Strategic Model

Ammar Yasir (08)

Atif Raza (46)
Bilal Ahmed (47)
Fatima Batool (55)
Hammad Yousaf (16)
Hammad Rasheed (11)
Umair Makki (57)
Zulqarnain Bajwa (21)
 Case-Study Overview
• Internal: • Analysis
– History, Nike overview, Key – SWOT Matrix
Facts, Our Brands and Stock – SPACE
Information – BCG
– Nike Actual & Proposed Vision and – IE matrix
Mission
– Economic Performance – Grand Strategy Matrix
– Evolution of Financial Ratios – QSPM
– Strengths and weaknesses • Possible strategies: Matrix
• Analysis: IFE
Analysis
• Decisions
• External: – Why our decision?
– Industry overview and comparison
of financial ratios – Strategic implementation
– Manufacturing – Actions
– Opportunities and threats • Evaluation Procedure
• Analysis: EFE • Current Update
– Competitors
• Market Share
• Analysis: CPM
History of Nestle
 History
• 1866-1905
• In the 1860s Henri Nestlé, a pharmacist, developed a food for babies who were
unable to breastfeed. His first success was a premature infant who could not
tolerate his mother's milk or any of the usual substitutes. sold in much of Europe.
• 1905-1918
• In 1905 Nestlé merged with the Anglo-Swiss Condensed Milk Company. By the early
1900s, the company was operating factories in the United States, Britain, Germany
and Spain.
• 1918-1938
• After the war Government contracts dried up and consumers switched back to fresh
milk. However, Nestlé's management responded quickly, streamlining operations
and reducing debt. The 1920s saw Nestlé's first expansion into new products, with
chocolate the Company's second most important activity
• 1938-1944
• Nestlé felt the effects of World War II immediately. Profits dropped from $20 million
in 1938 to $6 million in 1939. Factories were established in developing
countries, particularly Latin America. Ironically, the war helped with the introduction
of the Company's newest product, Nescafé, which was a staple drink of the US
military. Nestlé's production and sales rose in the wartime economy.
• 1944-1981
• Nestlé's growth in the developing world partially offset a slowdown in the Company's
traditional markets. Nestlé made its second venture outside the food industry by
acquiring Alcon Laboratories Inc..
• 1981-1995
• Nestlé divested a number of businesses1980 / 1984. In 1984, Nestlé's improved bottom
line allowed the Company to launch a new round of acquisitions, the most important
being American food giant Carnation.
• 1996-2002
• The first half of the 1990s proved to be favorable for Nestlé: trade barriers crumbled and
world markets developed into more or less integrated trading areas. Since 1996 there
have been acquisitions including San Pellegrino (1997), Spillers Petfoods (1998) and
Ralston Purina (2002). There were two major acquisitions in North America, both in 2002:
in July, Nestlé merged its U.S. ice cream business into Dreyer's, and in August, a USD 2.6bn
acquisition was announced of Chef America, Inc.
• 2003 +
• The year 2003 started well with the acquisition of Mövenpick Ice
Cream, enhancing Nestlé's position as one of the world market leaders in this product
category. In 2006, Jenny Craig and Uncle Toby's were added to the Nestlé portfolio and
2007 saw Novartis Medical Nutrition, Gerber and Henniez join the Company.
 Overview
• Nestlé is the world's leading Nutrition, Health and Wellness Company. It is
committed to increasing the nutritional value of our products while improving the
taste. The Nestlé Company has aimed to build a business as the world's leading
nutrition, health and wellness company based on sound human values and
principles
• While Nestlé Corporate Business Principles will continue to evolve and adapt to a
changing world, basic foundation is unchanged from the time of the origins of
their Company, and the basic ideas of fairness, honesty, and a general concern for
people.
• In the 140 years since then, we have expanded around the world and developed a
range of products designed to suit every taste, need and cultural preference. Our
distinctive seal is recognised everywhere as a guarantee of quality and
healthfulness
OUR BRANDS
 Our Brands
• We believe that food plays a key role in achieving a well-balanced person. And so our
philosophy is Good Food for a Good Life!
• At Nestlé, our products are developed keeping our consumers, their preferences and
health in mind.
• Millions of consumers the world over trust Nestlé products for good reason: when
they choose a Nestlé product they have the satisfaction of choosing
quality, taste, variety, convenience and the good nutrition.

