|CEO||Dr. Ulf Mark Schneider (since 2017)|
|Revenue||CHF 94,865 million (1.2% increase compare to that of 2018)|
|Profit||CHF 12,609 million (13.6% net margin)|
|Competitor||JM Smucker, Danone, Juhayna Food Industry, Meiji Holding Co. Ltd., Kraft Heinz Co., Mayora Indah PT, General Mills Inc, Groupo Nutresa S.A|
Nestlé S.A is a multinational package food company that manufactures and distribute a wide range of food product, from milk chocolate, confectionary to bottled water, coffee, creamer, food seasoning, and pet food. Active in almost every country in the world, Nestlé is the number one food and drink company that owns and operates more than 2000 brands, including the world’s leading coffee brand Nescafé, Haagen-Dazs ice cream, Purina pet food, DiGiorno Pizza, Kit-Kat chocolates and Perrier sparkling water. Its products are manufactured in more than 400 factories worldwide. The U.S is Nestlé’s largest market. It is also L’Oreal’s second-largest shareholder with a 23% stake in the beauty company. Nestlé was founded in 1843 by Henri Nestlé, with its first success in selling condense milk for babies. Today we will go over a thorough SWOT Analysis of the company.
Nestle Strengths 2020:
- Strong brand recognition. By owning many household names, such as Nescafé, KitKat, Cheerios, Nesquik, Milo, CoffeeMate, Maggi, Haagen Dazs, not to mention other local favorites, Nestle presents in more than 90% households globally. A typical consumer might have been using Nestle’s products from infancy (power milk and instant cereal) to adulthood, and as a result, that consumer has developed strong brand loyalty to Nestle and would prefer a product from it rather than that of its competitors.
- Manufacture facilities are widely spread out. Since Nestlé has about 400 factories in more than 190 countries worldwide, they can shift their manufacturing processes from one factory to another if there is a problem in a certain region without causing a large disruption in the supply chain. For example, if there is a country-specific risk, such as war or natural disaster, production can be moved to a neighbor country. In addition, having a regional factory serving a specific geographic segment, Nestlé can reduce transportation costs and import tariffs.
- Diversified product portfolio. Nestle presents itself in a wide range of food segments. Recent financial reports showed that its revenue is spread out among dairy products, prepared dishes, water, and confectionery. As a result, revenue is less volatile if there is a shift in demand for a certain product segment. For example, people in the U.S drink less milk than 50 years ago, partially because of the vegetarian/vegan trend that puts a plant-based drink in a more favorable position to certain consumers. Since milk products make up only 15% of Nestlé’s sales, total revenue would not drop significantly.
- Low leverage in the capital structure. Nestle has less than 12% of debt over the total assets. This will keep the cost of borrowing low and more borrowing sources available in case of needs. In addition, during the time of market crises, Nestlé is less likely to be forced into bankruptcy because it can sell some of its assets to pay off debt (if necessary) without impairing the whole operation.
Nestle Weaknesses 2020:
- Operating inefficiency due to operating too many brands in many food segments. With many years of pursuing growth by acquisition strategy, Nestlé now owns 2,000 brands of products. With such a large portfolio, resources from the parent company have to be divided among many, thus some segments would underperform compared to their main competitors because of the lack of investment. During the last two years, Nestlé has realized such weakness and divested its unprofitable, non-core businesses, such as Nestlé skin health. In 2019, Nestlé announced its intention to sell its stake in its North American ice cream business to Froneri International Ltd. in a deal that worth USD 4 billion. Further back, in 2018, Nestlé sold its U.S confessionary business to Ferrero for USD 2.8 billion, due to a decline in sales and a weak competitive position in the U.S against Hershey and Mars.
- Strong Swiss Franc impairs reported revenue and income. Swiss market accounts for only 2% of Nestlé’s sales, which means the majority of its revenue and income have to be translated into Swiss Franc and it could result in a lower figure from year to year.
Nestle Opportunities 2020:
- Focus on a few core food segments and divest underperform ones to free up resources. Its main segments that generate the most income are beverages, follow by nutrition & health science, pet care, milk product, and ice cream. Even though Nestlé made many large divestitures, it should sell more brands, especially small local ones that do not make a good profit and use that resource to invest in the ones that matter.
- Branch out into new industries. Nestle formed an alliance with Starbucks in 2019 to address its weaknesses in the coffee industry: it was not present in the roast and ground business and lacked scale in the U.S. Nestle could venture further into the foodservice sector by launching new products using the Starbucks brand and combine them with Nespresso brand. Nestlé has enjoyed strong sales for its health & science products, therefore it should increase investment in specialized nutrition that can help consumers with certain conditions. In fact, it made a USD 2.3 billion investment in Altrium Innovation, a vitamin and dietary supplement company.
Source: Nestle CAGNY Conference, Feb 2020
Nestle Threats 2020:
- Sluggish consumer spending in the U.S and Europe can impair revenue in years to come. Nestlé has been struggling to increase sales in a slow-growth European and U.S markets and change in consumer taste. This slow growth period is expected to last for at least another year.
- Trending vegetarian/vegan diet can affect sales of dairy and other animal-based products. Currently, Nestlé plant-based milk drink choice, such as soy or almond milk, are limited and restrict to some certain regions, and its non-dairy ice cream selection is very limited and is not attractive to consumers. Even though it is now selling plant-based ground meat, it will face fierce competition from Beyond Meat and Impossible Burger in the U.S market.
- Plastic packaging fails to comply with current regulations on the environment. It could result in products being banned or delisted, or even worse, stigmatization toward a product or category. Nestlé must take initiative in redesigning packages with environmental-friendly material and raise awareness among its consumers.
Nestle SWOT Analysis Summary 2020
Despite having some slow growth periods due to sluggish economies in key markets and major restructuring efforts, Nestlé has proven to be a very solid and stable company that has a large loyal consumer base. Its presence in almost every country in the world helps mitigate country-specific risks (although not completely) and smooth out sales. Nestlé is venturing into new sectors that can be profitable in the near future and hopefully, those new segments will become a sustainable source of income. You can find a blank SWOT PDF template here
Fox, D. (2020). Nestle Research. Bloomberg Intelligence.
Nestle S.A. (2019). 2019 Annual Review.