Ammar Yasir (08)Atif Raza (46)Bilal Ahmed (47)Fatima Batool (55)Hammad Yousaf (16)Hammad Rasheed (11)Umair Makki (57)Zulqarnain Bajwa (21)

Strategic Model

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– 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• 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 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 ScoreStrengthsSocially 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

WeaknessesLack 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 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 Weighted Score

Opportunities

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

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

Effect of seasonality upon sales 0.05 3 0.15

Strong advertisement by major competitors 0.08 3 0.24

Total 1.00 3.02

CPM Competitive Profile MatrixNestle Pakistan Engro Foods Shakarkanj Foods

Critical Success factors Weights Rating Weighted Score

Rating Weighted Score

Rating Weighted Score

  0.0 to 1.0 1 to 4   1 to 4   1 to 4  

Market Share 0.12 3 0.36 2 0.24 1 0.12Inventory System 0.05 3 0.15 2 0.10 2 0.10Financial Position 0.20 4 0.80 2 0.40 3 0.60Product Quality 0.15 4 0.60 3 0.45 3 0.45Consumer Loyalty 0.07 3 0.21 2 0.14 1 0.07 Relationship with Suppliers 0.03 3 0.09 3 0.09 2 0.06

Global Expansion 0.06 3 0.18 1 0.06 1 0.06 Organization Structure 0.02 3 0.06 2 0.04 1 0.02

Production Capacity 0.05 3 0.15 2 0.10 2 0.10Advertising 0.15 2 0.30 4 0.60 3 0.45 Efficient cost Management 0.05 3 0.15 3 0.30 2 0.20

Product R&D .05 3 0.15 2 .04 2 .04

Totals 1   3.20   2.56   2.27

THE MATCHING STAGE

SPACE SPACE MATRIXFinancial StrengthNestle’s net sales increased by 20% in 2009 as compared to 2008 3Net profit increased by 94% in 2009 as compared to 2008 5Debt equity ratio changes from 63:37 to 66:34 3Price earnings ratio in 2009 was 18.8 as compared to 2008 38.9 5Return on capital employed increases by 40% 4Average financial strength 4

Industry StrengthIncrease in consumer food industry by 14% 5All companies contribute only 6% to processed milk market 4Market segment growth has attracted new entrants to increase profit potential 5Due to ease of entry in market, Engro foods, Shezand foods and Shakarganj are properly utilizing their resources 4Average Industry Strength 4.5

Competitive AdvantageNestle enjoys strong customer loyalty -2Quality product distribution networks in country -1Nestle extended product life cycle is being ensured due to quality brand extension strategy -2Nestle product are market leaders in many product categories -2Average competitive advantage -1.75

Environmental StabilityEconomic slowdown can reduce the demand -2Fluctuating rate of inflation in the country -2Price range of competing products -1Average Environmental Stability -1.75

BCG

Brands Sales % Sales Profit % Profit % Market Share

% Growth Rate

Milk and Dairy 13993 34 1082 38 100 +15Beverages 7820 19 661 20 85 +10Bottled Water 9054 22 511 17 100 +3Confectionary and Chocolate 1646 4 150 5 31 -15

Baby Food 5350 13 331 11 60 -5Foods and Cereals 3293 8 270 9 40 8Total 41156 100 3005 100 100

BCG…

GSM

THE DECISION STAGE

QSPMAcquisitions

Shangrilla & Young’s food

No Aquisitions

Key factors Weights AS TAS AS TAS

OPPERTUNITIESFew and weak competitors in the market 0.12 4 0.48 2 0.24Disposable income increased by 3.6% 0.07 - -Consumer expenditure on food has increased by 3.6% 0.09 3 0.27 1 0.09Population density increased by 2.18% (per sq.km) 0.05 3 0.15 2 0.10Credit 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 - -Pakistan as 7th largest milk producing country with milk output of 200 billion liters

0.12 - -

Increase in consumer food industry by 14% 0.05 4 0.20 2 0.10

THREATSEngro 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 3 .03

Effect of seasonality upon sales 0.05 - -

Strong advertisement by major competitors 0.08

1.00

QSPM(Continued)Acquisitions

Shangrilla & Young’s food

No Aquisitions

Key factors Weights AS TAS AS TAS

STRENGHTS

Socially Responsible Company 0.03 - -Nestle products enjoy strong brand image 0.07 2 0.14 1 0.07Sales 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 0.20Price earnings ratio decreased from 38.9 to 18.8 0.05 2 0.10 1 0.05Export Sales increased by 48% to PKR 3.3 billion 0.18 3 0.54 1 0.18

WEAKNESSES

Lack of awareness among target market 0.04 - -Nestle milk always stands at last because of low Advertisement.

0.09 - -

Revenue from confectionary decreased by 14% 0.08 - -Low credit sales and profit margin to retailers 0.05 1 0.05 3 0.15Weak promotional activities through websites 0.05 - -Cant launch expensive brand due to low income groups 0.03 2 0.06 4 0.12

Total 1.00 2.75 1.89

Matrix AnalysisAlternative Strategies Space BCG Grand Strategy Matrix Count

Back ward integration X X 2Forward integration X X 2Horizontal integration X X X 3Product Development X X X 3Market Penetration X X 2Market Development X X 2Related Diversification

Unrelated diversification

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