• Brand Names
• Milk, Dairy and Chilled Dairy
• Beverages
• Bottled Water
• Baby Food
• Food
• Breakfast Cereals
• Chocolate and Confectionary
 Vision

“The Nestlé global vision is to be the leading

health, wellness, and Nutrition Company in the
world”
 Mission Statement

“Good Food is the primary source of Good Health throughoutlife. We strive

to bring consumers foods that are safe, of high qualityand provide
optimal nutritionto meet physiologicalneeds. In additionto
Nutrition,Health and Wellness, Nestlé productsbring consumers the vital
ingredientsof taste and pleasure”
1.Customers Yes

2.Productsorservices Yes

3.Markets No

4.Technology No

5.Concernforsurvival,growth,andprofitability No

6.Philosophy No

7.Self-concept Yes

8.Concernforpublicimage No

9.Concernforemployees No
 Mission Statement (Proposed)

“Good Food is the primary source of Good Health throughout life.

We strive to bring consumers foods that are safe, of high
quality and provide optimal nutrition to meet physiological
needs with the best technology around the globe. In addition
to Nutrition, Health and Wellness, Nestlé products bring
consumers the vital ingredients of taste and pleasure that is
matched by none. We want to excel as market leader in the
industry with an ethical culture and care for its employees.”
Management
Financial Performance
 Investment Projects
• Total capital expenditure for the year reached P KR 2.3 billion, with the
most significant projects listed below:

• Investments in 2010 of approximately P KR 2.6 billion are planned for milk

collection field development, and upgrading of existing production
facilities as part of our long-term infrastructure plan.
THE INPUT STAGE
IFE Internal Factor Evaluation Matrix
Key Internal Factors Weight Rating WeightedScore
Strengths
Socially Responsible Company 0.03 3 0.09
Nestle products enjoy strong brand image 0.07 3 0.21
Sales force as a major physical resourcestrength 0.05 3 0.15
Quality product distribution networks in country 0.08 2 0.16
Net Profit increasedby 94% in 2009. 0.20 4 0.80
Priceearning ratio decreasedfrom 38.9 to 18.8 0.05 3 0.15
Export Sales increased by 48% to PKR 3.3 billion 0.18 4 0.72

Weaknesses
Lackof awarenessamong target market 0.04 2 0.08
Nestle milk always stands at last because of low advertisement. 0.09 2 0.18

Revenue from confectionary decreasedby 14% 0.08 2 0.16

Low credit sales and profit margin to retailers 0.05 2 0.10
Weak promotional activities through websites 0.05 3 0.15
Cant launch expensive brand due to low income groups 0.03 1 0.03
Total 1.00 2.99
 Key Ratios: Overall Comparison (2009)
Ratios 2009 Industry

Liquidity Ratios:

Current Ratio 1.11 1.19

Quick Ratio 0.37 .42

Solvency Ratios:
Long Term Debt to Equity 1.94 .47

Long Term Debt to Assets 0.89 .126

Debt-to-Equity Ratio 1.37 1.1

Times-Interest-Earned Ratio 10.49 7.2

Activity Ratios:
Inventory Turnover Ratio 9.2 4.56

Average Age of Inventory (Days) 40 102

Total Assets Turnover Ratio 2.3 1.23

Receivable Turnover Ratio 119.5 67.74

Average Collection Period (Days) 4 5

Fixed Assets Turnover 3.51 1.23

Profitability:
Gross Profit Margin 29% 30.86

Net Profit Margin 7% 5.8

Return on Assets 44% 41.41
Return on Equity 40% 48.9
Earning per Share 66.27 91.62

