed
for over 150 years. It has operated in most of their geographic locations for generations and as a result, has
deep local roots. These factors along with the other core competencies have contributed to a very strong Brand
Reputation Locally and Globally. Positive Brand Reputation provides a sustainable competitive advantage that
translates into successful marketing and sales strategies.

Evaluation of Nestlé’s Strategy

According to Nestlé, its current Corporate Strategy is: “Nestlé intends to maintain its sustainable financial
performance and market leadership using its compelling nutrition, health and wellness strategy” (Marketline
2019, p.6).

In 1997 Nestlé’s CEO at the time, Peter Brabeck-Letmathe implemented a change in the company's business
strategy. The company moved from being a technology-and-processing led company that produced convenient,
tasty foods and beverages to being a science-driven company based on a Nutrition, Health and Wellness (NHW).
Nestlé committed to the strategic vision of becoming the leading NHW company in the world. Over the next 20+
years, the NHW strategy guided strategic decisions and choices at Nestlé such as innovation and renovation
strategies for diversifying and improving products, merger and acquisition choices, and packaging innovations
that helped Nestlé to differentiate the company, build credibility with consumers, increase revenues and profit
margins, and continue strong growth.

Nestlé’s recent financial performance in 2018 (Appendix 7) can attest to the current success of their strategy.
According to Nestlé, the company had achieved improved revenue growth and profitability in the context of a
volatile economic environment and significant disruption in both their industry and retail sector (Nestlé Annual
Review 2018). This references the current Trade War between USA and China, the two largest markets for
Nestlé. Appendix 8 shows that Nestlé has been generating consistent revenues over the past 5 fiscal years.
Comparisons between the 2 most recent fiscal years show that in 2018, Nestlé recorded revenues of CHF$91.44
Billion and a profit of CHF$10.135 Billion, a significant increase of 42% from that of 2017 (Appendix 9). These
two metrics were used to rank Nestlé as the Number 1 company in the F&B industry on the 2019 Forbes Global
2000 List. Based on 2018’s Financial Performance, the Board of Directors has proposed a 24th consecutive
increase of the yearly dividend to CHF$ 2.45Billion, to be paid in 2019 (Nestlé Annual Review 2018).

Nestlé’s current strategy will continue to be successful in the F&B industry. It has paved the way for Nestlé to
achieve Maturity in the Industry Life Cycle (Appendix 10). Porter's Five Force's analysis (Appendix 11) revealed

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that within the F&B industry, consumers have more bargaining power than companies. The major trends and
developments in the industry (Appendix 12) revolve around the consumers and their evolving preferences. In
the past few decades, there has been a notable shift in consumer choice towards health and wellness as well as
plant-based foods. F&B companies that align their strategies with the changing market trends will be successful
in their efforts to satisfy customers’ preferences. In 1997 Nestlé implemented the very successful NHW strategy
which aligns with the current changes in the industry. According to Nestlé, “Winning with consumers is the
source of our sustainable financial performance and our way to earning trust and maintain our market
leadership” (Nestlé Annual Review 2018).

The company has continued to maintain the NHW strategy and adapts its portfolio to meet the evolving
consumer demands. They have expanded their product portfolio to include vegan and flexitarian diets by
developing plant-based offerings, meat alternatives and promoting sustainable nutrition. To meet that need,
and satisfy the growing market of plant-based foods, Nestlé has also undertaken the acquisition of Sweet Earth
Foods, a plant based-food company, and merged with Terrafertil, a natural foods company. According to Nestlé
(2019), with those investments, they will be well-positioned to be the leader in the plant-based food segment
in Zone Americas.

Nestlé has been recognized by world-leading rating and ranking agencies. Nestlé ranked 1st out of 22 global
F&B manufacturers in the 2018 Access to Nutrition Index™ (ATNI) and ranked 2nd in the Food Products industry
of the 2018 Dow Jones Sustainability Index (DJSI), scored 100 for Health and Nutrition performance, and hold
the leadership scores in the Environmental and Social Dimensions (Nestlé Annual Review 2018). These
acknowledgements serve as evidence of how successfully the company adapted to the industry developments.

