Report The development of Nestle in Japan

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Nguyen Diu | Hoang Lien | Mai Kien | Le Nguyet | Hai Phuong
| Tran Phuong
REPORT
Nestlé’s development in
Japan
A. INTRODUCTION
I. About Nestlé International
Nestlé is the largest food and beverage company in the
world. It is also well on its way to becoming world leader
in nutrition, health and wellness.
Nestlé is a Swiss company founded in 1866 by Henri
Nestlé. Their history begins in 1866, with the foundation
of the Anglo-Swiss Condensed Milk Company. Henri Nestlé
develops a breakthrough infant food in 1867, and in 1905
the company he founded merges with Anglo-Swiss, to form
what is now known as the Nestlé Group. During this period
cities grow and railways and steamships bring down
commodity costs, spurring international trade in consumer
goods.
*Mission
Nestlé's purpose is enhancing quality of life and
contributing to a healthier future. They want to help
shape a better and healthier world. They also want to
inspire people to live healthier lives. This is how they
contribute to society while ensuring the long-term success
of our company.
*Vision
They have defined three overarching ambitions for
2030 which guide our work and support the achievement of
the UN Sustainable Development Goals.
They want to shape a better and healthier world. This
was how they started more than 150 years ago when Henri
Nestlé created an infant cereal that saved the life of a
child.
*Innovation
Nestlé invests around 1.7 billion Swiss francs (1.7
billion US dollars) every year in research and
development, more than any of our competitors worldwide
to meet new consumer trends. To launch new products
quickly, they are using fast prototyping and leveraging
our size and scale for quick in-market testing. In the
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past 12 months alone, they have introduced around 1500
new products around the world. Coming up with great ideas,
changing our innovation model and getting to market
quicker. This is how Nestlé continues to create long-term
value for our shareholders and for society as a whole.
They understand that sense Nutrition, Health and
Wellness company also requires that our products are made
in a caring and responsible way that preserves the
environment for future generations. To optimise the
environmental performance of their products, they apply a
life cycle approach, systematically assessing our product
categories along the whole value chain.
By helping new generations to eat and drink better
and move more, we will enhance quality of life and
contribute to a healthier future. We have developed Nestlé
for Healthier Kids to bring together all our efforts that
support parents and caregivers in raising healthier
children, from leading research and product formulation
to education and innovative nutrition and lifestyle
services.
1. People, Products and Brands
*Putting the consumer first
Every day Nestlé sells over a billion products. These
individual consumer transactions give the Company total
annual sales of more than CHF 90 billion*. For success
and growth, it has to build the greatest possible consumer
trust in both the Company and its products. One way is to
get as close to the consumer as possible. This is quite a
challenge. It means understanding people of all ages…
babies, toddlers, growing children, and adults from
teenager to old people; and being aware and appreciative
of all their needs and motivations. Their aim is to
achieve
better
consumer
understanding
than
our
competitors.
*Food is local
Nestlé’s success is based firmly on the concept that
“food is a local matter “. Although their products are
available in virtually every corner of the world, they
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don’t believe in a standard worldwide taste. On the
contrary, they go to considerable lengths to adapt their
products to local consumers’ tastes. These can vary
widely, not only from country to country, but even inside
a country. To meet local needs, there are more than 10,000
Nestlé products. Almost 500 factories in over 80 countries
produce them.
Different cultures, different geographies, different
needs, tastes, flavours and habits all influence what
their consumers eat and drink. So, it’s vital that they
have local knowledge and local experience.
*Affordable products
For lower-income consumers in many countries, Nestlé
is marketing a range of products at affordable prices.
Although low in cost, they provide a balanced diet by
compensating for local dietary deficiencies, and combine
good taste with convenience and relevant nutrition.
*Contributing to nutrition, health and wellness
Many Nestlé products are naturally beneficial from a
nutritional point of view. They include breakfast cereals,
milk and dairy products and bottled waters, all of which
are also excellent carriers of Branded Active Benefits.
In a balanced diet, these enjoyable and sometimes
indulgent products definitely have a role to play. Nestlé
makes sure they have plenty of healthy exercise, but then
a modest amount of “mainly-for-pleasure” foods can also
be part of Good Food, Good Life. They are applying
nutritional expertise to these products as well. For
example, Dreyer’s Slow Churned and Häagen-Dazs Light ice
creams use proprietary technology to deliver the same, or
even better taste than regular ice cream, but with half
the fat and a third fewer calories. In confectionery, they
have introduced many sugar-free products, including Polo,
as well as lower sugar content in products such as Kit
Kat Light.
