Porter’s Five Forces Analysis of Nestlé
|Industry||Food and Beverages|
|CEO||Ulf Mark Schneider|
|Revenues||$95.30 billion (2022) by Forbes|
|Profit||$18.50billion ( 2022) by Forbes|
|Competitors||Unilever ,Kerry group, Mondelez International, Kraft Heinz , Danone .|
Nestlé SA is a company focused on Nutrition, health, and wellbeing. Water, milk products and ice cream, prepared meals and culinary assistance, confectionary, liquid and powdered beverages, nutrition and health research, and pet care are all included in the company’s product line. Zone EMENA, Zone Americas, Zone Asia, Oceania & Africa, Nestlé Waters, Nestlé Nutrition, and Other Businesses make up its operating divisions. Nespresso, Nestlé Health Science, and Nestlé Skin Health make up the Other Business section. Henri Nestlé established the business, which has its headquarters in Vevey, Switzerland, in 1866. According to Forbes, it is placed 301 on the list of the World’s Best Employers (2022). Nestlé was placed 103 on the Fortune 500.
Porter’s Five Forces Analysis
Porter’s Five Forces Analysis is a popular framework for examining business strategies in light of the industry in order to lessen rivalry and increase profits. It was developed in 1979 at Harvard Business School by Professor Michael E. Porter.
Nestlé Rivalry among Existing Competitor
Nestlé with a brand value of roughly 19.4 billion US dollars as of 2020, Nestlé was by far the most valuable food brand in the entire globe. The company employs over 276,000 people and has its global headquarters in Vevey, Switzerland. The Americas, which account for 44.9% of global sales, are followed by Europe, the Middle East, and Africa in order of revenue generated. Nestlé’s strong position in the global food industry is demonstrated by its strong geographical sales, which are as follows: Zone EMENA (Europe, Middle East, and North Africa) CHF 21.13 billion; Zone AMS (Americas) CHF 33.78 billion, Zone AOA (Asia, Oceania CHF 20.74billion; Nespresso CHF 6.42 billion; and Nestlé Health Science CHF 4.82 billion.
Following is a breakdown of net sales by product category that demonstrates excellent sales dispersion by category and strong branding across all categories: Pet food category (17.9%): its major brands include Purina, Friskies, Felix; pharmaceutical, nutrition, and well-being category (15.1%); its major brands include Resource, Boost, Nutren, Optifast, Peptamen brands, NAN, illuma, Cerelac, Nido, Gerber, BrainXpert, Palforzia, Nesquick, Fitness, Cheerios, Lion; powdered and Liquid beverages (27.5%): its major brands include Nescafé and Starbucks. Lean Cuisine and Maggi are major brands in the ready-to-eat food and seasoning category (13.9%); Nido, Nesvita, Carnation, La Laitière, Coffee Mate, Nestlé Ice Cream, Dreyers, Häagen-Dazs, Extrême, and Mövenpick are major brands in the Dairy products and ice cream category (12.3%); Kit Kat, Smarties, Cailler, and Terrafertil are major brands in the chocolates
Through analysis of last decades annual report, Nestlé generated CHF 899.44 billion revenue during the past ten years accumulatively, which is the highest among all competitors. Average net profit margin was 12%, while FY 2021 had the greatest net profit margin of the previous ten years at 20%.
Uniliver operates the food & refreshment, home care, and beauty & personal care categories. The business, which now has 400 brands, was founded in 1929 as a result of the combination of a soap manufacturer and a margarine manufacturer. The most well-known brands produced by Unilever include Lifebuoy, Dove, Axe, and Sunsilk. The Unilever Group was ranked as the fourth-largest FMCG firm in the world in terms of revenue . Personal care is Unilever’s largest revenue-generating area as It represents 42% of projected income for 2021 and has steadily increased from 35% of overall revenue in 2012. Home care will account for 20% of sales in 2021, down from the 47% it generated from the food segment in 2012. Geographically, Asia, Africa, the Middle East, Turkey, Russia, Ukraine, and Belarus account for 46% of income, up from 40% in 2012 and expanding over the past ten years. The US contributes 32% of the total, making it one of the largest contributors and 32% are from Europe.
