Strategic Model
Ammar Yasir
Atif Raza
Bilal Ahmed
Fatima Batool
Hammad Yousaf
Hammad Rasheed
Umair Makki
Zulqarnain Bajwa
(08)
(46)
(47)
(55)
(16)
(11)
(57)
(21)
Case-Study Overview
• Internal:
– History, Nike overview, Key
Facts, Our Brands and Stock
Information
– Nike Actual & Proposed Vision and
Mission
– Economic Performance
– Evolution of Financial Ratios
– Strengths and weaknesses
• Analysis: IFE
• External:
– Industry overview and comparison
of financial ratios
– Manufacturing
– Opportunities and threats
• Analysis: EFE
– Competitors
• Market Share
• Analysis: CPM
• Analysis
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–
–
SWOT Matrix
SPACE
BCG
IE matrix
Grand Strategy Matrix
QSPM
• Possible strategies: Matrix
Analysis
• Decisions
– Why our decision?
– Strategic implementation
– Actions
• Evaluation Procedure
• Current Update
History of Nestle
History
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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.
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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
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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
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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
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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 throughout life. We strive
to bring consumers foods that are safe, of high quality and provide
optimal nutrition to meet physiological needs. In addition to
Nutrition, Health and Wellness, Nestlé products bring consumers the vital
ingredients of taste and pleasure”
1. Customers
Yes
2. Products or services
Yes
3. Markets
No
4. Technology
No
5. Concern for survival, growth, and profitability
No
6. Philosophy
No
7. Self-concept
Yes
8. Concern for public image
No
9. Concern for employees
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
Weighted Score
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 resource strength
0.05
3
0.15
Quality product distribution networks in country
0.08
2
0.16
Net Profit increased by 94% in 2009.
0.20
4
0.80
Price earning ratio decreased from 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
Lack of awareness among 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 decreased by 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
Weaknesses
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
Inventory Turnover Ratio
9.2
4.56
Average Age of Inventory (Days)
40
102
Total Assets Turnover Ratio
2.3
1.23
119.5
67.74
Activity Ratios:
Receivable Turnover Ratio
Average Collection Period (Days)
4
5
3.51
1.23
Gross Profit Margin
29%
30.86
Net Profit Margin
7%
5.8
Return on Assets
44%
41.41
Fixed Assets Turnover
Profitability:
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
Weighted Score
Few and weak competitors in the market
0.12
2
0.24
Disposable income increased by 3.6%
0.07
3
0.21
Consumer expenditure on food has increased by 3.6%
0.09
4
0.36
Population density increased by 2.18% (per sq.km)
0.05
3
0.15
Credit policy can be adopted to increase sales
0.03
3
0.09
Potential in cold dairy market
0.02
3
0.06
All companies contribute only 2% to processed milk market
0.12
4
0.48
Pakistan as 7th largest milk producing country with milk output of 200 billion liters
0.12
3
0.36
Increase in consumer food industry by 14%
0.05
4
0.20
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
Effect of seasonality upon sales
0.05
3
0.15
Strong advertisement by major competitors
0.08
3
0.24
Total
1.00
Opportunities
Threats
3.02
CPM
Competitive Profile Matrix
Nestle Pakistan
Engro Foods
Weights
Rating
Rating
0.0 to 1.0
1 to 4
Market Share
Inventory System
Financial Position
Product Quality
Consumer Loyalty
Relationship with Suppliers
0.12
0.05
0.20
0.15
0.07
0.03
3
3
4
4
3
3
0.36
0.15
0.80
0.60
0.21
0.09
2
2
2
3
2
3
0.24
0.10
0.40
0.45
0.14
0.09
1
2
3
3
1
2
0.12
0.10
0.60
0.45
0.07
0.06
Global Expansion
Organization Structure
0.06
0.02
3
3
0.18
0.06
1
2
0.06
0.04
1
1
0.06
0.02
Production Capacity
Advertising
Efficient cost Management
0.05
0.15
