Nestle Company Overview:
Nestle is the largest food company in the world by revenue, with over $90 billion, and whose products are available in every country around the world. It is headquartered in Vevey, Switzerland. The Company operates in 80 countries worldwide through its 280 wholly-owned or majority-owned subsidiary companies (in Australia these include Australian Nutrition Ltd, Arnott’s Biscuits Holdings Pty Limited, Cottee’s Australia Pty Ltd., F&N Foods Pty Limited, Garofalo S.p.A., Gerber Products Company, Milo House of Foods NZ Limited, Oceania Dairy Foods Import-Export Sdn Bhd., Nestec S.A., Nestlé CalciYum! New Zealand Limited,) and its many joint ventures. Nestle’s products include baby foods, bottled water, breakfast cereals, chocolate and confectionery, coffee and other beverages, dairy products, ice cream, and frozen foods. Nestlé analyzes global market trends to ensure that its business remains competitive in the international food industry. Let’s now go over Nestle’s Porter’s Five Forces Model
Nestle Competitive Rivalry:
Some of the challenges facing Nestle ad the dynamic marketplace are partner switching for products utilizing new ingredients or processes or improved packaging; competitors lowering prices below cost levels in attempts to gain market share while sacrificing revenue; small local retailers unwilling to increase purchases even where quality is improving due to high fixed costs of operating large warehouses; consumer demands for more convenience leading them to purchase fewer items per trip which reduces the volume of product transit through distribution channels; and competitor companies initiating or continuing price wars.
Nestle Bargaining Power Of Suppliers:
The bargaining power of Nestle’s suppliers is similar to that of the food processing industry in general, including livestock producers, grain handlers, brokers, equipment manufacturers supplying input materials for their products. If one supplier were to suddenly increase prices by a significant amount, Nestle could easily switch its business to another supplier it chose to do so.
Nestle Bargaining Power Of Buyers:
Buyers in the markets where nestle operates have little ability or incentive to influence prices offered by major food processors like Nestle because there is an abundant supply of other suppliers. Even if they were to attempt to organize and boycott Nestle products, the impact on price would be minimal. However, in times of shortage and higher input costs, buyers may look for alternative sources which could influence prices or increase volume requirements.
Nestle Threat Of New Entrants:
Nestlé strongly maintains its positions in markets where it is established through its brand name recognition and distribution channels. It uses its marketing tactics such as product differentiation and heavy advertising spending to maintain a competitive edge over rivals. New entrants would find it difficult to break into these well-developed marketplaces without significant capital investment and brand development. Additionally, new entrants must compete with an established company; Nestle has been in this business for over 100 years.
Nestle Threat Of Substitutes:
There are few good substitutes for Nestlé’s products, due to the unique needs of customers which cannot be met by other products. For example, there is no substitute at all for infant formula or dairy products that have unique nutritional requirements that differ from adult food products.
Nestle has a significant competitive rivalry in the international food industry with many large companies. The threat of new entrants is low because it requires significant capital investment and brand development to enter this well-known business. When it comes to bargaining power on suppliers, I think they are not so strong because most suppliers can easily switch their business to another supplier if they increase prices, but when it comes to the bargaining power of buyers, I think Nestle has a strong position because even if they try to organize and boycott Nestles products it will have minimal impact on price. Finally, the threat from substitutes is low because there are few good substitutes for its products.
Nestle Porters 5 Forces Conclusion:
Nestle must focus on the bargaining power of suppliers and buyers since this is where they are most vulnerable. In order to remain competitive, the company must focus on developing stronger relationships with buyers and suppliers as well as lowering costs. Nestle must also consider the threat of substitutes and new entrants in order to remain competitive.
Nestlé Global. 2022. Nestlé’s 2020 Annual Report. [online]