Strategic Position of Nestlé

According to Nestlé’s Corporate Strategy and the SWOT Analysis (Appendix 3), the company has positioned itself
as the Market Leader in the F&B Industry.

Value Proposition of Nestlé

In 2006, Nestlé outlined its Value Proposition:

“Creating Shared Value (CSV) is fundamental to how we do business at Nestlé. We believe that our company
will be successful in the long term by creating value for both our shareholders and for society. Our activities and
products should make a positive difference to society while contributing to Nestlé’s ongoing success.”

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Conclusion
This Researcher analyzed Nestlé’s resources to identify the core competencies of the company. The resources
that possessed VRIO attributes provided Nestlé with sustained and unique competitive advantages. These were
found to be the core competencies. The core competencies identified were Nestlé’s: Financial Resources;
Diversified Portfolio; R&D Capabilities; Geographical Presence; Brand Recognition and Reputation. The 5 core
competencies were found to be interrelated and together they enable Nestlé to outperform its rivals in the F&B
industry.

This Researcher determined that Nestlé’s current strategy will remain appropriate in view of the changes
impacting the F&B industry and will continue to be successful. The strategy is aligned with the current trends in
the industry and accommodates the changes associated with these trends.

Nestlé is the F&B Industry's Market Leader. It has sustainable financial performance and is unrivalled in product
and brand portfolio, geographic presence and R&D capabilities. The company also has a CSV initiative
where it aims to create value for both their shareholders and society from their products and business
operations.

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Recommendations
This Researcher recommends that Nestlé continues to employ its current NHW strategy. The Findings of this
report demonstrated that the NHW strategy has guided strategic decisions that have enabled the company to
utilize their resources and gain sustainable and unique competitive advantages that have allowed them to
achieve the position as Market Leader in the Industry. It has also guided the strategic choices at Nestlé such as
innovation and renovation strategies for diversifying and improving products, merger and acquisition choices,
and packaging innovations that have helped to successfully differentiate the company in an extremely
competitive industry. These strategic decisions delivered growth in revenues and profit margins and increased
its returns to its shareholders for the 24th consecutive year, in spite of the current volatile global economic
environment. This strategy has also built credibility with consumers and established global brand recognition
and positive brand reputation.

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References
Colbert, R. (2019) 5 Trends Transforming the Beverage Industry. Available at:
https://home.kpmg/xx/en/blogs/home/posts/2019/08/five-trends-transforming-the-beverage-industry.html
(Accessed: 30th October, 2019)

Committee for Economic Development. (2017) Economic Contribution of the Food and Beverage Industry.
Arlington: Report.

Corporate Finance Institute (2019) Industry Life Cycle. Available at:

https://corporatefinanceinstitute.com/resources/knowledge/strategy/industry-life-cycle/ (Accessed: 29th
October,2019)

Craft. (2019) Nestlé Revenue. Available at: https://craft.co/nestle/revenue (Accessed: 26th October, 2019)

Forbes (2019) The World’s Largest Public Companies. Available at:

https://www.forbes.com/global2000/list/#search:nestle_industry:Food%20Processing (Accessed: 26th
October, 2019)

Johnson, G., Whittington, R., and Scholes, K., (2009) Fundamentals of Strategy. London: Pearson Education
Limited, pp. 3, 12, 60, 65

Jurevicius, O. (2013) Resource-Based View. Available at:

https://www.strategicmanagementinsight.com/topics/resource-based-view.html (Accessed: 26th October,
2019)

Jurevicius, O. (2013) VRIO Framework. Available at:

https://www.strategicmanagementinsight.com/tools/vrio.html (Accessed: 26th October, 2019)

Jurevicius, O. (2017) SWOT Analysis of Nestlé. Available at:

https://www.strategicmanagementinsight.com/swot-analyses/nestle-swot-analysis.html (Accessed: 27th
October, 2019)

Marketline. (2019) Company Profile Nestlé SA. pp. 3, 6, 10, 54-57, 59

Nestlé (2019) #3 Global Food Trends We’re Hitting. Available at: https://www.nestle.com/stories/three-global-
food-trends (Accessed: 30th October, 2019)

