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1. TALLINN UNIVERSITY OF TECHNOLOGY
School of Economics and Business Administration
Department of Business Administration
Chair of Organization and Management
WORLDWIDE
NESTLÈ WORLDWIDE – TIME FOR
ICE-
ICE-CREAM ART
Erge Kalbus, Katrin Põldmets, Nele Järve
Advisor: lecturer Alar Kolk
Tallinn 2011

2. CONTENTS
Introduction ...................................................................................................................... 3
1. Corporation history and development ....................................................................... 5
1.1 Nestlé’s beginnings in Switzerland in 1866 .............................................................. 5
1.2 World War I’s influences on Nestlé .......................................................................... 6
1.3 How Nestlé kept up business during World War II .................................................. 7
1.4 Period of diversification from 1944 to 1975 ............................................................. 8
1.5 Diversifying outside of the food sector ..................................................................... 8
1.6 Changes and expansion continue .............................................................................. 9
2. Nestlé corporate strategies and competitive positions ............................................ 12
2.1 Competitive advantages .......................................................................................... 14
2.1.1 People, culture, values and attitude ................................................................. 14
2.1.2 Unmatched geographic presence ..................................................................... 16
2.1.3 Unmatched product and brand portfolio .......................................................... 16
2.1.4 Unmatched research and development capability............................................ 18
2.2 Operational pillars ................................................................................................... 19
2.2.1 Innovation & renovation and operational efficiency ....................................... 19
2.2.2 Whenever, wherever, however and consumer communication ....................... 21
3. Nestlé ice-cream strategy ........................................................................................ 23
3.1 Value propositions................................................................................................... 24
3.2 Distribution channels............................................................................................... 24
3.3 Partnerships, Activities and Resources ................................................................... 25
3.4 Cost structure and revenue streams ......................................................................... 28
4. Competitive strategy ............................................................................................... 33
Summary......................................................................................................................... 35
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3. INTRODUCTION
Starting business in 1866 Henri Nestlé already understood the importance of
collaboration and branding. Nowadays his company has grown into the world's leading
Nutrition, Health and Wellness Company and its mission statement is "Good Food,
Good Life", which means providing consumers with the best-tasting, most nutritious
choices in a wide range of food and beverage categories to suit any occasion.
Nestlé is present in 117 countries all over the world. This research paper
describes how the Nestlé corporation has developed and grown into a global company
over the past 145 years.
Food and eating habits vary from country to country and region to region, as do
flavour preferences. As they say, "food is local". Nestlé has several successful products,
notably Nescafé and Nespresso. In this paper, we will closely examine the strategy
which Nestlé took towards ice-cream which enabled them to become a global market
leader in this category. This strategy was chosen as its main strength lies in the choice
of products and brands and it provides a framework for quickly gaining success in new
markets.
The first chapter of this report describes Nestlé’s development over the years so
that we may gain a better understanding of which experiences led them to develop that
strategy. The second chapter provides an overview of Nestlé’s approach to business to
which all of the strategies throughout the corporation must adhere. The third chapter is
about how Nestlé decided in 1991 that ice-cream would be a product with fast and wide
growth potential and how they set themselves a goal to become the gobal market leader
in this category. The chapter gives an overview of how exactly Nestlé were able to
achieve this.
Information regarding the history of the Nestlé coporation and its strategies has
been acquired from the official website – www.nestle.com – which will not be further
referenced in this paper. One of the authors of this paper has had the opportunity to visit
the Nestlé ice-cream factory in January 2011 and based on the information gained from
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4. this visit has written the overview of Nestlé’s global ice-cream strategy. The visit to the
factory provided information about a successful approach to entering a market, to taking
over a market and about product development. Because this information is confidential,
it is not possible to directly reference the names of sources due to the lack of Nestlé’s
approval. However, all this can be read in chapter 3, which discusses their strategy for
taking over the gobal ice-cream market. In chapter 4, the authors propose their ideas for
how to sell ice-cream in the future in a cost-effective manner and for quick entry into all
markets.