With global beverage sales of almost 9.57 billion dollars, the Unilever Group is likewise listed as the top firm in this category. Among its most well-known food and beverage brands are Knorr and Lipton, with the former ranking among the most popular in European homes as of 2021. The company is a market leader in the frozen dessert sector as well. Ben & Jerry’s, its ice cream brand, recently achieved unit sales of almost 202 million in the United States alone, making it the most popular ice cream in that country.
Its total assets, revenue, and net income for the fiscal year (2021) are, respectively, €52.44, €6.62, and €75.10 billion. According to last 10 years annual report publications by Unilever, it generated €515.39 billion in revenue accumulatively, placing it third among its rivals, and had a low average net profit ratio of 11% compared to them.
Kerry Group Plc: Kerry Group Plc produces and distributes a variety of foods and drinks. It functions through the Taste & Nutrition and Consumer Foods segments. The Consumer Foods segment produces and distributes chilled food items under consumer and added-value brands for the Irish, UK, and a few other foreign markets. Frozen dinners, hot and cold pies, processed meats, and dairy spreads are among the company’s offerings. LowLow, Cheestrings, Dairygold, Charleville, Denny, Richmond, Wall’s, and Mattesons are some of the brands it distributes. Ireland’s Tralee serves as the company’s headquarters. It was established there in 1972.
The food segment contributed 69% of Kerry Group’s sales in 2021. Only around 5% of Kerry Group’s total income in that year came from its pharmaceutical division. Kerry’s global revenue increased from slightly under seven billion euros in 2020 to over 7.35 billion euros in 2021. From 2013 to 2021, its revenue increased from 5.84 billion to 7.35 billion euros.
Mondelez International: Leading international snacking firm with its headquarters in Deerfield, Illinois, is the producer of billion-dollar brands like Cadbury, Oreo, Milka Chocolate, and Trident gum. Due to the spin-off of Kraft Foods’ North American supermarket division to shareholders, the company began operations on October 1, 2012. Mondelez’s product line includes biscuits, chocolate, drinks, gum, candies, cheese, and other commodities. Around 79,000 people were employed worldwide by Mondelez in 2021.
The world leader in snacking had a drop in net revenue between 2013 and 2017. In that time, the prices of milk and cocoa, two of Mondelez’s key products, have increased. In 2011, net income totaled $35.8 billion. By 2021, that number has decreased to $28.72 billion. The main market for Mondelez International is Europe. The business generated little more than 11 billion dollars in net revenue in Europe in 2021. In 2021, Mondelez invested $1.56 billion in advertising to increase brand awareness and advertise their products to potential customers.
In the United States, Mondelez generated sales of $8.2 billion in 2020–21. In the U.S. market, it was placed 19th among other food and beverage companies. PepsiCo was the market leader in terms of sales. With products like biscuits created by its subsidiary Quaker Oats Corporation, the company competes with Mondelez. With its Pepperidge Farm goods, Campbell Soup Company and other rivals fight in the same market. Mondelez, famed for its Oreo products, surpasses Campbell Doup in terms of overall food and beverage sales.
Kraft Heinz: The Kraft Foods Group and Heinz merged to form The Kraft Heinz Company on July 2, 2015. The Kraft Heinz Company, which has co-headquarters in Chicago and Pittsburgh, is considered to be among the top five food and beverage manufacturers in North America. The business generates net revenues of 26 billion dollars annually. These sales are primarily produced in the US. Less than one-third of Kraft Heinz’s net sales come from Canada and other countries.The extensive Kraft Heinz product line includes cheese and dairy products, ambient meals, frozen and refrigerated dinners, meats, seafood, refreshment beverages, salted nuts, coffee, desserts, toppings, and baking, as well as other supermarket categories. With sales of 7.3 and 4.9 billion dollars, respectively, cheese and dairy are the most popular category, followed by condiments and sauces.