*Ensuring quality and food safety
Every
Nestlé
factory
has
a
laboratory
that
systematically analyses raw materials and ingredients.
Nestlé products are checked on the production line and in
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their finished state to ensure that they meet our own
strict standards, as well as national and international
regulations. The quality assurance laboratories at the
Nestlé Research Center in Lausanne, Switzerland are
constantly broadening their knowledge and know-how in
microbiology,
food
safety,
nutrients,
additives,
contaminants and packaging.
*Giant and broad sales channel
These include big retail superstores, supermarkets
and chain stores. But they also include small family-run
neighbourhood shops, stalls in markets, vending machines,
mobile vendors and even door-to-door sales of chilled
products in special cooler bags. People can buy Nestlé
products in schools, offices, hotels and airports. In icecream parlours and fast food outlets. On planes, trains
and boats. In veterinary practices, service stations and
fitness centres. Different formats, in all shapes and
sizes, meet the needs of consumers whenever and however
they want to consume a Nestlé product.
2. The Nestlé's Culture
*A multi-cultural business
The Nestlé Management and Leadership Principles are
based on the many experiences that have led to the
company’s success throughout its long history. They relate
mainly to the human aspects of their management and their
employees, and stress the multi-cultural nature of the
Company. Nestlé embraces cultural and social diversity
and does not discriminate on the basis of origin,
nationality, religion, race, gender or age. Nor does
Nestlé have any political involvement. Nestlé operates in
many countries and in many cultures throughout the world.
This rich diversity is an invaluable source for their
leadership, and also for broadening their employees’
experiences. A key theme of the Management and Leadership
Principles is that they put their priority on people
rather than systems. This results in a structure that is
as flat as possible, rather than hierarchical, and gives
individuals plenty of opportunities to advance their
careers.
Together
with
their
Corporate
Business
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Principles, the Management and Leadership Principles form
the foundation of their approach to doing business. It’s
an approach that has been recognised by top Harvard
academics as having generated real benefits both for
Nestlé and for society – over many decades. Ingenuity,
variety and teamwork give plenty of opportunity for their
people all over the world. Harvard Business School
Professors Michael Porter and Mark Kramer have stated that
this puts Nestlé in the front rank of companies who create
real shared value for themselves and society at every step
of their business process or “value chain”. Porter and
Kramer argue that our approach has already stood the test
of time; and will continue to do so precisely because
there are winners on all sides.
*A network of local companies
It’s a genuine paradox. Although Nestlé is one of
today’s global giants, its priority is to be a local
company in each of the 130 countries where we market our
products. In many of them, we have been present for more
than 100 years. So, we’ve had time to learn and understand
their cultures and habits, and to benefit their economies
and communities. Local Nestlé units work within a global
framework based on the Nestlé principle: “centralise what
you must, but decentralise what you can “. In this way
they combine the advantages of a worldwide company with
the advantages of smaller, local businesses. Although
Nestlé is very global, essentially, it’s a company made
up of smaller local units. So wherever Nestlé is, it is
not an anonymous giant. Their global sales are simply the
result of adding together the sales of each local company.
To give you a better idea of our presence around the
world, the average number of employees in our factories
is 270, and the average number of employees in any single
country is around 3,000.
*How the business is organised
Nestlé has its own local companies in most countries.
The Head Office in Switzerland works very closely with
them, and sets overall strategy which is directed via Zone
Management and the Strategic Business Units (SBUs).
Geographically, Nestlé’s three Zones (Europe; the
Americas; Asia, Oceania, Africa and the Middle East) work
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closely with the local markets and the SBUs. Their primary
role is that of enablers, acting as the voice of the
centre to the markets, and the voice of the markets to
the centre. They share Nestlé’s vision so that everyone
around the world understands the direction to take – and
how to get there with common tools, common strategies and
common values. This ensures that our people around the
world know how to act, and have a very strong framework
of values and a clear reference point for fast decisionmaking. The SBUs specialise in a particular category, for
example Coffee and Beverages, or Pet Care, or Chocolate
and Confectionery. They work with Research and Development
(R&D) to ensure that everything the company produces is
led by consumer insights and relevant innovation; and they
help the markets to achieve their business and brand
objectives. To make it all happen, there are just under
500 factories in 80 countries, and 17 Research Centres.
