Nestlé Australia and U.K

A. Introduction to Nestlé

Henri Nestlé founded Nestlé in 1866. The company is based in Switzerland. Henri Nestlé founded the company to produce baby formula for mothers who could not breast feed their children. Nestlé later ventured into chocolate, condensed and powdered milk products, and eventually coffee and tea products. By the onset of World War II, both Nestea and Nescafé were on the market. The war lead to a sharp decline in profits for the company since Switzerland was a neutral country. By 1943, Nescafé was the staple beverage of American soldiers that were serving in Europe and Asia.

From the 1950’s to the 1970’s Nestlé acquired a lot of companies in order to diversify its portfolio of food products and eliminate competition. They bought many companies including Stouffer’s frozen foods, Libby’s juices, and a British company that specialized in canned foods and preserves. During this time, they saw their profits soar and the introduction of many new products that were almost immediate successes. In the late 1970’s the company had to venture outside of food products in order to offset the slowing economy and currency exchange rate problems. They ventured into cosmetics and into pharmaceutical products.

As of 2002, Nestlé employs 254,199 people. It is currently headquartered in Vevey, Switzerland. Their markets essentially cover the entire world. Anyone can go to almost any country (with the exception of most third world countries) and find at least one Nestlé product. In 2002, Nestlé had a net profit of $5,862,100,000 USD with $69,099,000,000 USD1 in revenues. Nestlé is the perfect example of a global enterprise. They have operations spanning many countries in order to meet the huge demand for all of the products they offer worldwide. Nestlé’s closest competitors are Unilever and ConAgra Foods. Neither of these companies is as big as Nestlé, but still considered competition. The trends for the food industry have tapered off but are still positive, according to Nestlé.

B. Nestlé in the Global Environment

From coffee and candy to hotdogs and pasta, it seems like Nestlé U.K. has a stake in every category of the food industry. Some of Nestlé U.K.’s more popular brands include Nescafé coffee, Kit-Kat and Aero candies, Herta Frankfurters, and Perrier and Nesquik drinks.

Nestlé United Kingdom has been involved in some important as well as sticky situations when it comes to the aspect of the social, ethical, and legal environment and Nestlé has taken it upon themselves to address these situations instead of avoiding them.

Nestlé is concerned about the extremely low coffee prices that are in the market currently and the effect that it is having on the coffee farmers. They have made a brochure available online that establishes its position on the situation. They believe that consumers have a right to the low coffee prices; however something should be done in order to improve the coffee farmers living conditions.

Currently, Nestlé is the victim of a boycott of its products by people who are against the company because they believe Nestlé’s aggressive campaigns for artificial infant feeding as opposed to breastfeeding in developing countries as well as developed countries. There are many sites on the internet targeting Nestlé and encouraging consumers to boycott Nestlé products because of research that says bottle-fed babies are immune to more serious problems when compared to breastfed infants. Nestlé has a section on its own website devoted to their policy regarding infant feeding. According to the site, “there are a lot of misunderstandings about how Nestlé sells infant formula products in the developing world.” Nestlé claims that they follow laws and regulations concerning the World Health Organization Code (WHO) in developed countries, and they voluntarily adopt the W.H.O. Code in developing countries. The infant feeding controversy is only becoming hotter as time goes on.

Another situation that Nestlé was involved in was the U.K. livestock crisis of 2001, where there was an outbreak of foot and mouth disease. The role of businesses, including Nestlé, was questioned by the Cumbria City Council.

Nestlé has also been active in the acquisition and investment market. In 2002, Nestlé made a bid for candy maker Hershey Foods. In May of 2002 Nestlé was on the selling side when Hicks, Muse, Tate, and Furst Inc. acquired a broad range of products from Nestlé U.K. and Nestlé Ireland including pickles, vinegars, sauces, non-dehydrated foods, and more through its portfolio company Premier International Foods.

