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Nestle Infant Nutrition PDF
Nestle Infant Nutrition PDF
Index
I. Abstract
- Purpose and goals of this project
II. Introduction of the company
III. Strategy
a) Swot analysis
b) Value proposition and target market
III. Modes of coordination and division of labor
IV. Organizational Structure
V. Managing uncertainty
VI. Classifying Nestle Infant Nutrition within the contingency theory
VII. Organizational model in an international business
VIII. Challenges
IX. Conclusions and recommendations
X. Bibliography
I. Abstract
This project was born from the idea of studying a company that is familiar and could
be known by the majority. Nestle and its infinite products are not only seen in the
supermarkets, but are also continually used by all of us. Nestle is such a broad company that
it needed clear and substantial specializations.
Nestle Infant Nutrition is a branch of the company. Its products served as the main
source of nutritions, given by our parents when we were old enough to stop being breast fed,
but young enough to still need easy meals.
The main focus of our project is to analyze this branch of the Nestle’s company. Our
objective is to understand the way Nestle Infant Nutrition works and what its future
development will be.
Nestlé Nutrition was created in 2006 and has positioned itself as a global leader in
infant nutrition. Nestle has delivered continually increasing growth and margin expansion,
while at the same time it has successfully integrated the Gerber and Wyeth acquisitions. This
is a stand-alone organization within the Nestlé Group, that operates in more than 100
countries (geographical markets). It develops science-based nutrition products and services
that enhance the quality of life for people with specific nutritional needs.
Nestle Infant Nutrition brands are Gerber and NaturNes for baby food, offering the
best nutrition and taste, Cerelac and Nestum for cereals, being considered the ideal food to
complement breastfeeding, and Graduates for wholesome meals, snacks and drinks (nutrition
for toddlers). The main competitors regarding this particular branch are Danone, Hero, Alter,
Ordesa.
II. Strategy
Nestlé Infant Nutrition strategy, however, is focused on delivering well defined and
distinct benefits through the products it provides, while “ensuring that the best interests of the
babies of parents are served.”
- SWOT analysis
Regarding the strengths, the most immediate one is that since Henri Nestlé founded
this company in 1866, Nestle has more than 150 years of experience in the industry, and in
addition to having so many experience, it has achieved to become a major player in the
market. Another strength would be the R&D capabilities, which according to Nestle, is one of
its key advantages. The company spent a generous amount of money to the field of finding
data; precisely 1.69 Billion dollars. Despite the big number of companies that hold R&D
capabilities, this one has the largest R&D in the network, with over 5000 people working in
them. This superiority in R&D against its rivals provides a sustainable competitive
advantage, as well as long-term success.
Additionally, Nestle operates and sells its products in 189 countries, reaching almost
to the entire world. It has strong and diverse geographic presence. Its main markets are the
following: United States, China, France, Brasil, United Kingdom. Unlike its rivals like
PepsiCo and The Coca-Cola, it does not rely on a single country to generate most of its
revenues. As a consequence, this strong geographic presence gives it leverage over smaller
competitors. Moreover, the stringent regulatory scenario of infant nutrition and the capital
intensity needed for this business not only in factories, but also logistically creates a high
entry barrier for new entrants in the market, thus reducing potential competition.
When it comes to weaknesses, a crucial one is the high criticism over high water
usage. In order to operate in the market, Nestlé has been criticised over their usage of high
quantities of water in production, even throughout periods of drought. Being a relevant
company in the market, Nestlé is under the looking glass at all times. It is scrutinised and
critiqued for any of its actions, which can harm consumers’ views on the brand and prompt
the loss of potential customers.
Moreover, Nestlé Infant Nutrition is, in fact, quite familiar with controversy, having
faced in the late 70’s, a controversy over misinformation and aggressive marketing of baby
formula. Over the years it has led to boycotts, decrease in sales and a negative association to
the brand.
As opportunities, it can be mentioned that many consumers of the brand are becoming
more and more conscious of the unethical practices used to make the food. Transparency in
material sourcing is an element that clearly has room for improvement. According to studies,
consumers are more likely to buy products that are clearly and accurately labeled. 51% of the
surveyed said that their decisions on buying a product or not will be influenced by clear and
accurate labeling. This presents an opportunity for Nestle, who could develop clearer, more
attractive labeling and packaging of its products which could develop into their products not
only being more visible and attractive, but also more demanded as well as this being a chance
to redeem themselves from instances in which they hase misinformed consumers.