II. Nestlé Japan achievements
It took nearly forty years for Nestle to set its stable
ground in Japan, it was the result of slow and difficult
processes. At the beginning, Nestle was challenged by
local milk producers on the one hand and coped with an
economic policy that was unfavourable to foreign direct
investments on the other hand, delaying Nestlé’s local
production in Japan.
Indeed, after having opened a subsidiary in Kobe in
1913, it took Nestlé around twenty years of negotiation
and confrontation with the local condensed milk producers
before it finally acquired its own plant through an
investment in Awaji Condensed Milk (ARKK) in 1934. At the
time, Nestlé was the only foreign MNE in the food industry
producing locally in Japan. Yet the creation of ARKK does
not appear as the end but rather as the beginning of a
new phase of open confrontation with local firms and the
authorities. Indeed, for more than ten years, the Swiss
MNE faced problems with regard to fresh milk supplies,
control of distribution, relinquishment of its brands and,
finally, the forced rental of its plants, not to mention
declining profits due to the war. Despite these
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difficulties, Nestlé never gave up the position it had
acquired. As MNEs were leaving Japan in droves during the
1930s, Nestlé hung on and turned down various takeover
proposals.
The
Swiss
management
of
the
holding
consistently kept the post-war period in mind. The
position that Nestlé could reach by the mid-1930s was to
enable it to dominate the dairy industry after the end of
the war. That was also why a new director was sent to
Japan as soon as the war ended.
Although the company launched many types of goods with
particular success, in this report we only concentrate on
the most typical successful product of Nestle in Japan,
which is KitKat.
B. KITKAT CONQUERS JAPAN MARKET
The Kit Kat was meant to be plain, unpretentious,
cheerful. The stars of its commercials were often
construction workers, cops or commuters taking five hardearned minutes to enjoy a moment of sweetness in an
otherwise bleak day. The Japanese food market can be
particularly hard to crack for foreign brands. Mars, for
example, have finally managed to get M&Ms and Snickers
onto Japanese shelves after thirty-five years of hard
work.
By deep understanding of local culture, KitKat of
Nestle in Japan become a phenomenon. Nestle says KitKat
sales in Japan have risen 50% between 2010 and 2016, and
this August the company opened its first new manufacturing
plant in Japan in 26 years to keep up with local demand(*).
I. Overcome culture differences
1. Collectivism culture (Hofstede’s cultural dimension)
People identify with the group they belong in, their
identity is based on a social system where they form a
part of a specific cluster. In collectivistic cultures it
is first necessary to build a relationship between parties
so as to establish mutual trust. People view the product
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in regard to the reputation of the company and how
trustworthy it is. When that same company decides to
extend their range and offer another product, the Japanese
are quick to accept and trust that product.
Originally, Nestle has dominated the market with
their coffee, milk or cooking aids (Maggi), the Japanese
give Nestle’s image a trust scrore higher than its
competitors (meiji, Morigana, Nissin, Kellogg…). So when
Nestle took over KitKat and introduced to market, people
automatically assumed good quality from it. Even more,
KitKat is regarded as the most popular premium
confectionery brand in Japan(*) – as reflected in its
KitKat Chocolatory stores. Since the launch of the first
of these branded boutiques in Tokyo in January last year,
a further seven have opened across the country, attracting
nearly one million customers, who have spent close to Y2
billion (£10.9 million-according to current exchange
rate) on luxury KitKat confectionery masterminded by Chef
Takagi.
That was the only favourable detail that Nestle had
to popularize KitKat. In collectivistic cultures where so
much importance is placed on context and situation, brand
concept is too abstract to be debated as is done in
individualistic cultures. Japan for example, brands are
linked to famous people or iconic characters, and Nestle
was very excellent at taking this point in localizing
KitKat.
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Figure 1. Hofstede's Dimensions for Japan
2. Neutral (Trompenaars’
differences)
model
of
national
culture
Japan is deemed a neutral culture as it is generally
acknowledged that Japanese people avoid showing emotion
in public. Therefore, the effect of showing emotion in
marketing, whether it be salespeople or in advertisements,
is greater than in an emotional culture. Utilizing emotion
can however be a risk since the Japanese are not used to
that much exposure to emotion in their daily lives
(Gillespie & Hennessey, 2010).