Nestlé. (2019) Annual Review 2018. Available at: https://www.nestle.com/sites/default/files/asset-

library/documents/library/documents/annual_reports/2018-annual-review-en.pdf (Accessed: 27th October
2019)

Nestlé. (2019) Strategy. Available at: https://www.nestle.ir/en/about-us/strategy (Accessed: 26th October,

2019)

Nestlé. (2019) The Nestlé Company History. Available at: https://www.nestle.com/aboutus/history/nestle-

company-history (Accessed: 26th October, 2019)

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NestléProfessional (2018) Adapt to Today's Demand for Plant-Based and Flexitarian Menus. Available
at:https://www.nestleprofessional.us/trends/adapt-todays-demand-plant-based-and-flexitarian-menus
(Accessed: 30th October, 2019)

Olayanju, J. B. (2019) Top Trends Driving Change in the Food Industry. Available at:
https://www.forbes.com/sites/juliabolayanju/2019/02/16/top-trends-driving-change-in-the-food-
industry/#12c70d656063 (Accessed: 30th October, 2019)

Sorvino, C. (2019) The World’s Largest Food and Restaurant Companies in 2019. Available at:
https://www.forbes.com/sites/chloesorvino/2019/05/15/worlds-largest-food-restaurant-companies-
2019/#7926e5ac5f0d (Accessed: 26th October, 2019)

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APPENDIX 1: Resource-Based View Analysis Of Nestlé SA

Tangible Resources of Nestlé

1. Financial Resources (2018) 3. Physical Resources

• Total Revenue : CHF$ 91.439 Billion • 10,000+ Products
• Profit : CHF$ 10.135 Billion • Headquarters in Switzerland
• Operating income : CHF$ 13.752 Billion • 151 Factories in Europe
• Total Equity : CHF$ 57.363 Billion • 158 Factories in the Americas
• Total Assets : CHF$ 137.015 Billion • 109 Factories in Asia, Oceania and Sub-Saharan
2. Organisational Resources Africa
• Business Operations in 191 Countries. 4. Technological Resources
• Nestlé’s governing body is the Annual General Nestlé moved from being a technology-led company
Meeting of shareholders. that produced convenient, tasty foods and
• Leading the company is the Chairman of the beverages for sustenance, to being a science-driven,
Board and CEO. health and Wellness Company.
• The most relevant of Nestlé’s organisational • Nestlé operates 30 R&D Centers, Product
measures were the creation of Product Technology Centers and Science and Research
Technology Centres, Local Application Centres Centers Worldwide.
and Clusters. • It employs 5,000 people in its R&D departments
worldwide and maintains 25 regional testing
labs, which offer analytical data and quality
assurance support to operations and R&D.
Intangible Resources of Nestlé
1. Human Resources
• 308,000 people have been employed by the Nestlé Company.
2. Innovation Resources
• Nestlé R&D generates the innovative science and technology needed to build nutritional and health benefits
into products offerings.
3. Reputational Resources
• Nestlé scientists play their part in communicating the health and wellness benefits of products to consumers.
• Nestlé owns 2000+ brands some of which are powerful and valuable brands that consumers trust.
• Brand Reputation and Recognition resulting from over 150 years of Operational Experience.
• Nestlé has positive brand image amongst its customers stemming from its: high quality; highly nutritional
products, concerns for the local community & the environment, understanding of human needs, business
(nutrition, health and wellness) strategy and creation of Shared Value.
• Leadership and Visionary Capabilities in the Global F&B Industry.

[Sources: Marketline (2019), Company Profile of Nestlé SA; Nestlé Annual Review 2018]
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APPENDIX 2: VRIO Analysis Of Nestlé SA Resources
Valuable