Price-Earning Ratio 18.8 25.45

Growth Ratios
Sales +20%

Net Income
+94%

Earning Per Share

+94%
 EFE External Factor Evaluation Matrix
Key External Factors Weight Rating WeightedScore
Opportunities

Fewand weak competitorsin themarket 0.12 2 0.24

Disposableincomeincreased by3.6% 0.07 3 0.21

Consumerexpenditureonfoodhas increased by3.6% 0.09 4 0.36

Populationdensityincreased by2.18%(persq.km) 0.05 3 0.15

Creditpolicy can beadoptedto increase sales 0.03 3 0.09

Potentialin cold dairy market 0.02 3 0.06

All companiescontributeonly 2%to processedmilk market 0.12 4 0.48

Pakistan as 7th largest milk producingcountrywith milk outputof 200billion liters 0.12 3 0.36

Increasein consumerfoodindustryby 14% 0.05 4 0.20

Threats

Engro and Shakarganj as major competitors 0.14 3 0.42

Market segment growth could attract new entrants 0.04 2 0.08

Taste of the consumer has already developed 0.02 2 0.04

Legal& ethical issues 0.01 2 0.02

Economic slow down can reduce demand 0.01 2 0.02

Effectof seasonality upon sales 0.05 3 0.15

Strong advertisement by major competitors 0.08 3 0.24

Total 1.00 3.02
 CPM
Critical Success factors
MarketShare
Inventory System
Financial Position
Product Quality
ConsumerLoyalty
Relationship with Suppliers
Global Expansion
Organization Structure
Production Capacity
Advertising
Efficient cost Management
Product R&D
Totals
Competitive Profile Matrix
Nestle Pakistan Engro Foods ShakarkanjFoods
Weights Rating Weighted Rating Weighted Rating Weighted
Score Score Score
0.0 to 1.0 1 to 4 1 to 4 1 to 4
0.12 3 0.36 2 0.24 1 0.12
0.05 3 0.15 2 0.10 2 0.10
0.20 4 0.80 2 0.40 3 0.60
0.15 4 0.60 3 0.45 3 0.45
0.07 3 0.21 2 0.14 1 0.07
0.03 3 0.09 3 0.09 2 0.06
0.06 3 0.18 1 0.06 1 0.06
0.02 3 0.06 2 0.04 1 0.02
0.05 3 0.15 2 0.10 2 0.10
0.15 2 0.30 4 0.60 3 0.45
0.05 3 0.15 3 0.30 2 0.20
.05 3 0.15 2 .04 2 .04
1 3.20 2.56 2.27
THE MATCHING STAGE
 SPACE SPACE MATRIX
FinancialStrength

Nestle’snetsalesincreasedby20%in2009ascomparedto2008 3
Netprofitincreasedby94%in2009ascomparedto2008 5
Debtequityratiochangesfrom63:37to66:34 3
Priceearningsratioin2009was18.8ascomparedto200838.9 5
Returnoncapitalemployedincreasesby40%
IndustryStrength 4
Averagefinancialstrength 4
Increaseinconsumerfoodindustryby14% 5
Allcompaniescontributeonly6%toprocessedmilkmarket 4
Marketsegmentgrowthhasattractednewentrantstoincreaseprofitpotential 5
Duetoeaseofentryinmarket,Engrofoods,ShezandfoodsandShakarganjareproperly
4
utilizingtheirresources
CompetitiveAdvantage
AverageIndustryStrength 4.5
Nestleenjoysstrongcustomerloyalty -2
Qualityproductdistributionnetworksincountry -1
Nestleextendedproductlifecycleisbeingensuredduetoqualitybrandextensionstrategy -2
Nestleproductaremarketleadersinmanyproductcategories -2
EnvironmentalStability
Averagecompetitiveadvantage -1.75
Economicslowdowncanreducethedemand -2
Fluctuatingrateofinflationinthecountry -2
Pricerangeofcompetingproducts -1
AverageEnvironmentalStability -1.75
 BCG
%Market %Growth
Brands Sales %Sales Profit %Profit
Share Rate