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5. 1. CORPORATION HISTORY AND DEVELOPMENT
To get a better understanding of Nestlé Corporation’s knowledge and competences it
would be useful to look at how this corporation started business and how it has
developed over the past 145 years. In the following chapters you will find some key
developments during this period, which help us to better appreciate their strategy which
kick-started the growth of the ice-cream market and how this food giant used their
internal strengths and competences.
1.1 Nestlé’s beginnings in Switzerland in 1866
The key factor which drove the early history of the enterprise that would become the
Nestlé Company was Henri Nestlé's search for a healthy, economical alternative to
breastfeeding for mothers who could not do so.
In the mid-1860s, Nestlé, a trained pharmacist, began experimenting with
various combinations of cow's milk, wheat, flour and sugar in an attempt to develop an
alternative source of infant nutrition for mothers who were unable to breast feed. His
ultimate goal was to help combat the problem of infant mortality due to malnutrition.
Henri Nestlé also showed an early understanding of the power of branding. He
adopted his own coat of arms as a trademark; in his German dialect, Nestlé means 'little
nest'. One of his agents suggested that the nest could be exchanged for the white cross
of the Swiss flag. His response was firm: "I regret that I cannot allow you to change my
nest for a Swiss cross .... I cannot have a different trademark in every country; anyone
can make use of a cross, but no-one else may use my coat of arms."
Meanwhile, the Anglo-Swiss Condensed Milk Company, founded in 1866 by
Americans Charles and George Page, broadened its product line in the mid-1870s to
include cheese and baby formulas. The Nestlé Company, which had been purchased
from Henri Nestlé by Jules Monnerat in 1874, responded by launching a condensed
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6. milk product of its own. The two companies remained fierce competitors until their
merger in 1905.
Some other important firsts occurred during those years. In 1875 Vevey resident
Daniel Peter figured out how to combine milk and cocoa powder to create milk
chocolate. Peter, a friend and neighbour of Henri Nestlé, started a company that quickly
became the world's leading maker of chocolate and later merged with Nestlé. In 1882
Swiss miller Julius Maggi created a food product utilizing legumes which was quick to
prepare and easy on digestion. His instant pea and bean soups helped launch Maggi &
Company. By the turn of the century, his company was producing not only powdered
soups, but also bouillon cubes, and sauces and flavourings.
1.2 World War I’s influences on Nestlé
The Corporation formed by the 1905 merger was called the Nestlé and Anglo-Swiss
Milk Company. By the early 1900s, the Corporation was operating factories in the
United States, Britain, Germany and Spain. In 1904, Nestlé added chocolate to its range
of food products after reaching an agreement with the Swiss General Chocolate
Company.
Condensed milk exports increased rapidly as the Corporation replaced sales
agents with local subsidiary companies. In 1907, the Corporation began full-scale
manufacturing in Australia, its second-largest export market. Warehouses were built in
Singapore, Hong Kong, and Bombay to supply the rapidly-growing Asian markets.
Most production facilities remained in Europe, however, and the onset of World
War I caused severe disruptions. Acquiring raw materials and distributing products
became increasingly difficult. Fresh milk shortages throughout Europe forced factories
to sell almost all their supplies to meet the needs of local towns.
Nevertheless, the war created tremendous new demand for dairy products,
largely in the form of government contracts. To keep up, Nestlé purchased several
existing factories in the United States. By the end of the war, the Corporation had 40
factories, and its world production had more than doubled since 1914.
The end of World War I brought with it a crisis for Nestlé. Government
contracts dried up following the cessation of hostilities, and civilian consumers who had
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7. grown accustomed to condensed and powdered milk during the war switched back to
fresh milk when it became available again. In 1921, the Corporation recorded its first
loss. Rising prices for raw materials, the worldwide post-war economic depression and
deteriorating exchange rates deepened the gloom.
Nestlé's management responded quickly, bringing in Swiss banking expert Louis
Dapples to re-organise the Corporation. He streamlined operations to bring production
in line with sales and reduced the Corporation's outstanding debt.
The 1920s also saw Nestlé's first expansion beyond its traditional product line.