Nestlé has exploited emotion greatly when advertising
the chocolate bar Kit Kat. Nestlé hit the jackpot by
accident when they realized that their product, Kit Kat,
when translated into Japanese became “Kitto katto” (きっ
と カット) which can be translated as “You’ll definitely
win”. It soon became a tradition in Japan to give friends
and family who were taking any kind of an exam a Kit Kat
beforehand as a sign of support. Nestlé even collaborated
with Japan Post
to launch the postable Kit Kat. The
campaign was a massive hit, resulting in an annual
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tradition that had people sending Kit Kats to almost half
of the country’s 600,000 annual exam-taking students for
good luck.
In March 2011, after an earthquake, tsunami and
nuclear disaster devastated a swath of Japan’s Pacific
coast, people sent KitKats to the region, appending the
message: kitto fukkyu kanau, or, “you’ll surely recover.”
3. Localize KitKat in every possible perspective
*A developed food culture (especially tea, wasabi, sushi…)
Japan’s diverse landscape stretches from the tropical
south to the wintery highlands of the north, in which
Pacific climates meet Siberian winds. This incredible
diversity means a variety of regional delicacies have
developed over the centuries, and one can find tastes
changes as quickly as the Shinkansen travels between
islands. While the hallmarks of traditional cuisine can
be found across Japan, each region also has their
trademark specialities, informed by local ecology.
Nestle tried more limited-edition varieties. The more
they introduced, the more popular the bars became. The
KitKat makers leveraged local products into exotic
flavors. There, in Shizuoka prefecture, the candy-makers
offered Tamaruya-Honten brand wasabi KitKats; in the Kanto
region, adzuki bean sandwich KitKats; in Hiroshima,
KitKats flavored like momiji manju, a locally produced
pastry made of rice and buckwheat.
The ingredients are sourced from regions across the
country. These regional flavors are often produced and
sold to coincide with food seasons in limited edition
boxes. The regional nature of each original variety made
Kit Kat even more giftable to colleagues, friends, and
family.
Today, Nestlé also develops flavors in collaboration
with famous local companies and retailers. The company
develops 20 new flavors every year, and replaces flavors
on convenience store shelves every two months. “That’s
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how the product cycle has been ever since strawberry
flavor introduced in Hokkaido.
*Intimacy package
Japan’s culture of Omiynage means returning from
travels with gifts for friends, family and colleagues.
People would associate the Kit Kat with the traditional
sweet and snap it up as a souvenir. But for this to be a
success, for Kit Kat to expand into the souvenir market,
consumers would have to believe that Kit Kat, originally
a British product, was Japanese, and that although it was
manufactured in a factory far away, it somehow represented
the very essence of a region.
That’s why every KitKat decorated vividly, embodied
many layers of meanings. As a home of famous animation
characters (Hello Kitty, rilakkuma…), KitKat uses them
all to make the “gift” more adorable.
*KitKat × Japan Railway
Acknowledged that the Japanese including young people
commute by express trains, Nestle bring out products
exclusively sold on railway stations and trains, KitKat
becomes the most favoured and popular thanks to “word of
mouth” consequenses it creates between people on the
trains.
C. OPPORTUNITIES & CHALLENGES in JAPAN
I. Five Forces Analysis
1. Threats of New Entrants: Low, stable
The food processing industry is very large and
competitive. It is uncommon for firms within the industry
to do quite well. As a result, many companies enter into
the market every year in an attempt to gain a portion of
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the profitable market. For Nestle, the company luckily
has been around in Japan for over a century and boasts a
long
history
of
quality
products
and
consumer
satisfaction, which has allowed the company to obtain a
considerable share of the market. As a result, new
entrants into the industry must attempt to seize a portion
of Nestlés market share in order to survive. Essentially,
Nestlé is constantly a target, and so the threat of new
entrants is moderate. Additionally, there are many
government policies that have to be met in as far as
manufacture of food products is concerned. Getting the
red light from inspectoral agencies such as the Japan’s
government can be more difficult for new entrants because
Japan highly appreciate the health and nutrition for their
residents. This all makes the threat of new entrants low
for Nestle
2. Threats of Substitute Products: High
Due to the nature of the industry, Nestlé is afflicted
with the threat of substitute goods. Ranging from bottled
water to milk- based product, there are arrays of similar
products that compete directly with Nestlé. Especially in
Japan, there are many local competitors in food and
beverages industry that provides similar kind of product
like Nestle. It is vital for Nestlé to continuously find
new ways to improve its products and generate new sources
of growth for the company future expansion because
competition is so violent. In recent years, Nestlé has
focused on the health and wellness aspects of its products
to maintain its competitive edge and customer loyalty in
the market. Thus, the threat of substitute is high for
Nestle.
