PESTLE and SWOT analysis of Nestle 2017
- For PepsiCo Pestle and Swot analysis, see PepsiCo Pestle & Swot.
- For Coca Cola Pestle and Swot analysis, see Coca Cola Pestle & Swot.
- For Unilever Pestle and Swot analysis, see Unilever Pestle & Swot.
Nestlé is a Swiss based food and beverage multinational corporation first established in 1866 by Henri Nestlé as a milk baby manufacturer before merging with milk chocolate maker Anglo-Swiss Milk Company to form the current corporation known as Nestlé. According to the 2017 FORBES Global 2000, Nestle is the world’s biggest foods and drinks firm, ahead of the likes of PepsiCo, Coca Cola, Kraft Heinz and Anheuser-Busch InBev, making up the top five (McGrath 2017). It boasts 29 brands that earn annual retail revenue in excess of US$1billion (Annual Report 2016). These include popular brands such as Nespresso, Kit Kat, Nescafé, Smarties, and many others. The company is headquartered in Vevey, Vaud, Switzerland. Net revenue for the year ended 31st December 2016 was US$92bn on operating income (pre-tax profit) of US$13bn (Annual Report 2016).
2.0 Nestlé PESTLE analysis 2016-2017(Opportunities and threats)
While Nestle continues to perform relatively well compared to some of its rivals such as PepsiCo, and Coca Cola, it is also facing the same critical challenge facing the entire food and drinks industry; new eating habits and lifestyles in much of the developed world. Consumer-focus on healthy beverages with less sugar content is for example driving the decline in sugary drinks consumption in the United States. Americans are for instance so turned off by sugary drinks they are now drinking more bottled water than soda, the first time it’s happened, amidst increased concern over their impact on health and obesity levels that have risen to the highest level in the world (Purdy 2016; Sun 2017). Such trends are not going away and mark a critical transformation in core markets, presenting both opportunities and challenges for an industry that is now at a crossroad. For many food and beverage firms such as Nestle, the pressure is to respond with new innovations, build new capabilities remaking their brand portfolios either through innovative reformulations of existing products or adding new product categories in order to tackle these new food and beverage trends sweeping the industry (Kell 2017b).
In the following section, the report will identify the global food and beverage trends driving Nestlé’s external market environment focussing especially on the core UK and US markets. This will help us understand how the biggest food and beverage corporation in the world can utilise its brand competencies and take advantage of macro environmental opportunities while at the same time neutralising emerging threats that could undermine its progress.
2.1 Political environment
Nestlé operates in more than 194 countries each with its regulatory environment that can have an impact on operations. The political environment can especially be problematic for multinational firms because it can throw up political bottlenecks in form of new governments or a tough regulatory environment that can hinder business development. Take Brexit, which has not only led to a third of British food and drink businesses losing their non-UK EU workers as the flow of EU nationals leaving the UK grows, but it has made it harder to recruit skilled EU labour. According to a survey for Lloyds Bank Business in Britain Report, 52% of the UK firms surveyed in the 6 months following Brexit had difficulty recruiting skilled labour compared to 31% prior as uncertainty for EU Nationals living in the UK reduces the pool of staff (Butler 2017). The National Farmers’ Union reported a 17% decline in the number of seasonal EU workers to the UK. The food industry has already warned of significant disruption for the entire UK food supply chain, with dire consequences for food security and the availability and price of foods and beverages, if the exit of EU nationals involved in UK farming, food processing, retailing and catering is not curtailed. Nestle has already drawn up plans to end 81years of British production of Blue Riband chocolate wafer bars in York and Newcastle and relocate production to Poland, cutting 300 jobs in the process in order to remain competitive in a rapidly deteriorating post-Brexit UK environment (Monaghan 2017).
