nestle fmcg

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NESTLE INDIA LTD

INTRODUCTION

Nestl India is a subsidiary of Nestl S.A. of Switzerland. With seven factories and a large

number of co-packers, Nestl India is a vibrant Company that provides consumers in India with

products of global standards and is committed to long-term sustainable growth and shareholder

satisfaction.

The Company insists on honesty, integrity and fairness in all aspects of its business and expects

the same in its relationships. This has earned it the trust and respect of every strata of society that

it comes in contact with and is acknowledged amongst India's 'Most Respected Companies' and

amongst the 'Top Wealth Creators of India'.

A. MANAGEMENT

Vision/Mission

y Nestl's business objective is to manufacture and market the Company's products in sucha way as to create value that can be sustained over the long term for shareholders,

employees, consumers, and business partners.y Nestl does not favor short-term profit at the expense of successful long-term business

development.

y Nestl recognizes that its consumers have a sincere and legitimate interest in the behavior, beliefs and actions of the Company behind brands in which they place theirtrust, and that without its consumers the Company would not exist.

y Nestl believes that, as a general rule, legislation is the most effective safeguard ofresponsible conduct, although in certain areas, additional guidance to staff in the form of

voluntary business principles is beneficial in order to ensure that the highest standards aremet throughout the organization.

y Nestl is conscious of the fact that the success of a corporation is a reflection of theprofessionalism, conduct and the responsible attitude of its management and employees.

Therefore recruitment of the right people and ongoing training and development arecrucial.

y Nestl continues to maintain its commitment to follow and respect all applicable locallaws in each of its markets.

Top Management

The executive board, a distinct entity from the board of directors, includes:


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Chairman Emeritus Narendra Singh

Chairman & Managing Director Martial G Rolland

Director (Finance & Control) Shobinder Duggal

Non Executive Director Michael W O Garrett

Non Executive Director Ravinder Narain

Non Executive Director Rajendra S PawarAlternate Director Richard Sykes

Senior Vice President & CS B Murli

Director Pradip Baijal

B. PRODUCTS/SERVICES

MARKETING MIX KIT KAT

Product strategy

No matter how effective the promotion and packaging, a firm will find it very difficult to market

a product which fails to satisfy a consumer need. Kit Kat owes much of its success to a uniquedual appeal - as a four-finger chocolate bar, (known in the confectionery trade as a countline),

sold at corner shops and newsagents, but also as a two-finger biscuit sold in supermarkets. It is aproduct that has endured because of its wide appeal across the age ranges and to both sexes.

Altering the actual product is potentially a very hazardous act for an established brand name as itrisks altering the consumer perceptions of quality built up over decades. Tampering with the

recognised core qualities could well damage the integrity of the brand. For Kit Kat, theseintrinsic elements of the brand, or unique selling points include the:

y chocolate fingersy foil and band wrapping, unique in the countlines market and seen as an important feature

which encourages involvement and sharing by consumers

y well-known strapline -Have a Break, Have a Kit Kat.In spite of the risks of altering the product, the two finger bar and multipacks were introduced in

the 1960s to meet the increased needs of supermarket shopping and more recently, Orange, Mintand Dark Chocolate Kit Kats have been available for limited periods. In the third week that Kit

Kat Mint was available, it more than doubled total Kit Kat Sales. The Orange Kit Kat provedparticularly popular with sales of 38 million bars in just three weeks. It provided very positive

market research results. While they are seen as novelties, they can also be used to providereassurance and reinforcement of the core attributes of the original established brand name.

Special editions are used primarily as promotional tools. Market research has shown that

consumers prefer special editions to be available for limited periods only and that consumers arelikely to purchase the original Kit Kat at the same time or shortly after. (They are, therefore, a


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good way of injecting new life into the Kit Kat product life cycle). Depending on theirpopularity, some special editions are introduced more than once. The Orange Kit Kat has proved

so popular that the two-finger multipacks are now permanently available.

Apart from these variants, the intrinsic characteristics of the Kit Kat product and packaging have

changed very little during the last sixty years. Although some minor, subtle changes have beenmade in packaging, merchandising and sales promotions, a Kit Kat from the 1930s would beinstantly recognisable to modern consumers today.

Pricing strategy

A key advantage of maintaining a strong brand image in a competitive market is a degree offlexibility in the pricing strategy. It is a common characteristic of imperfectly competitive

markets for producers to concentrate on non-price competition. When looking at the pricingstrategy for Kit Kat, it can be seen from the figures that the real price has remained remarkably

stable over the last sixty years.

Promotional strategy

Nestl has used a wide range of promotional tactics with Kit Kat. Promotion offers have includedfree bars in the multi-bar family packs and an instant win deal with Burger King in 1996. This

promotion, where over 75 million free burgers were on offer, increased sales of Kit Kat by anestimated 30 In 1998, an on-pack promotion featuring 'The Simpsons,' with the chance to win

20,000 cash and hundreds of other prizes, increased sales of Kit Kat by a staggering 41

Advertising plays an extremely important part in the confectionery industry, with spend

approaching 114 million in 1996. The Have a Break, Have a Kit Kattheme appeared briefly in

1939, but has been the on-going Kit Kat slogan, or strapline, since the mid 1950s. Kit Kat'sadvertising is concentrated in two media:

y television commercials - which follow the well-known Have a Break traditiony posters - where the powerful colours of the pack and product are used to dramatise the

message.

A particular challenge for the advertisers is to appeal to both the consumers and the purchasers.Women account for two thirds of all confectionery sales, but a large proportion of these

purchases are subsequently consumed by children. Men eat as much as they purchase suggesting

they are less generous!