• The Financial Resources of Nestlé are very valuable as these help in

investing in external opportunities that arise.
• Highly Differentiated Product and Brand Portfolio adds value to the end
consumer. Consumers can select a unique product suited to their taste
and lifestyle.
• Nestlé’s R&D Sector and Innovation are valuable resources. This enables
the company to further enhance and differentiate its portfolio of
offerings.
• Nestlé’s Global Geographic Presence is a Valuable Resource. It has
business operations in 191 Countries and has a very large distribution
network. This enables the company's products to reach its consumers all
over the globe 'whenever, wherever, and however'. This ensures greater
revenues for Nestlé. It also ensures that promotion activities translate
into sales as the products are easily available.
• Employees are a valuable resource to the firm. Nestlé's workforce is well
trained, functional and flexible. The employees are also loyal, and
retention levels for the organisation are high. This enables Nestlé to be an
agile organisation and leads to more productive output. All of this
translates into greater value for the end consumers of Nestlé.
• Nestlé's Brand Reputation is a Valuable Resource. In 1997 Nestlé adopted
the 'Nutrition, Health and Wellness' corporate strategy. Since then the
Brand has been the Global leader for health and nutrition in the F&B
industry and maintains a positive image in the eyes of consumers.

Rare

• The financial resources of Nestlé are found to be rare. Strong financial resources are only possessed by a
few companies in the F&B industry.
• Highly Differentiated Product and Brand Portfolio is a rare resource. Nestlé’s product portfolio is more
extensive than any of its rivals in the industry and this allows the company to better satisfy a wider range of
various consumer needs.
• Nestlé's R&D has 30 R&D centres spread across the globe as well as 25 regional testing labs which makes
them by far the largest R&D Network in the Industry. This makes it a rare resource. Highly skilled and
dedicated personnel consisting of health and research scientists; nutritionists; designers; regulatory
specialists; engineers etc. make up the 5000 employees stationed at these facilities.
• Nestlé’s Unmatched Global Geographical Operations in 191 Countries is a rare resource. Their products can
reach more than 1 Billion consumers every day across the world.
• Nestlé's Brand Reputation is a rare resource. 'Nestlé' - the brand is globally recognized and represents a
promise to the consumer that the product is safe and of a high standard. The name is considered to be
unique and synonymous with: Health; Nutrition; and High Quality.

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Imitable

• The financial resources are costly to imitate. These resources have been acquired by the company through
prolonged profits over 150 years of operation. New entrants and competitors would require similar profits
for a similar period to accumulate these amounts of financial resources.
• The Very Extensive Product Portfolio would be difficult and costly for other companies to match. However,
a few select products can be imitated. These products would possess a temporary competitive advantage
and be subjected to a threat of substitution in the industry.
• The very large and unmatched R&D network possessed by Nestlé would require an enormous amount of
investment and time to match by its competitors. This resource was also developed to its current level during
the 150 years Nestlé has been in operation.
• The distribution network of Nestlé SA Nutrition Health and Wellness Strategy is also very costly to imitate
by competition. Competitors would have to invest a significant amount if they are to imitate a similar
distribution system.
• Nestlé’s Global Geographical Operations would be also difficult and extremely costly for its competitors to
imitate. This has been developed over the years gradually by Nestlé throughout their lengthy existence.
• The Consumer’s Perception of the Nestlé Brand is very difficult to imitate. Their customers perceive the
Nestlé Brand to be one of a kind. This is the case as Nestlé has positioned itself as the market leader for
‘nutrition, health and wellness’ products in the industry for over 20 years since undertaking the strategy in
1997.

Organized to Capture Value

• The financial resources of Nestlé are organized to capture value. One of the company’s objectives is to be
the reference for Financial Performance in the industry and to be trusted by all its stakeholders. These
resources are used strategically to invest in the right places; overcome weaknesses, make use of
opportunities and combat threats to satisfy and deliver value to its stakeholders.
• The Diversified Product and Brand Portfolio are organized to capture value. Nestlé’s vision is to meet the
various everyday needs and desires of the consumer by producing a wide variety of high-quality products.
Their offerings are created to capture and add value to consumer's lives.
• Nestlé’s R&D Network is organized to capture value. It is a core component in the company’s differentiation
strategy and overall success. It enables the company to pursue its innovation initiative and create its
diversified product portfolio.
• Nestlé’s Global Geographic Presence is organized to capture value. The aim is to deliver its extensive product
portfolio to consumers ‘whenever, wherever and however’. It ensures that their products are available to
their customers all over the globe.
• Nestlé and its Brands are all geared towards capturing value. In 2009 Nestlé undertook the initiative to create
shared value for both their stakeholders and for society. The aim is for the company’s activities and products
to make a positive difference in the world while contributing to Nestlé’s ongoing success. This initiative along
with their ‘nutrition, health and wellness’ strategy are all organized to capture value and create and sustain
competitive advantage.