Finally, beverages make over 25% of the sales and water is used in all of their
production. Water becoming scarce due to climate change, growing populations, pollution
and other factors becomes a threat to the company. It will likely be more difficult to access
both clean and inexpensive supplies of drinking water. This could damage the profitability of
the company in the future, forcing the company to drive its prices up or lose margin, harming
the portfolio of products for consumers in the lower range of the purchasing power spectrum.
Moreover, rivalry has not been a threat to the company just yet, but due to rising
competition, it could be in the future. Additionally, new trends by consumers to buy more
locally rather than multinationals’ products would mean greater competition in the near
businesses by multiple local firms, driving prices down and reducing market share for Nestlé.
Despite its value proposition being differentiation, Nestle promotes a wide range of
products at reasonable and affordable prices, trying to keep cost low in order to reach as
many consumers as possible in the low range of the spectrum of purchasing capabilities,
while at the same time offering premium products to the wealthier consumer base in an effort
to accomodate all types of consumers. Therefore, the scope of the target market here is broad,
trying to reach as many consumers as possible “mass market”.
Nestle Infant Nutrition is really committed to promote healthy eating habits for
children. Hence, their customers can be defined as parents that are concerned about the
importance of their children’s well being and are, therefore, are willing to buy the products
provided by Nestlé Infant Nutrition for their child’s consumption and welfare.
The Corporate Wellness Unit is a unit of the company that is responsible for driving
the nutrition, health and wellness orientation, covering the portfolio of the products. The
Corporate Wellness Unit’s strategy and aim is to regularly deliver better tasting, and better
products to its clients. Within the unit, a range of experts known as Wellness Champions
contribute to inspire, facilitate, and drive wellness initiatives.
Another unit based on the principle of activity division is the science-based nutritional
research and expertise department. Its aim is to drive nutritional innovations, such as the
BABs, or the “Branded Active Benefits”, its objective being the process of adding any
specific ingredient to an existing product, in order to increase its health benefits in a way that
is is relevant to the consumer base.
The Research and Development Department (R&D) also plays a crucial role in the
company. They take in charge the creation of products that have a proven advantage
compared to existing ones when on the market, and nutritional advantage over the products of
other competitors.
Last but not least, there is also a department that is responsible for the packaging. Its
aim is to create packs that serve a highly efficient communication medium, providing all the
nutritional information clients need and require. Exempt from simply giving the nutritional
information and the nutritional content of the product that the pack contains, the department
also takes care on using a user-friendly and easy to read type of packaging, known as the
Nestle Nutritional Compass.
The Nestle company adopts a global matrix structure in which business units and
corporate headquarters contact each other by special modes, instead of administrative
channels. However, it uses a hybrid structure in its local businesses, in which the work is
subdivided by function mostly, while some goods are managed separately in a product
division as they require drastically different treatment, an instance of this would be the
contrast of pharmacy or retail led marketing. As shown in the organigram, the business is led
by the BEO/Cluster head, to whom teams like marketing or sales, report. Meanwhile, other
subdivisions that perform a more general function to the business, such as the legal
department or human resources, will additionally report to their functional directors.
The management of Nestle is also divided into 3 types, being the following: top-level
management, middle level of management and low-level management.
The top level of management contains a board of directors, chief executive or managing
director. It is the final source of authority and it manages aims and policies for an initiative. It
dedicates more time on functions such as planning and coordinating.
The middle level is composed by branch managers and departmental managers. They are
responsible for the top management for the operative of their department. They devote more
time to directional and organizational functions.
Finally, it must be highlighted that just recently, the organisation underwent a transformation
in its organisational structure in an effort to reduce the verticality of its structure into a more
horizontal one. The sole objective of doing this is to achieve higher efficiency and faster
communication in order to implement policies in the changing market in a quicker way, due
to the fact that they had been facing issues with diseconomies of scale.
Specifically, Nestle Infant Nutrition went through a change in its organization consisting of
moving from the globally-managed Nestlé Nutrition to a regionally-managed business by
replacing the role of a global nutrition head by three regional business heads. This will be
explained more in detail when talking about the international organizational model, and
discussed along the project.