0.05
3
2
3
0.15
0.30
0.15
2
4
3
0.10
0.60
0.30
2
3
2
0.10
0.45
0.20
Product R&D
.05
3
0.15
2
.04
2
.04
Totals
1
Critical Success factors
Weighted
Score
Shakarkanj Foods
Weighted
Score
1 to 4
3.20
Rating
Weighted
Score
1 to 4
2.56
2.27
THE MATCHING STAGE
SPACE SPACE MATRIX
Financial Strength
Nestle’s net sales increased by 20% in 2009 as compared to 2008
Net profit increased by 94% in 2009 as compared to 2008
Debt equity ratio changes from 63:37 to 66:34
Price earnings ratio in 2009 was 18.8 as compared to 2008 38.9
Return on capital employed increases by 40%
Average financial strength
3
5
3
5
4
4
Industry Strength
Increase in consumer food industry by 14%
All companies contribute only 6% to processed milk market
Market segment growth has attracted new entrants to increase profit potential
Due to ease of entry in market, Engro foods, Shezand foods and Shakarganj are properly
utilizing their resources
Average Industry Strength
5
4
5
4
4.5
Competitive Advantage
Nestle enjoys strong customer loyalty
Quality product distribution networks in country
Nestle extended product life cycle is being ensured due to quality brand extension strategy
Nestle product are market leaders in many product categories
Average competitive advantage
-2
-1
-2
-2
-1.75
Environmental Stability
Economic slowdown can reduce the demand
Fluctuating rate of inflation in the country
Price range of competing products
Average Environmental Stability
-2
-2
-1
-1.75
BCG
Sales
% Sales
Profit
% Profit
% Market
Share
% Growth
Rate
Milk and Dairy
13993
34
1082
38
100
+15
Beverages
7820
19
661
20
85
+10
Bottled Water
9054
22
511
17
100
+3
Confectionary and
Chocolate
1646
4
150
5
31
-15
Baby Food
5350
13
331
11
60
-5
Foods and Cereals
3293
8
270
9
40
8
Total
41156
100
3005
100
100
Brands
BCG…
GSM
THE DECISION STAGE
QSPM
Acquisitions
Shangrilla &
Young’s food
No Aquisitions
Weights
AS
TAS
AS
TAS
Few and weak competitors in the market
0.12
4
0.48
2
0.24
Disposable income increased by 3.6%
0.07
-
Consumer expenditure on food has increased by 3.6%
0.09
3
0.27
1
0.09
Population density increased by 2.18% (per sq.km)
0.05
3
0.15
2
0.10
Credit policy can be adopted to increase sales
0.03
-
-
Potential in cold dairy market
0.02
-
-
All companies contribute only 2% to processed milk market
0.12
-
-
0.12
-
-
Increase in consumer food industry by 14%
0.05
4
0.20
2
0.10
THREATS
Engro and Shakarganj as major competitors
0.14
Market segment growth could attract new entrants
0.04
3
0.12
4
0.48
Taste of the consumer has already developed
0.02
1
0.02
4
.08
Legal & ethical issues
0.01
-
Economic slowdown can reduce demand
0.01
2
0.02
Effect of seasonality upon sales
0.05
-
-
Strong advertisement by major competitors
0.08
Key factors
OPPERTUNITIES
Pakistan as 7th largest milk producing country with milk output of 200 billion liters
1.00
-
3
.03
QSPM(Continued)
Acquisitions
Shangrilla &
Young’s food
Weights
AS
Socially Responsible Company
0.03
-
Nestle products enjoy strong brand image
0.07
2
Sales force as a major physical resource strength
0.05
-
-
Quality product distribution networks in country
0.08
-
-
Net Profit increased by 94% in 2009.
0.20
3
0.60
1
0.20
Price earnings ratio decreased from 38.9 to 18.8
0.05
2
0.10
1
0.05
Export Sales increased by 48% to PKR 3.3 billion
0.18
3
0.54
1
0.18
0.04
-
-
0.09
-
-
Revenue from confectionary decreased by 14%
0.08
-
-
Low credit sales and profit margin to retailers
0.05
1
Weak promotional activities through websites
0.05
-
Cant launch expensive brand due to low income groups
0.03
2
Total
1.00
Key factors
TAS
No Aquisitions
AS
TAS
STRENGHTS
0.14
1
0.07
WEAKNESSES
Lack of awareness among target market
Nestle milk always stands at last because of low Advertisement.
0.05
3
0.15
0.06
2.75
4
0.12
1.89
Matrix Analysis
Alternative Strategies
Space
Back ward integration
Grand Strategy Matrix
Count
X
X
2
Forward integration
X
X
2
Horizontal integration
X
X
X
3
Product Development
X
X
X
3
Market Penetration
X
X
2
Market Development
X
X
2
Related Diversification
Unrelated diversification
Retrenchment
Divestiture
Liquidation
BCG
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