When it comes to differences between consumers and Nestlé the company is being tested right now. Consumers are resistant towards some of the genetically engineered ingredients that Nestlé is using. According to a study done by scientists on bioengineered foods, rats that consumed these ingredients suffered from shrinking internal organs and suppressed immune systems. This study and the resistance of customers have forced Nestlé to phase out sales in the U.K. Other major food retailers, including Nestlé’s competition, have pledged to remove these ingredients from their products.

Obviously some risk factors do surround Nestlé. The most important situation that could determine what happens in the future deals with the infant feeding formula they produce and distribute in many countries. The path that Nestlé’s competitors have taken with transgenic foods could also challenge Nestlé. If Nestlé does not address this situation in a similar manner that their competitors did then they could face more resistance from consumers.

Although these situations have challenged Nestlé U.K. and the entire company, they seem determined to keep an important stake in the food and drink industry. Their ability to develop items for the local and global market has proved that their existence is important. This is why Nestlé U.K. is a great division to expand their business. They already have many successful products which have graced this country and it seems as though Nestlé has not even reached its peak in the U.K. They could achieve even greater success after all the negative situations surrounding the company are resolved.

Before establishing factories in Australia, this continent was served by a network of sales agents. By 1906, Australia had become the second largest export market for Nestlé, so they decided to set up business in Australia by 1908 and begin local production. The invention of MILO (a beverage) in 1934 stands out as a great Australian achievement. The headquarters of Nestlé in Oceania region is located in Australia, which includes the operations in Australia, New Zealand and the Pacific Islands. Products in Australia range from infant nourishment and milk products to confectionary and ice cream products.

Nestlé is one of the largest investors in food technology research and development. To understand the needs for superior performance, Nestlé is working in collaboration with the Australian Institute of Sport’s (AIS) nutrition department. As a producer of packaged goods, Nestlé became a signatory to the National Packaging Covenant in September 2000 and took specific actions to reduce the impact of its products and packages upon its environment. According to ‘RepuTex,’ a social responsibility rating company in 2003, Nestlé Australia has been rated an overall ‘Satisfactory A’ in its environmental impact, corporate governance, social impact, and work place practices. Nestlé has also taken a long-term approach to building a credible social responsibility profile. The RepuTex Rating Committee notes Nestlé’s constructive programs to promote health and nutrition. Nestlé is the leader when it comes to social impact compared to its peers in food, beverage and tobacco sector.

Nestlé backs many worthwhile community projects through Nestlé’s Community Fund, including the Child flight emergency helicopter service, the Australian Theatre for Young People, the New Children’s Hospital in Sydney and the Starlight Foundation’s Fun Trolley scheme for young children in hospital. Nestlé has a community program in Australia called Nestlé Good Life Program covering a wide diversity of interest and activity, in areas of sport, health, the environment, education, arts and recreation for many people in every part of the country and encouraging them to be the best they can be. Nestlé works with Australian Meals on Wheels Program and Food Bank Australia to deliver and feed thousands of poor and hungry people.

Nestlé’s Oceania division is also involved in exporting to different countries. Their exports from Oceania region were worth more than 425 million Australian dollars in the year 2001. Of the products that were exported, 61 percent were milk-based products and 17 percent were infant nutrition products and 12 percent were all other products.

One of the main problems Nestlé is facing in Australia as in any other country is the problem with genetically engineered foods. Nestlé said that the world’s farms will have to begin growing genetically engineered foods if mankind is to have enough food to sustain its survival. In Australia Nestlé is the chief promoter of genetically engineered foods. This is one of the reasons why groups like RAGE (Revolt Against Genetic Engineering) is calling for a boycott against Nestlé products. Despite these problems Nestlé says that it supports the use of modern biotechnology, including gene technology, as it allows improvements to be made rapidly, precisely, and safely. Another reason for the boycott in Australian headquarters was that Nestlé has declared its products genetically engineered-free in Austria, Germany, and Britain so there was no conceivable reason why Nestlé could not do the same in Australia.