2.2 Economic environment
One of the biggest economic issues for global multinational firms like Nestlé operating in lots of countries is foreign exchange swings. Foreign-exchange swings in 2016 for instance resulted in a foreign exchange impact of –1.6% on group revenues even though comparative revenue from the previous year increased by 0.8% (Annual Report 2016). The UK economy is also experiencing its lowest growth post Brexit, posting the lowest economic growth among 28-country EU bloc the first quarter following the referendum results as Brexit-led price inflation began to take its toll (Allen 2017). According to the Financial Times (2017), the rise in price inflation due to the decline in the value of the pound is also affecting living standards because real income growth among wage earners has fallen, squeezing household incomes. Nevertheless, there are economic opportunities to be exploited in the current political and economic environment. The Mintel Global Food and Drink Trends 2017 shows that one third (33%) of UK adults who are employed admit to eating comfort food in order to deal with work stress. The complications of life under pressure have also been driving resurgence in foods and drinks that leverage the desire for comfort, a perfect opportunity for Nestle to increase sales of brands such as Kit Kat, Nescafé, Smarties,Yorkie and Aero (Mintel 2017).
2.3 Social environment
The macro social environment can include changes in people’s lifestyles, fashion, labour composition, or other demographic trends that have the potential to be threats or opportunities for businesses. The biggest lifestyle change that’s already affecting the global food and drinks industry in the UK and US markets and already affecting industry sales dramatically is consumer-focus on healthy foods and beverages with particular focus on sugar. According to a Mintel (2017), 62% of UK adults are concerned about sugar in food and non-alcoholic drink products with a further 53% stating they are actively taking steps to limit or reduce sugar in their diet. This reflects trends elsewhere in the US where soda consumption dropped to a 30 year low in 2016 (Sun 2017) with bottled water overtaking soda to become the largest beverage category by volume (see figure 1).
Figure 1: US beverage market growth 2015-2016
The good news is that Nestlé like rivals PepsiCo and Coca Cola seems to be aware of such consumer trends and has been making efforts to cut back on the salt, saturated fat and sugar content of its popular products either through innovative reformulations of existing products or adding new product categories. It has for instance pledged to cut sugar content in Cheerios, Shreddies and other breakfast cereals by 10% across the UK by the end of 2018 as part of its new strategy to offer consumers healthier breakfast cereals (Cox 2017). The 10% cut in sugar will also affect popular chocolate brands such as Kit Kat, Yorkie and Aero will also have 10% less sugar by 2018 (BBC 2017). While the 10% cut is commendable, it still is below the 20% target by 2020 set by the UK government. Nestle on its part stated its R&D team had a ‘major breakthrough’ that will allow it to reduce the amount of sugar in its chocolate bars by 40%. The innovation allows them to alter the structure of sugar crystals, making them more ‘hollow’ dissolving more quickly, thus allowing them to be used in smaller amounts. Nestlé plans to launch the reformulated chocolate bars from 2018 onwards, highlighting the company’s capacity to innovate and adapt to changing trends (Mintel 2017; Annual Report 2016).
2.4 Technological environment
When it comes to the technological factors affecting Nestlé in the macro environment, it is the digital revolution that perhaps represents both great opportunities for those that take advantage or a threat for those that don’t adapt and make use of it. The effect of the digital revolution on society has rightly been termed as the “fourth industrial revolution” for the sheer scale of transformation it is having on societies unlike anything seen before. The challenges it presents for food and beverage firms such as Nestle are many. But the biggest one is digital disruption and the new technologies it is unleashing such as Internet of Things technology that can be used to track food and food quality, or how digital marketing is changing the way brand owners communicate and market to consumers as well as the use of big data in creating a competitive advantage. All these technologies are already disrupting the food and beverage industry and for legacy firms such as Nestle, PepsiCo or Coca Cola, the challenge is either to respond with new capabilities that can capitalise on the opportunities digital brings or risk being overtaken by new players (Heneghan 2016; Pranevicius 2016).
2.5 Legal environment
The legal environment concerns the regulatory environment, laws as well as litigious situations from the external environment, which can impact a firm’s operations in multifaceted ways. In an effort to reduce excess sugar consumption, the UK government introduced a “sugar tax” levy in the 2016 Budget which will take effect from April 2018. The sugar tax will be applied on sugary drinks with 18p per litre levied on those drinks with more than 5g of sugar per 100ml while a higher rate of 24p per litre will be levied on those with 8g or more of sugar per 100ml (Forster 2017; HMRM 2016). The levy, which targets firms like Nestle, PepsiCo and Coca Cola who engage in the production, retailing and importation of soft drinks where sugar is added, aims to reduce excess sugar content in drinks, long associated with rising health risks, in particular Type 2 diabetes, heart disease and obesity (Purdy 2017).
