Nestle Operating In A Global Economy
The Nestle company has over 150 years of history as a foundation for current operations. Nestle is the largest food and beverage company in the world and operates in Europe, the Americas, Asia, and Africa (DATAMONITOR, 2011). The company’s products include beverages, milk-based products, ice cream, prepared food, and pharmaceutical products. The company is divided into four globally managed businesses within these different products to include Nestle Waters, Nestle Nutrition, other food and beverages, and pharma.
The diversity and adaptability of Nestle have created a name brand recognized around the world. The company continues to demonstrate the flexibility to survive the volatility of the global market to maintain a stable profitability.
Nestle maintains a strong revenue. In 2010, the company had 109, 722 million francs in revenue, an increase of 2% over 2009 (DATAMONITOR, 2011). The operating profit increased 3.2% over 2009 to 16,194 million francs and net profit increased from 10,428 million francs to 34,233 million francs (DATAMONITOR, 2011). The sharp increase in net profit resulted from the sale of Alcon during 2010. The 2010 profits were inflated by the sale of shares in the eye care company Alcon that added 24,500 million francs net to the balance sheet (The Associated Press, 2011). Excluding the Alcon profit, Nestle’s net profit declined from 9,260 million francs in 2009 to 8,780 million francs in 2010 (The Associated Press, 2011). The company reported that continuing operations achieved organic growth of 6% in 2010 and CEO Paul Bulcke stated the target would be 5 to 6% for 2011 (The Associated Press, 2011).
There are many challenges and obstacles to increase profit for companies operating in a global economy. Like many companies, the economic slow-down has made it difficult for Nestle to continue to grow and achieve above-average profitability. There are several challenges that Nestle has faced over the past few years. One of the biggest challenges the company has faced is a tarnished reputation caused by several different recalls. For instance, in 2011, the
company initiated recalls of Lean Cuisine packaged meals in the US after reports indicated a possible presence of red plastic pieces inside meatballs. The company also recalled some packs of its Milkybar Buttons due to the likely presence of small pieces of rubber. This was followed by recall of Maggi noodles for possible salmonella contamination in the Philippines. In 2010, the company recalled its Nescafe Collections coffee due to the possible presence of small pieces of glass. Prior to that, in 2009, the company recalled refrigerated and frozen Nestle Toll House cookie dough products when Nestle USA, a subsidiary of Nestle, was notified by the United States Food and Drug Administration (FDA) and the Centers for Disease Control (CDC) of a possible link between reported illnesses caused by E.coli (DATAMONIOR, 2011). A strong reputation is a vital asset for any company in the food and beverage products industry. Any loss in consumer confidence could cause major problems for company profitability both in terms of lost sales and potential law suits.
Looking to the Future
Nestle is a strong company with a long history of excelling within the global economy and adapting to changing economic conditions. In order to maintain the company’s competitive edge, Nestle needs to continue to open new markets and introduce new products. Staying within the core strength and competencies of food and beverages will enable the company to use existing expertise to develop winning products with successful marketing strategies. One area recommended for continued expansion is the health and nutrition focused products. Establishing new products geared toward healthy living and sports enhancement will help the company stay close to the vision that establish it as a health and wellness leader. Continuing to invest in research and development will put the company in a good position to be competitive within the industry and take advantage of the company’s reputation as an industry leader. Consumers are becoming increasingly health conscious so Nestle must maintain an edge in this market area.
Another important strategy for Nestle is to improve production controls to minimize the risk of product recalls and negative publicity. Analyzing risky products and production facilities to ensure tight controls is a critical measure needed to maintain profitability. The company can not afford the cost of litigation, potential fines, and the damage to the company image in this increasingly competitive market. The company also needs to investigate multiple sources of raw material to counter any supply chain risks. As one of the biggest food raw material buyers, volatility in cocoa, sugar, coffee and other major ingredients has a major impact on company profits (DATAMONITOR, 2011). The company needs to establish new strategies to counter the potential decline in consumer consumption and counter the negative impact to sales and profit growth caused by rising inflation.