NESTLE: SWOT ANALYSIS Internal Origin (attributes of the organization) Strengths
Weaknesses
Broad Product and Brand Portfolio
Weak Liquidity Position
A broad product and brand portfolio in the food and beverage market helps the company cater to the diverse needs of its customer base. The company manufactures not only infant food but also a variety of distinct products, which include beverages, milks, culinary products, yogurts, ice-creams, chocolates, cereals, and many more. All these products are sold under various brands such as Nescafe, Milo, Maggi, Kit Kat and Nespray. The company also invests heavily on brand building initiatives. In 2012, the company was listed among top 10 companies of Malaysia. It also stood as one of the most admired company in Malaysia. In 2012, the company received the Top 3 Best CSR Initiative in Malaysia award. Thus a strong diversified product product and brand portfolio supports the company's innovation process, in launching new products and enhancing the revenue stream.
For the fiscal year 2013, the company reported current assets of MYR929.99mn, compared to current liabilities of MYR1071.86mn. Nestle also recorded receivables of MYR497.29mn. The company's current ratio was 0.87 at the end of fiscal year 2013, as compared to 0.90 in 2012. It also recorded increased quick ratio and cash ratio of 0.49 and 0.01 as compared to 0.46 and 0.03 respectively in 2012. A negative current ratio indicates that the company is in a weak financial position. The performance performance of the company depends largely on the cash reserves and its ability to generate cash from operations. Lack of sufficient cash or cash equivalents could hamper the operations of the company.
Operational Operational Efficiency
Commoditization of product brands with high market
The company reported strong operational efficiency with decreased cost and increased margins in 2013. Nestle Malaysia’s revenue in fiscal ye ar 2013 reached MYR 4,787mn, indicating an increase of 5.08% over that in 2012. Its operating income stood at MYR 734 mn. showing an increase of 11.84% over that in 2012. The company reported increased operating margin of 15.34% in 2013, as compared to 14.41% in 2012. The increased operating margin may indicate efficient cost management or a strong pricing strategy by the company. In addition, the
share (eg MILO, NESCAFE and MAGGI) leading to high imitative value.
company’s operating cost as percentage of sales decreased
to 84.74% in 2013 from 85.71% in 2012. Its return on equity increased from 67.27% and in 2012 to 68.80% in 2013. Such efficiency contributes to the growth prospects of the company. Research and Development Activity
The company focuses on research and development development activities to serve emerging industry needs. It is constantly involved in the development of new appealing products that contribute to brand loyalty. The company invests more than MYR6 billion annually in R&D operations. It carries out research through 34 R&D centers across the world. Nestle has more than 140 years experience in the field of research and development. The company focuses
Too large a size for quick and effective changes or
decisions to be made.
on three consumer benefit areas such as safety and quality, nutrition and health, and taste, texture and convenience. It also plans to reduce environmental impact of packaging, enhance personalized nutrition, and other consumer benefits. Such strong focus laid on R&D would help the company in expanding its product portfolio and consumer base. Decentralized organizational structure enabling ‘glocal’
approach to capture local markets Effective distribution channels through Long Term
Partners, and retail business partners External Origin (attributes of the environment) Opportunities
Threats
Rising Aging Population
Government Regulations
The company has great potential to grow in terms of market share and revenues by offering a broad health products portfolio to the rising aging population. The United Nations Population Division projects that people aged 60 and over will account for 22% of the total world population by 2050. Further, the population of Malaysia is also growing at a steady pace to reach 31 million by 2015. This aged population spends more on health and nutritional products compared to younger people. Through its nutrition, health and wellness strategy, Nestle has constantly focused on generating nutritional awareness and offering products to improve health and wellness. The company has the world’s largest private nutrition and food research capability that helps it create new nutritional values and health benefits for its customers across its products range. With an aim to provide nutritional value to its lower-income customers, the company added a broad array of products with higher nutritional value at lower prices for its customers in the emerging markets. Thus the company can capitalize on its strong health and nutritional product offerings to garner a higher market share in the sector.
The company, being a producer and marketer of food products, is subjected to various regulations by federal governmental agencies, including the Food Act 1983 and the Food Regulations 1985, as well as various state agencies, with respect to production processes, product quality, packaging, labeling, storage and distribution. The company is also subjected to certain food safety certification scheme such Health Certificate, HACCP certification and Free Sale Certificate. The company should comply with all such stringent governmental regulations, failure of which may expose the company to new liabilities or may hamper its existing operations, which could result in a decline in its profitability.
Rising Confectionery Market
The company can leverage on its strong brand identity to gain from the growing global confectionery market. The global confectionery market is expected to be valued at over $160 billion by 2015 year end and is forecast to increase by over 16% further. The market remains relatively fragmented especially in Central and Eastern Europe, India and China. The growing economies too have
Intense Competition
The company could be impacted due to the growing competition in the market. The food markets are highly competitive and evolving. With the entry of more new players in this market, the current level of competition is expected to further intensify in the near future, which may result in price reductions. The company competes with a broad range of food products which are manufactured and distributed by companies with a substantially greater financial, marketing and distribution resource. Its key competitors include Chocoladefabriken Lindt & Sprungli AG, Yeo Hiap Seng Limited, Apollo Food Holdings Berhad, Pan Malaysian Pools Sdn Bhd, The Hershey Company and PT Mayora Indah Tbk. If the company fails to maintain the product quality and consumer loyalty, this intense competition may reduce the sales volume of the company, thereby hampering its
opened new growth avenues for the company. The rising disposable income in these markets has increased the consumer spending on non-discretionary items including confectionery goods as well as beverages. Thus, the company can capitalize on its strong brand image and product portfolio to garner a higher market share in the sector and increase its revenues.
market position.
Product Innovations
products fail to meet consumers’ preference, or the competitors’ offer better products suiting the consumers’
Product innovation is considered as the top priority since it creates competitive advantage and builds brand equity. Innovation continues to be a cornerstone of the company’s
corporate strategy with significant efforts focused against consumer demands for products that are convenient, and healthy. In 2012, the company launched MAT KOOL Spiro and DRUMSTICK Rockin’ Hazelnut. It also launched a new
range of MILO mixes range including MILO Cereal, MILO HiFibre and MILO Less Sweet. In mid 2012, the company also introduced NESTLE OMEGA PLUS One cereals for better management of cholesterol levels. The company’s other
new products smooth & fruity yogurt, La Cremeria strawberry dream, Mat Kool Asteroid creamy chocolate, MAGGI sajian Keluarga noodles, MAGGI multi-purpose cooking sauce, blackforest bites chocolate, BLISS fat yogurt drink multi grain Cheerios, and Powerbar gel. Such timely launch of new products helps in driving company’s sales
and revenue. Export opportunities, being the Halal hub, vast market
network for Halal products to be offered to other Nestle markets.
Evolving Consumer Preferences
The changing consumer preferences could impact the steady growth of the company. In this scenario, the company’s business depends on its ability to identify
dietary habits and taste preferences of consumers and to offer products, which match their preferences. If these
needs, the company might face a major challenge in sustaining its revenue growth as well as market share. Also, the failure of new products could add up new costs for the company, in terms of the development and marketing expenses incurred. This might have a major impact on the operational performance as well as the profitability of the company. Exposure to fluctuating raw material commodity prices such as cocoa, coffee, and milk solids.