The manufacture of chocolate became the Corporation's second most important activity.
New products appeared steadily: malted milk, a powdered beverage called Milo,
powdered buttermilk for infants, and, in 1938, Nescafé.
The Brazilian Coffee Institute first approached Louis Dapples in 1930, seeking
new products to reduce Brazil's large coffee surplus. Eight years of research produced a
soluble powder that revolutionised coffee-drinking habits worldwide. Nescafé became
an instant success and was followed in the early 1940s by Nestea.
1.3 How Nestlé kept up business during World War II
The effects caused by the onset of World War II were felt immediately by Nestlé.
Profits dropped from $20 million in 1938 to $6 million in 1939. Neutral Switzerland
became increasingly isolated in a Europe at war, and the Corporation transferred many
of its executives to offices in Stamford, Connecticut.
The first truly global conflict put an end to the traditional Company structure. To
overcome distribution problems in Europe and Asia, factories were established in
developing countries, particularly in Latin America.
Ironically, World War II helped speed up the introduction of the Corporation's
newest product, Nescafé. After the United States entered the war, Nescafé became a
staple beverage of American servicemen serving in Europe and Asia. Annual production
levels reached one million cases by 1943.
As in World War I, production and sales rose in the wartime economy: Nestlé's
total sales jumped from $100 million in 1938 to $225 million in 1945. As the end of the
war approached, Nestlé executives found themselves unexpectedly heading up a
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8. worldwide coffee corporation, as well a company built upon Nestlé's more traditional
businesses.
1.4 Period of diversification from 1944 to 1975
The end of World War II marked the beginning of the most dynamic phase of Nestlé's
history. Throughout this period, Nestlé's growth was based on its policy of diversifying
within the food sector to meet the needs of consumers. Dozens of new products were
added as growth within the Corporation accelerated and outside companies were
acquired.
In 1947, Nestlé merged with Alimentana S.A., the manufacturer of Maggi
seasonings and soups, becoming Nestlé Alimentana Company. The acquisition of
Crosse & Blackwell, the British manufacturer of preserves and canned foods, followed
in 1960, as did the purchase of Findus frozen foods (1963), Libby's fruit juices (1971)
and Stouffer's frozen foods (1973).
Meanwhile, Nescafé continued its astonishing success. From 1950 to 1959, sales
of instant coffee nearly tripled, and from 1960 to 1974, they quadrupled. The
Corporation's total sales doubled twice in the 15 years following World War II. The
development of freeze-drying led to the introduction of Taster's Choice instant coffee in
1966.
1.5 Diversifying outside of the food sector
Finally, Nestlé’s management made the decision to diversify for the first time outside of
the food industry. In 1974, the Corporation became a major shareholder in L'Oréal, one
of the world's leading makers of cosmetics.
After the agreement with L'Oréal in 1974, Nestlé's overall position changed
rapidly. For the first time since the 1920s, the Corporation's financial situation
deteriorated as the price of oil rose and growth in industrialised nations relented. In
addition, foreign exchange rates deteriorated with the French Franc, Dollar, Pound
Sterling, and Mark all losing value relative to the Swiss Franc. Finally, between 1975
8

9. and 1977, the price of coffee beans quadrupled, and the price of cocoa tripled. As in
1921, the Corporation was forced to respond quickly to a radically changed
marketplace.
Nestlé's rapid growth in the developing world partially offset a decline in the
Corporation's traditional markets, but it also carried with it the risks associated with
unstable political and economic conditions. To maintain a balance, Nestlé made its
second venture outside the food industry by acquiring Alcon Laboratories, Inc., a U.S.
manufacturer of pharmaceutical and ophthalmic products.
Taking such a step in a time of increased competition and shrinking profit
margins required boldness and vision. Even more-so than the L'Oréal move, Alcon
represented a leap into unknown waters for Nestlé. But, as Group Chairman Pierre
Liotard-Vogt noted, "Today we find ourselves with a very wide range of activities, all
of which have one thing in common: they all contribute to satisfying the requirements
of the human body in various ways."