Place strategy

Nestl has developed distribution channels which ensure the availability of Kit Kat to buy

wherever and whenever the consumer wishes to purchase it. Sales of confectionery dependheavily on its availability, with market research showing that well over 60of all purchases are


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made on impulse. Consequently, Nestl tries to supply as many outlets as possible - bothwholesaler and retailer channels.

SWOT ANALYSIS

Strengths

y Parent support - Nestle India has a strong support from its parent company, which is theworlds largest processed food and beverage company, with a presence in almost every

country. The company has access to the parents hugely successful global folio of

products and brands.

y Brand strength - In India, Nestle has some very strong brands like Nescafe, Maggi andCerelac. These brands are almost generic to their product categories.

y Product innovation - The company has been continuously introducing new products forits Indian patrons on a frequent basis, thus expanding its product offerings.

Weakness

y Exports The companys exports stood at Rs 2,571 m at the end of 2003 (11% ofrevenues) and continue to grow at a decent pace. But a major portion of this comprises of

Coffee (around 67% of the exports were that of Nescafe instant to Russia). This

constitutes a big chunk of the total exports to a single location. Historically, Russia hasbeen a very volatile market for Nestle, and its overall performance takes a hit often due to

this factor.

y Supply chain - The company has a complex supply chain management and the mainissue for Nestle India is traceability. The food industry requires high standards of

hygiene, quality of edible inputs and personnel. The fragmented nature of the Indian

market place complicates things more.

Opportunities

y Expansion - The company has the potential to expand to smaller towns and othergeographies. Existing markets are not fully tapped and the company can increase

presence by penetrating further. With India's demographic profile changing in favour of

the consuming class, the per capita consumption of most FMCG products is likely to

grow. Nestle will have the inherent advantage of this trend.


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y Product offerings - The company has the option to expand its product folio byintroducing more brands which its parents are famed for like breakfast cereals, Smarties

Chocolates, Carnation, etc.

y Global hub - Since manufacturing of some products is cheaper in India than in otherSouth East Asian countries, Nestle India could become an export hub for the parent incertain product categories.

Threats

y Competition - The company faces immense competition from the organised as well asthe unorganised sectors. Off late, to liberalise its trade and investment policies to enable

the country to better function in the globalised economy, the Indian Government has

reduced the import duty of food segments thus intensifying the battle.

y Changing consumer trends - Trend of increased consumer spends on consumerdurables resulting in lower spending on FMCG products. In the past 2-3 years, the

performance of the FMCG sector has been lackluster, despite the economy growing at a

decent pace. Although, off late the situation has been improving, the dependence on

monsoon is very high.

y Sectoral woes - Rising prices of raw materials and fuels, and inturn, increasingpackaging and manufacturing costs. But the companies may not be able to pass on the

full burden of these onto the customers.

C. FINANCIAL PERFORMANCE

Ratio Analysis

Ratio Analysis

As on 31-Dec-07 31-Dec-06 31-Dec-05

OPBIT/Prod.cap.empl.(%) 270.26 186.76 253.62

PBIT/Cap. Employed (%) 189.96 142.46 152.79

PAT/Networth (%) 105.19 89.23 100.40

Tax/PBT (%) 32.37 33.15 32.39

Total Debt/Networth (x) 0.01 0.05 0.05

Long Term Debt/Networth (x) 0.01 0.05 0.05

PBDIT/Finance Charges (x) 804.58 1220.61 2426.73

Current Ratio (x) 0.75 0.79 0.83

RM Inventory (days consumption) 38.77 32.58 36.11

FG inventory (days cost of sales) 25.05 22.47 23.73

Receivables (days gross sales) 5.35 6.91 4.21

Creditors (days cost of sales) 57.72 59.05 58.42

Op. curr. assets (days OI) 65.00 69.00 65.00


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Share Indices

As on 31-Dec-07 31-Dec-06 31-Dec-05

EPS (Rs.) 42.92 32.68 32.11

CFPS (Rs.) 50.67 39.56 38.00

Book Value (Rs.) 40.80 36.63 31.98

DPS (Rs.) 33.00 25.50 25.00

D. ETHICAL, ENVIRONMENTAL AND CSR ISSUES

Nestl India has always focused on long term, sustainable and profitable growth and

helped communities around its factories to improve their quality of life in a similar manner.

Nestl Agricultural Services has used the experience gained by Nestl across the world to set up

a system of direct and efficient contact with the farmers. Company veterinarians and agronomists

supervise the milk routes and advise farmers on various issues including proper feed for the

herds. Milk storage facilities have been set up close to the farmers. Veterinary services are

provided free, and medicines provided at wholesale cost. The company assists farmers in

artificial insemination programs for their cattle, provides subsidy and helps them in procuring

loans.

Safe Drinking Water

Water is a scarce resource. In India, availability of clean drinking water is a major concern formany communities. Almost 200 million people do not have access to clean drinking water.

Nestl India is committed to improving the situation and believes that the first step is to createawareness in the communities around its factories. A key focus area of our corporate initiatives is

to help provide Clean Drinking Water and educate children in schools to conserve this scarceresource.

Education and Training

Nestl supports initiatives to create awareness about the right to education and encourages the

communities around its factories to send their children to school. Nestl India employees havedeveloped a special play 'Let Us Go to School' for this purpose. This has been staged amongst

the communities around our factories, and its recordings screened at smaller gatherings along the

milk routes.

The Company also recognizes the active role that village women play in adopting good dairying

practices in dairy farms and regularly conduct special programs that help them. The Company


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also recognizes the active role that village women play in adopting good dairying practices in

dairy farms and regularly conduct special programs that help them.

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