IV. Managing uncertainty
For instance, Nestle in China lost many of its customers in areas of packaged food but at the
same time remained strong thanks to the major focus for the future growth due to the growing
affluence and a policy to allow two children per family instead of one. An example of a
managing uncertainty policy in which the change in the politics of the Republic of China
affected Nestle’s business activity.
● Small Business Innovators: Digital tools have also decreased small businesses’ barrier
to entry the consumer good industry since before in order for the product to reach the
consumer the firm a great amount of capital was needed while now it is easy to get
traction due to an efficient use of online platform and grow. This leads to the rise of
small businesses which are an increasing threat and competition for Nestle in the
industry.
Nestle believes that food should not only be understood as fuel. There are many other
different purposes, attributes and pleasures when purchasing food. This is why they
constantly need to address this by investing in strong plans, as they are key to cope with
uncertainty in the private consumer good industry. The increasing awareness among
consumers of what constitutes a healthier product is seen as an opportunity by Nestle. They
believe that improving the nutritional profile of their product offer is key not only for public
health benefit, but it gives the company many premiumization and differentiation
opportunities.
Nestle has certain plans and practices that help them reduce the risk of uncertainty and
deal with these changing circumstances. For example, they have engaged more actively in
their online presence and communication through their use of Facebook messenger to reach
consumers. This two-way conversation has helped them build a database of 200.000
customers in only two years, Nestle answers 40.000 consumer’s questions a year. Moreover,
the way they interact in the internet is different for every region, in some they make use of
mobile communication and others are more screen-based.
Additionally, Nestlé has sorted out strategic alliances with organisations such as
Epigen Consortium, an research center investigating the relation between genes and nutrition,
whose objective is to look at ways to improve nutrition, which is a strategy that helps to deal
with uncertainty, by allowing Nestlé to produce research and innovation at a lower expense,
in a way, helping it gain leverage and certainty that they will stay on top of other companies
in the future.
Once management of uncertainty has been explained, we would like to point out that
it is precisely because of this changing environment and trends that Nestle gained
consciousness of the importance of being able to react and adapt quickly to this changes, and
took the decision we are focusing us on of changing the international organizational model of
its infant nutrition business, from globally-managed to regionally-managed, allowing a higher
local responsiveness. Hence, this is an attempt to cope with uncertainty generated by the
changing customers taste we talked about previously by seeking to address local trends faster.
With more than 320.000 employees, operating in 189 countries and selling 26.1 billion only
in the EMEA area, Nestles organizational model is one of the most powerful and in need of
constant update and adaptation.
As it has already been pointed out several times, since it is our key interest during this
project, Nestlé’s Infant Nutrition business model made recently a change in its international
organizational model. This was announced five months after the new CEO listed the category
as one of its priorities for growth. Particularly, it took the decision to replace the role of a
global nutrition head by three regional business heads. Thus, Infant Nutrition will move from
the globally-managed Nestlé Nutrition to a regionally-managed business, which is a change
that does not apply to other Nestlé businesses. Plus, a dedicated Strategic Business Unit
(SBU) will be created to retain the strengths of Nestlé’s globally-aligned nutrition strategy.
The SBU will be in charge of crucial and of highly important global functions, some of them
being: science-based innovation, quality management, compliance, and global manufacturing
capacity. Therefore, these are areas that going to be managed globally. A Nutrition Business
Head will be appointed for each of Nestlé’s three zones, to implement the global strategy in
local markets and thus the Nutrition Business Heads will have operational and financial
responsibility, reporting to the respective Zone CEO. This is a clear combination of local
adaptation and global efficiency, which is in fact useful when the company offers a large
array of products, and corresponds to a Transnational Model, whose goal is to combine the
benefits of the multinational and global models. Therefore, we notify a shift from a Global
Model (before only focused on global efficiency) to a Transnational Model (now seeking
global efficiency but also local responsiveness), seeking to address local trends faster.
Therefore, we have an organization which shows efficiency to achieve global
competitiveness and at the same time shows local responsiveness to achieve flexibility in
international operations. This model, however, has a huge downside which is the great
complexity it involves. Our opinion regarding this restructuring will be discussed in the
recommendations’ section.