3. Bargaining Power of Supplier: Medium
Nestle source supplies of raw materials from millions
of farmers across the world. These farmers are critical
to a secure, long-term supply, and therefore to our
success. By understanding and managing where and how our
ingredients are produced, and the issues farmers and their
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communities face, it can help develop thriving communities
and support better livelihoods for those with whom we live
and work. Nestlé prides itself on creating and maintaining
positive relationships with its suppliers all over the
world. Due to the large purchasing power of Nestlé, and
because the suppliers of agricultural commodities offer a
product that is far from unique, Nestlé holds more
bargaining power than its suppliers. Aside from this,
Nestlé prefers to create and preserve long term
relationships with its suppliers as this helps to ensure
the quality of the raw materials being purchased. In
addition, Nestlé also offers useful advice to its
suppliers on how to perform more efficiently to minimize
unnecessary cost. So, supplier is not important problem
for Nestle.
4. Bargaining Power of Buyer: High
Customers have a large amount of bargaining power
regarding to their consumption of Nestlé products. This
is because of the easy access to substitute products as
well as other food processing companies besides Nestle.
There are close substitutes for Nestlé products which
allows for the preferences of the customer to be very
influential and the switching cost is low. Nestlé
understands the power of the customer and has taken
specific steps to meet the needs of its products
consumers. Specifically, Nestlé is incorporating health
and wellness into the creation of its products as society
has started becoming more health conscious.
5. Competitive Rivalry within The Industry: High
In Japan and Nestle is the top brand in instant
coffee. Nestle Japan is also the second most profitable
company in the food and drink industry, a remarkable feat
for a foreign company. But domestic companies are
continuing to dominate Japan’s packaged food market with
four of the five largest brands all home grown such as
Meiji Holding, Yamazaki Baking Co, JA Group, Nissin Foods
Holding. Besides, there are also a number of foreign
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companies in food industry such as Lottle, Mondelez,
Danone, Unilever… Nestle was increasingly facing fierce
competition as many food producing rivals had achieved
significant improvements in their operating efficiency.
However, Nestle has been able to curve a niche for itself
in the food processing industry because it has maintained
high quality products and taken into consideration
changing demands of the clients. This has made it the best
brand in a very competitive industry.
*Summary of Challenges and Opportunities
1.
Declining
total
population,
households and early population.
increasing
single
As of 2010, the number of single-person households in
Japan stood at 16,790,000, accounting for 13% of the
country’s total population, or 32% of the number of all
households. Meanwhile, the number of “standard family
households” (parents and children) accounted for only 28%
of all households for the same year. This means that the
single-person households accounted for the highest
percentage share by household category, ranking above that
of standard family households. Single-person households
are on the rise. Living alone is no longer a phenomenon
peculiar to young people. The numbers of elderly people
living alone after losing their spouses or unmarried
senior males living on their own have been growing
rapidly. The dramatic rise in the number of single-person
households is perceived as an astonishing phenomenon in
Japanese society, where a married couple living together
with their family has long been seen as “standard.”
2. Decrease the size of population makes the power buying
down
Because there are less people to purchase for
product’s Nestle. Moreover, the aging society in Japan
has a lot of old people and less young people. The old
people do not tend to spend too much money for Nestle’s
product instead of for healthcare services and Nestle does
not have many products for old people. So, this is one of
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the opportunities for company to expand its portfolio of
good for old age segment. With an increasingly aging
society in Japan, the medical nutrition market has
continued to expand. Nestlé Health Science has steadily
increased its market penetration through selling medical
nutrition solutions that are highly valued by healthcare
professionals, patients and consumers. By starting their
production in Japan, they continue to invest in additional
capabilities and production capacity to meet the
increasing nutritional needs of an aging population in
Japan. Nestlé Health Science is a wholly-owned subsidiary
of Nestlé Group, the world’s leading nutrition, health
and wellness company. With a combination health and
nutritional science capabilities – Nestlé Health Science
has
an
ever-developing
innovative
portfolio
of
nutritional therapies, supported variously by proprietary
diagnostics and devices, targeted towards the Vital
Support areas of ageing and Critical/intensive care, as
well as Gastrointestinal Health, Brain Health, Metabolic
Health and Consumer Health, changing the way patients and
healthcare professionals approach the management of
health. In Japan, Nestlé Health Science (Company
President: Akihiro Nakajima) offers nutritional solutions
to meet the nutritional needs of people in medical
institutions and nursing homes, and professionals
involved in health care.