2.6 Environmental factors
The transition to a low carbon and resource-efficient future is underway, affecting almost every sector of the global economy. However, for the world’s biggest soft drinks brands, the biggest environmental issues they continue to grapple with are local environmental considerations especially the impact of their waste from all the plastic and aluminium packaging used for their products. According to Greenpeace (2017), the top six global soft drinks firms; Nestlé, PepsiCo, Coca Cola, Suntory, Danone and Dr Pepper Snapple use a combined average of just 6.6% recycled plastic in their bottles with Coca Cola alone producing more than 100bn plastic bottles annually, much of it ending up in the world’s oceans rather than plastic recycling systems (Taylor and Laville 2017). Nestle has however fared better and even received praise from numerous NGOs such as Greenpeace for its efforts in tackling climate change, its commitment to zero deforestation in countries where it operates, and its overall sustained efforts in cleaning clean up its supply chain (Moodie 2016).
Figure 3: Nestle pestle analysis 2016-2017
3.0 Nestlé Company BCG Matrix
Nestle BCG Matrix available upon request
4.0 Nestlé SWOT analysis 2017
- Biggest food and drinks company in the world ahead of PepsiCo and Coca Cola (McGrath 2017).
- Global and diversified food and drinks portfolio.
- Boasts 22 brands that earn annual retail revenue in excess of US$1billion e.g. Nespresso, Kit Kat, Nescafé, Smarties.
- Strong R&D capabilities. The R&D had a ‘major breakthrough’ in 2016 that will allow Nestle to reduce the amount of sugar in its chocolate bars by 40%.
- Child labour claims in cocoa farms in Ivory Coast and the Hazelnut supply chain in Turkey as well as forced slave labour in the Thai fishing industry which supplies ingredients for the Purina cat food, are some criticisms that have tainted Nestlé’s ethical reputation.
- Foreign exchange swings cut into profits.
- Low economic growth in key markets such as the UK due to post-Brexit factors.
- Resurgence in the UK for foods and drinks that leverage the desire for comfort, as evidenced by one third (33%) of UK adults employed admitting to eating comfort food to deal with modern stress presents an opportunity for increased sales of Nestle brands such as Kit Kat, Nescafé, Smarties,Yorkie and Aero (Mintel 2017).
- Growth in lower-calorie beverages such as value-added bottled water (e.g. sparkling, flavored, and "vitamin" waters), coffee, teas and other high growth healthy beverages.
- New ‘major breakthrough’ that allows Nestle to reduce the amount of sugar in its chocolate bars by 40% leads the way in the reformulation of its chocolate bar brands from 2018 onwards, with potential for increased sales (Mintel 2017; Annual Report 2016).
- Brexit impact on labour mobility, Nestle supply chain efficiency and the general UK economy.
- Sugar regulatory environment getting tougher across core markets such as the UK. This includes the new sugar tax in the UK which will be applied on sugary drinks starting 2018 (Forster 2017; HMRM 2016).
- The UK government introduced new rules in 2016 banning the advertising of high-fat, salt and sugar (HFSS) food or drinks to children under 16 (Mintel 2017).
- Digital disruption.
Figure 4: Nestlé SWOT analysis 2016-2017
5.0 Nestlé Five Forces Analysis
Nestle Five Forces analysis available upon request
2016 was a challenging year for the carbonated soft drinks (CSD) market in core UK and US markets. While 2016 was a relatively good year for Nestle compared to rivals PepsiCo and Coca Cola, it is also facing the same critical challenge facing them and the entire food and drinks industry, increased pressure from consumers, governments as well as non-governmental institutions to cut unhealthy sugars, salt and saturated fat content in food. It’s now an irrefutable fact that many food and drink firms need to demonstrate a commitment to improving public health, like finding alternatives to use of artificial sweeteners and explore a wide range of options so as to achieve what the public wants. These are some of the macro trends driving Nestlé’s external market environment and for it to buck them, it will need to utilise many of its competencies and internal strengths to take advantage of the many macro environmental opportunities that are also emerging.
Available upon request.
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