MilkandDairy 13993 34 1082 38 100 +15

Beverages 7820 19 661 20 85 +10
BottledWater 9054 22 511 17 100 +3
Confectionaryand
Chocolate 1646 4 150 5 31 -15

BabyFood 5350 13 331 11 60 -5

FoodsandCereals 3293 8 270 9 40 8
Total 41156 100 3005 100 100
BCG…
GSM
THE DECISION STAGE
 QSPM
Acquisitions NoAquisitions
Shangrilla&
Young’sfood

Keyfactors Weights AS TAS AS TAS

OPPERTUNITIES

Fewandweakcompetitorsinthemarket 0.12 4 0.48 2 0.24

Disposableincomeincreasedby3.6% 0.07 - -

Consumerexpenditureonfoodhasincreasedby3.6% 0.09 3 0.27 1 0.09

Populationdensityincreasedby2.18%(persq.km) 0.05 3 0.15 2 0.10

Creditpolicycanbeadoptedtoincreasesales 0.03 - -

Potentialincolddairymarket 0.02 - -

Allcompaniescontributeonly2%toprocessedmilkmarket 0.12 - -

th
Pakistanas7largestmilkproducingcountrywithmilkoutputof200billionliters 0.12 - -

Increaseinconsumerfoodindustryby14% 0.05 4 0.20 2 0.10

THREATS

EngroandShakarganjasmajorcompetitors 0.14

Marketsegmentgrowthcouldattractnewentrants 0.04 3 0.12 4 0.48

Tasteoftheconsumerhasalreadydeveloped 0.02 1 0.02 4 .08

Legal&ethicalissues 0.01 - -
 QSPM(Continued)
Acquisitions NoAquisitions
Shangrilla&
Young’sfood

Weights AS TAS AS TAS

Keyfactors

STRENGHTS

SociallyResponsibleCompany 0.03 - -

Nestleproductsenjoystrongbrandimage 0.07 2 0.14 1 0.07

Salesforceasamajorphysicalresourcestrength 0.05 - -

Qualityproductdistributionnetworksincountry 0.08 - -

NetProfitincreasedby94%in2009. 0.20 3 0.60 1 0.20

Priceearningsratiodecreasedfrom38.9to18.8 0.05 2 0.10 1 0.05
ExportSalesincreasedby48%toPKR3.3billion 0.18 3 0.54 1 0.18

WEAKNESSES

Lackofawarenessamongtargetmarket 0.04 - -

NestlemilkalwaysstandsatlastbecauseoflowAdvertisement.
0.09 - -

Revenuefromconfectionarydecreasedby14% 0.08 - -

Lowcreditsalesandprofitmargintoretailers 0.05 1 0.05 3 0.15

 Matrix Analysis
AlternativeStrategies Space BCG GrandStrategyMatrix Count

Backwardintegration X X 2
Forwardintegration X X 2
Horizontalintegration X X X 3
ProductDevelopment X X X 3
MarketPenetration X X 2
MarketDevelopment X X 2
RelatedDiversification

Unrelateddiversification

Retrenchment

Divestiture

Liquidation
IMPLEMENTATION STAGE
 Decision
• This seemed to an important step where we had to choose
either to go for a horizontal integration or more product
development. The interesting fact was that from 2008-2009
Nestle Pakistan introduced three new products into the
market
• The major new product launches the year 2009
• Included: NESQUIK milk enhancer, NIDO BUN YAD,
LACTOGEN GOLD, and CERELAC fruit cereals.

Our Recommendation:
• Considering this fact now we recommended Nestle Pakistan
to Acquire Shangrila foods and young’s food to excel as a
market leader for the year 2010.
 Why Horizontal strategy
Reason Behind
• Nestle SA expands globally either through its
own brand or the acquisitions of National
brands, considering this fact it seems a critical
time for Nestle SA to expand through a
National brand.
 Evaluations
• NESTLE annual financial reports
• Sales and profits reports (on-line and off-line)
based on sales of newly acquired companies.
• Frequent management meetings between the
Top Management at the cooperate levels
through Evaluation reports
Thank You