The unusual phenomenon stems from the difficulties of
caring for the country's elderly population. The number
of Japanese seniors living alone increased by 60% between
1985 and 2015, Bloomberg reported. Half of the seniors
caught shoplifting reported living alone, the government
discovered last year, and 40% of them said they either
don't have family or rarely speak to them. That also
affects to business activities of Nestle. Single
households live alone and almost of them are young.
According study about young lifestyle, young people
purchases more money for clothes, entertainment, fast
food, restaurant, they live easily seem not caring for
health themselves seriously. While Nestle’s product are
mainly for children, households which is not suitable for
young segment so increasing single households make the
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volume of sale decreased. At that point, we can see that
the new strategy to promote brand image to this segment
through change channels.
3. Shifting from traditional channels to digital marketing
The young people spend a huge of time in day to use
social media and using internet. The way communication
has changed is another facet of the digital marketing age.
Digital marketing channels are now more level than ever
before. Due to the way customer behaviours have shifted,
it’s now easier than ever to hit your target audience.
Traditional advertising is dead. Television and radio,
for example, have fallen a lot thanks to all of the
streaming services that are available. It’s not because
of anything they’ve done, it’s because people are moving
online. They no longer sit in front of the TV when they
can watch the same show without any ads online.
Furthermore, online marketing channels tend to be better
targeted. You only pay for reaching people who may
actually have an interest in what you have to say. So,
Nestle has to centralize to digital marketing on social,
internet where consumers always access. That will help
company can fit with behaviour of consumer and approach
customers.
Channels structure communication also changes for
behaviour’s buying of consumer has changed. In 4.0
technology, internet is over the world add Japanese do
not spend more time for buying, because Japanese well
known with hardworking so their time are mainly in office.
There will be big problem if company does not rebuild
distribution selling system. Depend on technology world,
there are more opportunities for Nestle to develop the
online selling with trading in over the world especially
in whole Japan country. Moreover, convenience stores in
Japan are statured because it can service almost
consumer’s demand, the supermarket and tailor’s system
are no longer highlight as before.
Online shopping is
central to both the economizing and the nesting trends.
While Japan has one of the world’s highest broadband
penetration rates, it has lagged behind developed markets
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such as United Kingdom and the United States in the
willingness of its consumers to shop online. Many
explanations have been advanced for this peculiarity:
Japanese consumers love the physical shopping experience;
mobile-phone screens are too small; the density of retail
establishments means that online shopping has less of a
convenience advantage; credit card penetration is low.
Whatever the root causes, Japan has shrugged off its
reluctance: according to an April 2009 MyVoice Internet
survey, more than 50 percent of consumers are buying more
online than they were just 12 months ago. Mobile
technologies are empowering consumers to make smarter
decisions about what they buy. That are opportunities for
Nestle to raising sale also brings challenges if switching
is fail.
4. High nutrition awareness
Japan has always been perceived as one of the world’s
healthiest societies, thanks to a combination of
lifestyle, diet, and genetics, and Japanese consumers are
increasingly conscious of their health. A September 2009
MyVoice Internet survey suggests that spending on health,
sports, and recreation, for example, has held up better
than virtually any other retail category. One effect of
the greater interest of the Japanese in directing their
own health care has been the growing popularity of
drugstores, which have been Japan’s fastest-growing
retail channel since 2000: store numbers have increased
by 4 percent and sales by 8 percent. They looking for good
product with high quality and willing to pay for it.
However, thanks to internet they can easy to discover
everything related to quality, price, substitutes.
Consumer shopping smarter and looking for lower price,
they expect more values from goods. Adding, substitute
product for Nestle Japan is so high so they have more
options to choose the best one for themselves. Nestle
build nutrition brand is advantages and got the consumer’s
belief, continuous investing on core value in order to
fight off competitors in market. It will be challenge to
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solve price problem for price of substitute good. They
will pay less money to get one cacao candy instead of one
chocolate of Nestle. In some close substitute category
Nestle need to be flexible in pricing and make sure about
quality as well as nutrition of product to raise loyal
customers.
Following the development in science and technology,
consumers demand a lot of new products. It asks Nestle
has to change frequency to approach the demand of
consumers.