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APPENDIX 3: SWOT Analysis Of Nestlé SA

Strength Weakness

Financial Performance
Liquidity Position
Diversified Territorial Presence
Product Recalls
R&D and Operational Network

Opportunity Threat

Focus on Coffee Business Expansion Initiatives by Competitors

Focus on Core Business Categories Stringent Regulations
Product and Business Expansions Foreign Exchange Risks

[Source: Extracted from Marketline (2019), p. 54]

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APPENDIX 4: R&D Expenditure By A Few Of The Largest Food & Beverage Companies In 2015

[Source: https://www.strategicmanagementinsight.com/swot-analyses/nestle-swot-analysis.html]
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APPENDIX 5: Roadmap Of Nestlé SA

[Source: https://www.nestle.ua/sites/g/files/pydnoa316/files/asset-library/documents/nestle-roadmap.pdf]
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APPENDIX 6: Nestlé SA Sales By Geographic Areas In 2018

By Principal Currency: CHF$ Total Revenue

Markets (millions) (%)

United States 27,818 30.8

Greater China
7,004 7.8
Region

Rest of the World 55,285 61.4

[Source: Nestlé Annual Review 2018]

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APPENDIX 7: Nestlé SA Performance 2018

[Source: Nestlé Annual Review 2018]

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APPENDIX 8: Nestlé SA Annual Revenue And Growth From Years 2014 - 2018

[Source: https://craft.co/nestle/revenue]
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APPENDIX 9: Nestlé SA Key Financial Comparisons 2017 Vs 2018

[Source: Nestlé Annual Review 2018]

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APPENDIX 10: Nestlé SA And Industry Life Cycle

Nestlé SA is the world’s largest F&B company. For more than 150 years, Nestlé has consistently delivered
sustainable, industry-leading results and holds the strategic position as the Industry's Market Leader. According
to the Forbes 2000 List, Nestlé is the number 1 company in the F&B Industry in 2019 based on revenues and
profits generated in 2018.

Nestlé is currently in the Maturity phase of the Industry life Cycle. It has gained a foothold in the industry due
to its long successful history of operation. Nestlé possesses economies of sales, has a prominent global market
share, and is focused on generating high cashflows, revenues and profits.

The revenues generated from 2014-2018 as well as the sales growth for this period are provided in Appendix 8.
It can be seen that the company has been consistently generating high revenues. Sales growth took a dip in
2015 and incrementally increased from there forth. Growth is relatively less important in the Maturity phase of
the industry life cycle. In 2018, Nestlé recorded a profit of CHF$10.135 Billion, an increase of 42% from that of
2017(Appendix 9). In Appendix 7, it can be seen that Nestlé has a very strong and positive Cash Flow of CHF$10.8
Billion.

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APPENDIX 11: Food & Beverage Industry Analysis Using Porter’s Five Forces Analysis
• Competitive Rivalry
The level of competition in the F&B Industry is very high. This is due to the presence of several very large
multinational organisations. Some of the major companies include Nestlé SA; PepsiCo Inc.; Coca-Cola Co.;
Unilever N.V.; Mondelez International Inc.; Tyson Foods Inc.; Mars Inc., Danone SA; ConAgra Brands Inc. etc.
These companies have large financial resources, have existed for long periods and most are in the maturity
phase of the industry life cycle. These companies undertake many initiatives and aggressive strategies to achieve
competitive advantages to outperform their rivals.

• Threat of new entrants

The threat of New Entrants into the F&B Industry is Low. The Companies that have most of the market share
are all Large Multinational Companies that have had a foothold in the industry for a long time. These companies
possess benefits from economies of scale, large distribution network, strong financial resources and large
product portfolio. Globally, the industry is very unattractive for new entrants. New entrants would require an
enormous high initial capital investment to establish a position in the industry and survive.