Danone: A worldwide food and beverage company, Danone is based in Paris, France. The business was established in 1919 in Spain and competed at the time as a modest yoghurt manufacturer. The three product divisions of Danone that exist today are Essential Dairy and Plant-based, Waters, and Specialized Nutrition. The corporation faces competition from major producers of food and beverages like Nestlé and Unilever on a global scale. In terms of brand value, Danone was regarded as one of the top three food brands in the world in 2021. The corporation reported net revenues of roughly 24.28 billion euros in its most recent annual report. The United States, China, Russia, and France, the home market of Danone, made up the majority of the sales.The Essential Dairy and Plant-based sector, which generated more than 13 billion euros in sales in 2021, was Danone’s cash cow. Actimel and Activia are two well-known brands in the dairy industry. More than 70 nations sell Activia probiotic yoghurt. The second most popular bottled mineral water brand in Great Britain is Evian, one of Danone’s most well-known bottled water products. Yogurt from Danone is well-known in numerous areas. It is the most well-known dairy brand from outside of Germany, and around 11% of people in that country recognise it on the spot.The two most popular yoghurt brands worldwide are Activia and Danone Natural. In Great Britain, Activia was consumed by more than three million people in 2020. Over four million people in Spain consumed Acitiva in that same year. The business is also well-known in Asia and Latin America, and it is expected that its appeal will spread to more markets throughout the world.
Nestlé Threat of New Entrants
Economies of Scale: Food is a significant global market segment that will keep expanding as long as people’s basic requirements are met. In 2023, the food market will generate US$9.43 trillion in revenue. The market is anticipated to expand by 6.21% yearly (CAGR 2023-2027).By analyzing the market, we can draw the conclusion that some major players have a firm footing in a particular category for decades because they have achieved economies of scale and are now cost leaders in their own specific food category. Nestlé is the market leader in the processed and health food category, JBS has the highest sales in the meat foods category, and Anheuser-Busch InBev has the highest sales in the beverage category. The Nestlé group has extensive infrastructures for its consumers with factories in 79 countries and sales in 186 countries. New competitors can enter the business but find it very difficult to obtain economies of scales, making it exceedingly difficult for new players to enter and compete in the market.
Capital Investment: The food sector is highly capital intensive and requires ongoing investment to compete in the market; this includes significant investment from the sourcing of raw materials through the distribution of completed items and the purchase of brands from allied industries. In the last few decades, Nestlé’s investment in total assets increased from CHF 126.23 billion to CHF 139.14 billion, demonstrating its ongoing commitment to quality and competition. Unilever’s investment has increased significantly during the past few decades, rising from $ 46.171 billion to $ 75.10 billion.
Nestlé Bargaining Power of Suppliers
For medium-sized firms like Mondelez and Danone, suppliers may have a moderate amount of power. However, in the case of Nestlé, which is the trend setter and sets compliance standards and sourcing framework for its suppliers, suppliers have little influence on Nestlé as it buys in bulk due to its revenue. For instance, since last decade Mondelez International and Danone have remained among the top 15 food giants, but even their collective revenue has remained below Nestlé. More than 186 countries can now access Nestlé’s goods and brands thanks to partnerships with suppliers from across the globe. Additionally, a significant number of acquisitions of its suppliers support the idea that due to its size being much larger than that of its suppliers, it can simply integrate backward.