D. STRATEGIC MOVES
I. The General Strategic Nestle
The objective of Nestle is to be the recognised and
trusted leader in Nutrition, Health and Wellness, and the
industry reference for financial performance. To obtain
this mission, Nestle uses the global strategy that focus
on three main fields: competitive advantages, growth
drivers and operational pillars. Nestle have built a
successful
business
through
understanding
and
anticipating consumer needs, and adapting to succeed in
an evolving marketplace. Based on a compelling strategy,
their company delivers dependable value over the short
term and long term.
Nestlé’s success is built on its Nutrition, Health
and Wellness strategy. Today, food and beverages remain
core to their strategy. Their aim is to provide the
tastiest and healthiest choices, at all times of the day
and for all stages of life, delivered in a convenient and
time saving manner. They also offer consumer healthcare
products to help people meet their health and wellness
goals. This is what they mean by ‘Good food, Good life.
1. Understanding and serving the consumer
Nestlé’s portfolio is well positioned for growth. The
key to our long-term success continues to be understanding
and serving the consumer. By identifying consumer trends
19
early and acting quickly to capture them, they remain at
the forefront of the fast-moving consumer goods industry.
Consumers want products with simple, understandable
ingredients, natural or organic, and ideally locally
produced. Likewise, many people do not have the time to
prepare and cook meals, so they are looking for food and
beverages that are convenient too.
Nestlé has the largest research and development
network in the food and beverages industry, continually
innovating and renovating their portfolio to meet changing
consumer demands. They also work with leading edge
partners around the world, including start ups, academic
institutions
and
public
organisations.
They
help
strengthen their own capabilities by generating ideas,
accessing skills and developing new technologies, so they
can remain at the forefront of consumer trends. This
includes delivering products with simpler ingredients, as
well as more premium, organic, natural and fortified foods
and beverages. Nestlé also offers a range of affordablypriced, high quality, nutritious products. Many of their
foods and beverages, especially those for children,
include added micronutrients such as iron, iodine, vitamin
A and zinc to support good health and well being.
2. Accelerating growth
At Nestlé, they believe that long term value creation
is the result of both growth and operating efficiency.
They achieve sustainable top line growth by investing
selectively in high growth categories and geographies.
The target, set in 2017, is mid single digit organic
growth by 2020. They aim to achieve this by refocusing
their base businesses, active portfolio management and
prudent investment behind their high growth categories.
They are managing coffee, petcare, infant nutrition
and bottled water categories with an emphasis on growth.
Nestlé has a significant global market share in these
categories. They have some of the world’s leading brands,
including Nescafé, Purina, Gerber and Nestlé Pure Life.
Furthermore, they have science and technology based
competitive advantages across these categories. Nestlé is
20
also pursuing growth opportunities in consumer healthcare
to complement their focus on these key food and beverages
categories. As a result, they are expanding our presence
across the pharmacy channels in both emerging and
developed markets.
The core of value creation comes from product, service
and business model innovation. Strength in research and
development is a key differentiator for Nestlé, helping
them to respond quickly to the ever-changing world. Their
innovation is broad based across all categories, from
product renovations to service delivery platforms. It
starts with transforming their core portfolio to keep
products, brands and services relevant, as well as
creating and scaling new brands where needed.
Digital innovation presents them with further
opportunities for competitive advantage in developing
more personalised experiences and new delivery methods.
They are connecting with younger consumers in the digital
space, using both local and specialised platforms. They
are fully committed to digital marketing and e commerce
platforms as avenues for growth. Hence, they are expanding
these new business models, focusing strongly on our direct
to consumer models, as well as partnering with key online
retailers around the world.
3. Increasing efficiency
Nestlé is committed to margin expansion. They have
set an underlying trading operating profit margin target
of 17.5% to 18.5% by 2020, up from 16% in 2016.
Their primary driver is to reduce structural costs in
non-consumer facing areas. Well identified projects in
manufacturing, procurement and general administration are
expected to deliver total savings of CHF 2.0 to 2.5
billion by 2020.
They are optimising their manufacturing footprint and
increasing efficiency throughout their operations. This
will both increase their capacity utilisation and reduce
their conversion costs. Through global procurement, they
leverage Nestlé’s purchasing power worldwide. They are
21
supporting their centralised purchasing
establishing global procurement hubs.
activities by
Scaling up the use of shared services brings further
efficiency. They aim to increase the availability and use
of shared services to 50% by 2020.
Enhanced local and regional decision making allows
them to move more quickly in the market. Furthermore, they
are reviewing and consolidating their real estate
portfolio, and they have outsourced the management of the
Nestlé pension fund.