C. Nestlé’s Technology

Since Nestlé’s beginning over 130 years ago, they have always been on top of technological innovations and scientific breakthroughs within the food industry. Food, being one of the more complex areas of research, calls for a multidisciplinary but integrated approach across the biological, physical, chemical, medical, and social sciences. Nestlé is unique in the food industry in that they have an integrated research and development program that engages in practical and basic research in the fields of human physiology, health, raw materials, and nutrition to support their technology innovations. Being a technological leader in the food industry, Nestlé realizes that science and technology are vital for future growth and success of the company. With technology thriving in recent years, Nestlé has had a large amount of technology available to them in the food industry and has utilized their research and development department to capitalize on these opportunities.

Research and Development plays a crucial role in assuring the sustainability of Nestlé’s position of the world’s leading food producer. The fundamental role of research and development at Nestlé is to create new products and manufacturing processes in addition to improving the already existing products and processes. At Nestlé, this is accomplished by focusing on product development, packaging processes, making products, and designs that deliver enhanced marginal contribution and growth, and most importantly, aligning research and development to Nestlé’s overall business strategies. The “innovation and renovation” in the Research and Development that takes place at Nestlé is based on three major components:

The Nestlé Research Center
Product Technology Centers / Research and Design Centers
Application Groups

Nestlé employs over 3,800 people in their R&D network that spreads across nine countries on 4 continents. The main component of the research and development that takes place at Nestlé is the Nestlé Research Center, located in Lausanne, Switzerland. The Nestlé Research Center is the “heart and soul” of research and development at Nestlé and is acknowledged by scientific experts as a leading institution in research on food and nutritional science. The primary responsibility of the Nestlé Research Center is providing the fundamental research in nutrition, food science and safety. The research center is a very important part of Nestlé’s research and development as it plays a central role as a producer of the scientific knowledge for the science and technology that ultimately feeds into every one of Nestlé products. The second component of the “innovation and renovation” that takes place at Nestlé is the 9 Product Technology Centers and the seven Research and Design Centers. The nine Product Technology Centers each work in a specific food and beverage sector and the main job of these centers is to translate technology and scientific ideas into industrial applications for the company to utilize. This provides Nestlé with the “technological know-how” for new products and processes. The heart of the Product Technology Centers is the pilot plant which is comparable to a miniature factory that simulates manufacturing processes on a smaller scale. Nearly all of the Product Technology Centers also contain a packaging development section given that any new product must have a package specifically designed for it when it is manufactured. When designing packaging for any product, one of Nestlé’s main goals is to utilize technologies related to reducing packaging material consumption as a part of Nestlé’s commitment to environmentally sound business practices. Another part of the Product Technology Centers are the laboratories which make available an array of integrated scientific support, including tests on ingredients, raw materials, packaging and products to ensure that all quality norms are met and that the product corresponds to regional and local needs and demands. The Nestlé Research and Design Centers function very similar to the Product Technology Centers with the exception that they do not have the same extent of technical support. The Research and Design Centers are therefore focused on product development either by teamwork with a Product Technology Center or from a particular geographic point of view.

The third and final component of innovation and renovation that takes place at Nestlé is their Application Groups. There are approximately 270 Application Groups and their primary responsibility is focusing on product renovation as well as new product launches. They focus on improving sales and marketing strategies in order to generate revenues and profits for Nestlé. Every one of these components is vital for the success of Nestlé’s research and development as well as the overall success of the company’s products.

Behind every product that Nestlé produces is years of research and development. One of the examples of this research and development is Nestlé improving cardiovascular health through balanced fats. Nestlé has adjusted the fatty profiles of food products to create a balance between saturated, monosaturated and polyunsaturated fatty acids and omega 3 and omega 6 polyunsaturated fatty acids. The omega 3 and 6 fatty acids help to control blood cholesterol levels in the body and maintain cardiovascular health. So by balancing the fatty acids out it creates a healthier product.