• Threat of substitutes
The F&B industry is very large and the level of competition is very high. As a result, it is not unusual for each
company to have products that can substitute for that of their rivals. Therefore, the market for a F&B company
is saturated with many substitute products. The Threat of Substitutes in the Industry is High. For a company to
be successful, it would require an aggressive product differentiation initiative, augmented by superior quality
and successful marketing and branding strategies to develop a large and diversified product portfolio.

• Bargaining power of suppliers:

This depends on the relationship between the company and its suppliers. Most of the top Companies in the
industry have been in operation for decades and as a result, would have developed long-term strategic sourcing
relationships with most of their suppliers. In those scenarios, Suppliers will have low to moderate bargaining
power with the long-established companies in the industry. Due to the large purchasing power of most of these
companies as well as agricultural commodities and their suppliers being common, these F&B companies tend
to possess more bargaining power than their suppliers.

• Bargaining power of buyers:

The F&B Industry is Consumer-oriented and the bargaining power of buyers is high. Products are designed and
tailored to consumer tastes and preferences. The most prominent trends in the F&B industry stem from evolving
consumer tastes and needs. In this Industry, buyers reign supreme. Consumers also have many substitute
products to choose from and are very price sensitive. A company within this industry should focus on increasing
the quality as well as add value to its products. These should be supported by aggressive branding, marketing
and promotional activities to differentiate its products from that of its rivals.

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APPENDIX 12: Key Food & Beverage Industry Developments & Their Impact
The F&B industry over the past century has been volatile. The top companies of this industry have had to adapt
their business and operational strategies to successfully adapt as the industry changes. The coming of the
technological/industrial age saw a revolution of the F&B industry. The advancements in technology and
communication empowered manufacturers and increased innovation of new products. This was a key
developmental era in the industry.

Over the past 20-30 years, the industry has been transforming more rapidly. Some of the drivers for these
accelerated changes include evolving consumer preferences, high level of competition in the industry, digital
transformation and further advancements in technology and innovation. According to Olayanju (2019), the key
drivers that have a major impact on the industry are:

1. Health and Wellness

There is a growing global trend toward healthier lifestyles. As a result, there has been a significant increase in
demand for healthier and more nutritional products. Consumer preferences have shifted towards being more
health-conscious e.g. consumers have shifted more to healthier alternatives than traditional soft drinks.
Evidence of this shift was seen in 2016 when "bottled water dethroned soft drinks as the leader in beverage
sales" (Colbert, 2019).
Olayanju (2019) identified 3 Drivers for this Trend in the F&B Industry:
1) Consumers becoming more educated on the benefits of healthier choices
2) Retailers taking positions with new, smaller, more innovative companies out of a need to diversify and
drive higher margins
3) Companies changing products that have been established over the past 100 years and re-creating
popular items with no sugar alternatives, saturated fats, artificial colouring, GMO-free, and fewer
preservatives

2. Increase in Consumer Demand for Plant-Based Food

There is also a growing global trend toward specific dietary requirements such as lactose-free, vegetarian and
flexitarians. There is growth in consumers taste for 'plant-forward' food where 70% of the dietary requirements
are plant-based food. According to the Research Firm Dataessential (via NestleProfessional, 2018): 22% of
consumers are choosing to limit their meat and/or poultry consumption; 59% of consumers eat meatless meals
at least once a week and between 2017-2018, 16% of consumers ate more vegetarian/vegan menu items, and
41% ate more vegetables. Plant-based and non-dairy alternatives are driving major change in the F&B industry.

3. Increasing Consumer Demand for Food Safety and Transparency

The most recent trend that has had the largest impact on the industry is Food Safety and Transparency.
There is greater demand for more authentic products. Consumers are increasing their education about the
products they consume and as a result, are demanding change from the companies they interact with. Olayanju
(2019) highlighted that "the brands consumers eat and drink have become an expression of whom they aspire
to be, which is why they seek out a company's origin story, sustainability efforts, social consciousness, and
corporate transparency." Food Safety and Transparency issues cost the F&B Billions each year. The trend
influences the ethics, corporate strategy, manufacturing processes, sustainability practices and even down to
the labeling of the products. Companies have made enormous changes to stay competitive within the industry.

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