4. Allocating capital prudently
Nestlé has a strong portfolio, with profitable growth
platforms and leading market positions in many categories.
They take a prudent and focused approach to capital
allocation to ensure solid long-term growth.
They constantly review their brand portfolio and are
selective
in
evaluating
merger
and
acquisition
opportunities. They will make acquisitions in fast growing
categories only if it is complementary to their existing
portfolio,
deliver
the
attractive
returns
their
shareholders expect and are in line with our Nutrition,
Health and Wellness strategy.
Nestlé regularly revisits its capital structure to
reflect
changing
market
conditions
and
strategic
priorities. Their financial strategy aims at striking the
right balance between growth in earnings per share,
competitive shareholder returns, flexibility for external
growth and access to financial markets.
In June 2017, they announced a new CHF 20 billion
share buyback programme to be completed by the end of June
2020. Should any sizeable acquisitions take place during
this period, the share buyback programme will be adapted
accordingly. They increasingly focus capital spending on
advancing their high growth food and beverages categories.
They are also building on their strong position in
emerging markets and pursuing growth opportunities in
22
consumer healthcare. They are taking actions to drive long
term growth through a mix shift towards higher margin and
high growth categories, and an unmatched dedication to
research and development.
5. Creating Shared Value
Creating Shared Value (CSV) is the fundamental
principle of how Nestlé does business. It is their way of
creating value for both shareholders and for society at
the same time.
They understand that the prospects of their business
are linked to the health and resilience of the society
and world in which we operate. Their priorities are those
areas with the greatest connection between Nestlé’s
business and society.
Nestle's 41 public commitments bring to life their
purpose of enhancing quality of life and contributing to
a healthier future. These commitments contribute to the
UN's Sustainable Development Goals.
II. The Strategic move for exclusively Japan
In Japanese food industry, Nestle are coping with two
main challenges: unfavorable demographic trends shrinking and ageing population & more demanding and value
conscious of consumers.
1. Nestle Japan to expand health care platform
'Wellness Ambassador' nutrition service to target
aging societies that is solution of Nestle for first
challenge.
It is new health care platform, which provides
customers with nutritional advice based on their blood
and DNA test results as well as their dietary habits, in
an example of the local arm starting to change the
business model of the company known for its Nescafe coffee
and KitKat chocolate brands. The health strategy in Japan
could provide a model for the company's behavior in
23
advanced countries,
declining.
where
populations
are
aging
and
Nestle
Japan's
"Nestle
Wellness
Ambassador"
subscription platform offers services including sales of
specialized green tea-flavored nutritional supplements,
with vitamins, magnesium or calcium. It uses chat app
Line, where customers can post pictures of their meal,
which can then be analyzed by artificial intelligence to
see what nutritional elements the meal lacks. In addition,
the results of blood and DNA tests, which can be carried
out at home using a needle or spatula kit, can be used to
analyze that person's future health risks.
The company gives food advice and can recommend
products out of a range of 17 different supplements
according to individual data, thus enabling customers to
easily boost their health. The Ambassador program, which
launched in October 2017, has so far attracted 90,000
subscriptions.
In the 21st century where technology has advanced at
such a rapid pace and certain developed countries are
seeing [a declining population], the health care industry
is the only way for food companies to survive.
II. Nestle Japan aims to increase online sales to 20% via
ambassador schemes.
With the development of e-commerce, highly developed
alternative communication and shifting from traditional
channels to emerging new channels are methods to solve
the second challenge. As of the last year, mail-order
sales, which includes online shopping is responsible for
15% of Nestle Japan's overall sales.
To increase online sales, the firm will focus on
strengthening
subscription
shipments
through
its
Ambassador programmes, namely the Nescafe Ambassador and
the
Nestle
Wellness
Ambassador
programs
100%
subscription service and highly contribute to their online
sales.
24
There are 400k Nescafé Ambassadors and 900.k Nestlé
Wellness Ambassadors. The firm hopes to increase its
Nescafé
Ambassadors
to
700k
and
Nestlé
Wellness
Ambassadors to 250k by 2020.
The programme provides healthier beverage options,
including hiesmoots rich in kale, milk containing
collagen, amino acids, dietary fibre and matcha blended
with glucosamine, gingko leaf extract and etc.
In conclusion, to developt and sustain in a hard
market like Japan, Nestle's strategy is perfectly
reasonable because it meets the demand for Japanese's
taste and trend. Therefore, both Nestle in Japan and
global can be continuous excellence.
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