Another example of Nestlé’s research and development is the creation of baby formula that helps to reduce allergies in infants. According to Nestlé about 30% of children are affected by allergies. Approximately 10 years ago Nestlé created and launched its hypoallergenic formula for infants. The process Nestlé uses in the formula involves splitting protein molecules to reduce the allergenicity of the formula. The formula has been tested in many clinical trials and has been proven to be effective in reducing allergies. Recent improvements in the formula have improved the nutritional quality and the taste. Specifically the new improvements include a higher quality of the protein and specially developed and selected whey that helps the formula to closely approach that of breast milk. Nestlé has also improved the taste to make it comparable to standard formulas by improving the processing technologies of the formula.

There are many other areas that Nestlé has research and development in. The following are just a few of Nestlé’s success stories resulting from key innovations through research and development:

Healthier and well-being through probiotic foods
Prebiotic fibers
Milk calcium for healthy bone growth
Cardiovascular health through balanced fats in food

These are just a few examples of the many successful implementations of the research and development by the Nestlé Corporation.

D. Country Analysis and Growth Opportunities: Nestlé

Nestlé is a worldwide power in the food and consumer products industry with millions of dollars in sales worldwide, but even with their mammoth size they still face some serious challenges. One challenge facing Nestlé in Australia, the UK, and in eighteen other countries around the world is a growing movement to boycott their products related to bottle feeding babies. The people organizing these boycotts say Nestlé is deliberately trying to get women not to breastfeed, but to start their new babies out on their brand of infant formula as early as possible to gain customers. The boycotters also say that Nestlé discourages breastfeeding by citing research done by Nestlé showing that states that bottle feeding is better than breastfeeding for an infant. The boycotters also say that Nestlé gives free samples to maternity wards of hospitals and informs the nurses there that bottle feeding the new babies is more beneficial than the mother’s milk. The boycotters also claim that Nestlé is targeting impoverished women in developing nations by getting the babies to start taking the formulas while in the hospital and then when the babies go home they wont suckle so that these women who can barely afford to feed themselves have to buy this formula to feed their babies while the breast-milk that they produce naturally is allegedly better for them.

Nestlé, however, does dispute these charges quoting their own founder saying that breast milk is preferable in the first few months of a child’s life and that artificial feeding should only be used as a secondary method if the mother cannot breastfeed or the baby cannot suckle.

I would suggest to Nestlé that maybe they should pull back some on their aggressive promotion of their infant formulas and follow suit with their peers in the tobacco industry by starting an ad campaign showing some of the dangers of giving a baby artificial formula too early and showing the benefits of breastfeeding.

Another main challenge facing Nestlé today is a steady decline in the hot drink markets, especially in the U.K. For years Nestlé has enjoyed a flourishing business in the hot coffee and tea markets in the U.K., but over the past twenty years they have begun to notice a steady drop in demand for these traditional hot drinks. Nestlé has had to cut back on its production of products like Nescafé and lay off some of the employees who worked in that division. This is a major challenge facing the company because this particular sector was a profit center for so many years, but as a consultant to the company I would recommend that they continue with the changes that they are making since these markets have peaked then they will only continue to decline. It would hurt the company in the long run to keep making the products at the same level as before.

A huge opportunity for Nestlé in both Australia and in the U.K., despite the drop in the traditional hot coffee and tea markets, is the advent of the markets in the premium, fresh coffee, a iced coffee, and iced tea markets. Thanks in part to the current rise in popularity of premium coffee shops, like Starbucks, the demand for these same premium coffees at home are a continuously growing market. Also due to coffee pots that can grind beans and then brew in one device creates a growing demand for fresh coffee beans for home consumption. For the iced coffee and tea markets these products should be targeted toward young people, namely teenagers and college students that consume these products for image and style. As a consultant I would advise Nestlé to put more time and money into developing these products because they could replace their Nescafé customers and get into a market that is still wide open for large growth.