1.6 Changes and expansion continue
Under the new Chief Executive Officer, Helmut Maucher, Nestlé approached the 1980s
with a renewed flexibility and determination to evolve. The Corporation's strategy for
this period was twofold: improve its financial situation through internal adjustments and
divestments, and continue its policy of strategic acquisitions.
Thus, between 1980 and 1984, the Corporation divested a number of non-
strategic or unprofitable businesses. At the same time, Nestlé managed to put an end to
a serious controversy over its marketing of infant formula in the Third World. This
debate had led to a boycott of Nestlé products by certain civil and religious
organisations. This issue is still alive in some quarters, but there is no longer any
significant boycotting.
In 1984, Nestlé's improved bottom line allowed the Corporation to launch a new
round of acquisitions, including a public offer of $3 billion for the American food giant
Carnation. At the time, the takeover, sealed in 1985, was one of the largest in the history
of the food industry.
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10. The first half of the 1990s proved to be a favourable time for Nestlé: trade
barriers opened and world economic markets developed into a series of more or less
integrated trading areas. The opening up of trade in Central and Eastern Europe, as well
as China, and a general trend towards liberalisation of direct foreign investment was
good news for a company with interests as far-flung and diverse as Nestlé. While
progress since then has not been as encouraging, the overall trends remain positive.
In July 2000, Nestlé launched a Group-wide initiative called GLOBE (Global
Business Excellence), aimed at harmonising and simplifying their business process
architecture; enabling Nestlé to realise the advantages of a global leader while
minimising the drawbacks of their size.
There were two major acquisitions in North America in 2002: in July, Nestlé
announced that the U.S. ice-cream business was to be merged into Dreyer's, and in
August, a 2.6bn USD acquisition of Chef America Inc. was announced, which was a
leading U.S.-based hand-held frozen food business.
Also in 2002, the joint venture Dairy Partners Americas was set up with
Fonterra; and Laboratoires innéov was set up, another joint venture, this time with
L'Oréal.
The year 2003 started well with the acquisition of Mövenpick Ice Cream,
enhancing Nestlé's position as one of the world market leaders in the super premium
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 Corporation.
Nestlé entered into a strategic alliance with the Belgian chocolatier Pierre
Marcolini at the end of that year. In 2008, Nestlé began a process of selling Alcon by
divesting 24.8% to Novartis.
In 2009, Nestlé opened the Chocolate Centre of Excellence in Broc,
Switzerland, with Pierre Marcolini, one of the master chocolatiers.
The new decade began with Nestlé announcing the finalisation of the sale of
Alcon to Novartis which was completed mid-year. This represented a remarkable
investment on behalf of Nestlé’s shareholders. Immediately following the Alcon
announcement, Nestlé bought Kraft’s frozen pizza business.
10

11. Further highlights were the launch of the Special. T tea machine system and the
completion of the 25bn Swiss Francs share buyback programme – and the
announcement of a new 10bn Swiss Francs programme.
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12. 2. NESTLÉ CORPORATE STRATEGIES AND
COMPETITIVE POSITIONS
Nestlé’s objectives are to be recognised as the world leader in Nutrition, Health and
Wellness, trusted by all its stakeholders, and to be the reference for financial
performance in its industry.
The Corporation believes that leadership is not just about size; it is also about
behaviour. Trust, too, is about behaviour; and they recognise that trust is earned only
over a long period of time by consistently delivering on their promises. These objectives
and behaviours are encapsulated in the simple phrase, “Good Food, Good Life”, a
phrase that sums up the Corporation’s corporate ambition.
The Nestlé Roadmap is intended to create alignment for workers behind a
cohesive set of strategic priorities that will accelerate the achievement of company
objectives. These objectives demand from workers a blend of long-term inspiration
needed to build for the future and short-term entrepreneurial actions, delivering the
necessary level of performance.
The Nestlé model is securing progress today and ensuring success in the future:
• achieving simplicity;
• investment for growth;
• scale benefits;
• driving performance.