Nestlé Bargaining Power of Buyers
Customer bargaining power is fairly limited asin terms of quality, concept, and innovation Nestlé outperformed all of its rivals in a particular food category. Nestlé has a wide international client base; its CHF 87 billion in annual revenue comes from 186 nations in Europe, Asia, America, Oceania, and Africa. No one client accounts for 10% or more of the group’s sales. Additionally, it owns 2000 brands.Although competitors are making investments to increase their shares, they are still far behind Nestlé. For instance, Keurig Dr. Pepper and The JM Smucker Company, which ranked Nos. 34 ($11.6 billion) and No. 54 ($8 billion) food sector revenue wise, respectively, both invested a sizable sum of money in new facilities and other infrastructure investments over the past few years, and work on these projects continued even as the pandemic was underway.With more than 125 brands in its portfolio, including its eponymous brands as well as Snapple, Green Mountain Coffee Roasters, and Mott’s, Keurig Dr Pepper saw sales rise by 4.5% overall. The company’s packaged beverage sector, which saw sales rise by 8.5%, was in the lead. Additionally, 3 million new households joined the company’s Keurig customer base, increasing the total to around 57% of American households. Instead of these growth they are still far behind Nestlé due to its innovative capability. Likewise, Dairy Farmers of America (No. 21) with 17.80$ revenue and Lactalis (No. 15) with $22.8 billion revenue, both experienced strong revenue growth. With brands like Parmalat and Stoneyfield Farm in its portfolio, Lactalis is the biggest producer of dairy products in the world. In comparison to the previous year, the company’s revenue climbed by roughly $2 billion.Another sector that saw notable development for businesses on the Top 100 list was energy drinks. Sales for Red Bull ranked (No. 64) with $7.2 billion revenue increased by over 6%, and the company climbed five ranks in the rankings. even so, Nestlé is still well ahead.
Cumulatively due to diverse product range and branding in all categories and worldwide dispersed operations and being leader in innovation ,Nestlé have competitive advantage over competitors in its customers mind.
Nestlé Threat of Substitute Products or Services
Brand Loyalty: Nestlé has more than 2,000 brands, ranging from well-known international names to regional favorites, with a book value of CHF 15.20 billion as of FY2021. Nestlé brands are a good substitute for the majority of products on the market, but they hold a special place in the hearts and minds of their consumers because of the way they have been sold. Its environmentally and healthily friendly plant-based product branding strategy will strengthen the standing of its brand. From vegan KitKats to seafood substitutes, Nestlé offers a variety of plant-based options. Customers can now find plant-based goods in a variety of global marketplaces, including those in the United States, Latin America, China, South East Asia, Europe, and other regions..
Acquisition of related business: The likelihood of competition having an adverse impact on corporate growth has decreased due to ongoing acquisitions. Ralston Purina was involved in the 2001 purchase of Pet Food by Nestlé for USD 10.3 billion. Baby food manufacturer Gerber had $1.9 billion in revenue in 2007 and was purchased for USD 5.50 billion. Nestlé adds Atrium Innovations to its portfolio of consumer healthcare companies for $2.30 billion.
Extensive Range of Product: The company has a wide variety of products, including powered and liquid drinks, water, milk products, ice cream, prepared foods and culinary assistance, confectionery, and pet care. In addition, its sales are geographically scattered across 186 countries. That makes it tough for its US or only European market rivals, such as Danone, which only focus on the USA and China, to compete.
- Forbes, Profile,see link here |Nestlé
- Forbes, Profile, see link here |Kerry Group
- Danone – statistics & facts available at| Statista
- Kerry Group’s revenue share worldwide in 2021, by segment available at| Statista
- Kerry Group’s revenue worldwide from 2013 to 2021(in billion euros) available at| Statista
- Mondelez International – Statistics & Facts available at| Statista
- The Kraft Heinz Company – statistics & facts available at| Statista
- Share of the leading 10 countries that generated the highest net sales for Danone in 2021 available at| Statista
- Suppliers,available at|Nestlé
- Acquisitions and disposals available at| Nestlé
- Nestlé facts and figures available at| MarketScreener
- Food – Worldwide available at| Statista
- 2021 Top 100 Food & Beverage Companies available at| FoodEngineering
- The World’s Top 100 Food and Beverage Companies of 2013 available at| FoodEngineering
- The World’s Top 100 Food and Beverage Companies of 2015 available at| FoodEngineering
- JBS FOODS BRANDS available at| JBSFOODS
- Anheuser-Busch InBevofficial web