SWOT Analysis: Nestlé Australia

Nestlé Australia Ltd is a foreign owned Public Company that is ranked number 83 out of the top 2000 companies in Australia. The company generates the majority of its income from the Food, Beverage and Tobacco Manufacturing in Australia industry

Strengths

Quality products
- Nestlé Confectionery
- Nestlé Cereals
- Nestlé Yogurts
- Nestlé chilled meats
- Nestlé Coffee, water, and other drinks
- Nestlé Milks & Creams
- Nestlé Nutrition
- Nestlé Pasta
Growing Market
- During last two years, the sales in Australia increase at an average of about 17.06%.
Worldwide Company
Technology
- Gene Technology
- To improve the quality, availability and nutritional value of food
- Has the potential to increase food production and to support sustainable agricultural practices.
Skilled and committed team
- Project Management Skills
- Manufacturing Improvement Techniques
- Category Management
- Management and Leadership
- Supply Chain Diploma
- Analysis and Decision Making
- Selection Interviewing
- Coaching Skills
- Behaving Assertively
- Influencing Skills
- STEP (Systematic Training for Effective Parenting)
Good name in community
- Nestlé’s Good Life Program
  - The Nestlé Good Life Program is a group of community programs covering a wide diversity of interest and activity, in areas of sport, health, the environment, education, arts and recreation for many people, in every part of the country and enabling them to be the best they can be.

Weaknesses & Threats

High number of competitors
- Arnotts Limited
- Australian Co-operative Foods Limited
- Berri Limited
- Bonlac Foods Limited
- Burns Philp & Company Limited
- Cadbury Schweppes Australia Limited
Adverse reaction to baby milk
- Damage control – Nestlé opened up a website to provide information to people about the baby milk issue. http://www.babymilk.nestle.com/.

Opportunities

Expanding further in the Food Industry.
- Tobacco manufacturing in recent years has been very successful. Nestlé can put more money in Research and Design to promote new products in the industry.
Scope for innovation in existing market
- Over 700 Nestlé products have undergone recent renovation to enhance nutrition profile.
Support Research & Development
- 1,205 million CHF ($933.875 million USD) spent on R & D in 2003, which is 1.4% of total sales.

SWOT Analysis: Nestlé U.K.

Strengths

Quality products
Technology
Gene Technology
To improve the quality, availability, and nutritional value of food
Has the potential to increase food production and to support sustainable agricultural practices.
Skilled and committed team
Move towards Nutrition & Wellness
Joint Ventures
- Nestlé & Coca cola
- Nestlé & General Mills
Good name in community
- Nestlé has a strong commitment toward education. Nestlé offers scholarships to students and offers internships at their plants.
Favorable consumer perception
- Kit-Kat Chunky: customer insight, produced in United Kingdom in order to meet customer demands.

Weaknesses & Threats

Competitors
- Kraft Foods UK Ltd.
- Wrigley Co. Ltd (The)
- Britannia Superfine Ltd
- Cadbury Schweppes PLC
Imitation products
Window of opportunity may be limited

Opportunities

Expanding further in the Food Industry.
- Meeting Consumer’s demands. Nestlé started making Buitoni Pasta to meet consumer’s demand. The brand became famous and is now marketed in many countries including United States.
Scope for innovation in existing market
- Over 700 Nestlé products have undergone recent renovation to enhance nutrition profile.
Support Research & Development

Final Conclusion

Nestlé is a very strong company that has many successful products and an outstanding research and development division. The company has good growth potential and many opportunities in its existing markets. They have run into many barriers along the way that had to be overcome. Nestlé now has to deal with a changing world and the demand for more natural, unaltered food products. They will have to dispose of the boycott situation quickly.

We chose the U.K. and Australia since they seem to be the best markets where Nestlé could achieve high growth. We examined other countries and found that they were already well established. Nestlé will eventually reach a point where they will have to venture into new areas in order to grow. At this point in time, they almost have covered the entire world with their food products. Overall, Nestlé has made good decisions and should continue to prosper for decades to come. We see Nestlé as a good investment for strong, sustainable growth in the long-term.