In the Transnational Model, resources, including technology and managerial talent, might be
distributed among subsidiaries and integrated between them through strong
interdependencies. The role of a subsidiary according to the International Organizational
Models in this particular case should be Strategic Leader with as stated before a high level
both of local resources and capabilities and strategic importance of local environment. This
role implies subsidiaries being legitimate partners of headquarters in developing and
implementing strategic trusts.
VII. Challenges
First, the infant nutrition business faces important challenges regarding the evolution
of the demographic tree in most developed countries, in which factors such as the increased
cost of living or the incorporation of women into the workforce, have lead a reduced rate of
natality into unsustainable numbers. Recent data shows a decline in natality by 6.2% during
the first half of 2017. For a business based on the newborns as their customer base, this
presents a major issue as the market for this products shrinks at an alarming rate.
As a response to this issue, Nestle Infant Nutrition in Spain has come forth with the
strategy to widen the range of its products in an effort to maintain their customers for a longer
period. The idea behind this is to be able to provide their customers with products until they
are older, balancing out for the lack of newborns in recent years. In order to react according
to this environmental volatility, Nestle Infant Nutrition has incorporated a range of products
in its portfolio such as cookies, appealing to children older than 1 year, or to the extent of also
providing specific products for the duration of the pregnancy which ensure the healthy
growth of the baby. In this manner, Nestlé manages to retain each customer for the duration
of approximately 2 more years.
Another challenge having to be faced by Nestle Infant Nutrition is the recovery of the
company’s reputation from the past scandals due to the use of unethical practices, such as
child labor, unethical promotion, violation of its own codes and rules etc. According to a
report made by the Fair Labor Association (FLA), Nestle has committed “multiple serious
violations” of its own supplier code. Another study made by the Changing Markets
Foundation analysed over 70 Nestle baby milk products in 40 different countries, found that
Nestle continually ignored its own nutritional advice in its advertising. Most importantly,
ethical and boycott issues was what strictly damaged the reputation of Nestle Infant Nutrition,
being the first one in 1977 in the United States, and later spread in the Europe in the early
1980s.
With today's technology changes happen more often and quicker. Therefore being
able to adapt to the specific necessities of each moment is a key factor, and this is why
bearing this in mind, Nestlé Infant Nutrition went through a change in its organizational
structure, from globally-managed to regionally-managed, which allows to achieve this goal.
In addition to this, we can conclude that in Nestle’s business there are both challenges
and opportunities. Thus, the company should explore new strategic plans and objectives to
improve its overall performance and geographic presence. The company could consider the
possibility to strive for operational expansion in arising countries and markets. Because of the
rapid development and the arising purchasing power of big emerging markets (for instance
Brasil, Rusia, China, India or South Africa) Nestle should constantly seek product innovation
and improve its differentiation to satisfy their targeted customers’ changing wants and needs.
The company’s official sales in these developing markets (only 28% of total sales in 2003
from Asia, Oceania and Africa) prove Nestle’s market potential in countries like India or
China. Nestle should give more attention in the company’s strategic planning for growth. In
doing so, it’s market share can increase in these big markets and remain competitive. This
suggestion can be achieve if the firm allocates more professional executives to expansion
management, launch innovative products with regional preferences or recruiting and training
of local staff that are familiar with the of the functioning of these regional markets.
Finally, to increase the brand value in the long run it is highly recommended for
Nestle to engage in more Corporate Social Responsibility practices by thinking globally and
acting locally. In new developing markets, there are many social challenges, like water
scarcity, food safety and trust issues. Due to this, Nestle should engage in more ethical
business activities and implement more control to maximize resource utilization. They could
also launch attractive marketing campaigns to increase customers’ awareness and build brand
loyalty. For instance, Nestle could offer recycled packaging for some of their products in
environmental concerned countries.
VIII. Bibliography
Andrei, Mihai. “Why Nestle Is One of the Most Hated Companies in the World.” ZME
Science, ZME Science, 19 May 2017,
www.zmescience.com/science/nestle-company-pollution-children/#Child_labor_abuse_and_t
rafficking.
CNBC. “UPDATE 1-Nestle Reorganizes Infant Nutrition Business.” CNBC, CNBC, 15 Nov.
2017,
www.cnbc.com/2017/11/15/reuters-america-update-1-nestle-reorganizes-infant-nutrition-busi
ness.html.