The Nestle Roadmap includes three main parts:
• competitive advantages;
• growth drivers;
• operational pillars.
All this may be described with one clear and simple chart as in Figure 1.
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13. Figure 1
Nestlé has its own local companies in most countries. The Head Office in
Switzerland works very closely with them, and sets the overall strategy which is
managed through Management and the Strategic Business Units. Geographically,
Nestlé’s three Zones (Europe; the Americas; Asia, Oceania, Africa and the Middle East)
work closely with the local markets and the Strategic Business Units. Their primary role
is that of enablers, acting as the voice of the headquarters to the markets, and the voice
of the markets to the headquarters. All Zones and Units 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 people around
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14. the world know how to act, and that there is a very strong framework of values and a
clear reference point for fast and efficient decision-making.
The Strategic Business Units specialise in a given category, for example Coffee
and Beverages, or Pet Care, or Chocolate and Confectionery. Corporation works with
Research and Development (R&D) to ensure that everything the Corporation 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, Nestlé has just under
500 factories in 80 countries, and 17 Research Centres.
There are a number of separate companies within the Group such as Nestlé
Waters and Nestlé Nutrition. Nestlé also owns Alcon, a pharmaceutical company that is
the world leader in eye care, preventing loss of vision from glaucoma, treating eye
infections and restoring vision through cataract surgery. Nestlé also has a significant
share of L’Oréal, the world leader in cosmetics.
2.1 Competitive advantages
The Nestlé Corporation use principles, not rules, which have been translated into more
than 40 languages and distributed worldwide. The Corporation is built on key beliefs
that include Nestlé’s business objective to manufacture and market its products in a way
that creates value that can be sustained over the long term for shareholders, employees,
consumers, business partners and the national economies in which Nestlé operates.
Nestlé does not favour short-term profit at the expense of successful long-term business
development.
2.1.1 People, culture, values and attitude
Nestlé is a multi-cultural business. The Nestlé Management and Leadership Principles
are based on the many experiences that have led to the Corporation’s success
throughout its long history. Most are mainly related to the human aspects of
management and employees, and emphasise the multi-cultural nature of the
Corporation. Together with Corporate Business Principles, the Management and
Leadership Principles form the foundation of their approach to business. It’s an
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15. approach that has been recognised by top Harvard academics as having generated real
benefits both for Nestlé and for society over many decades.
Harvard Business School Professors Michael Porter and Mark Kramer have
stated that this puts Nestlé in the top ranking 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 Nestlé’s approach has already stood the test of time; and
will continue to do so precisely because there are winners on all sides.
Production always has a big influence on the environment. Nestlé is a global
company which looks after the environment. The Corporation invests an average of 100
million Swiss Francs each year for the protection of the environment around factories.
The aim is to maximise the production of goods while minimising consumption of
resources… and at the same time reducing waste and emissions. Over many years, these
investments – and also employees’ efforts – have led to continuous improvements.
Nestlé was the first company in Europe to introduce a new bio-degradable
alternative to plastic packaging for manufactured food products. Made from renewable
resources, it dissolves when it comes into contact with water, and disintegrates within
three months.
Nestle sources agricultural raw materials – principally milk, coffee, cocoa,
cereals, vegetables, fruit, herbs, sugar and spices – either through trade channels or
directly from farmers.
The Corporation supports sustainability in the supply of agricultural raw
materials and agricultural best practices. The Corporation has over 800 of its own
agronomists, technical advisors and field technicians. Their job is to provide technical
assistance to more than 400,000 farmers throughout the world to improve their
production quality as well as their output and efficiency. They do this on a daily basis in
as many as 40 countries including Inner Mongolia, China, Pakistan, Ethiopia and
Colombia.
The work that Nestlé is doing with farmers, especially in remote rural areas and
in developing countries, not only results in better quality raw materials, and therefore
better products, but also helps farmers by providing them with a steady and reliable
income. In this way, Nestlé is able to contribute to improving their standard of living.
15

16. 2.1.2 Unmatched geographic presence
Nestlé’s priority is to be a local company in each of the 130 countries where they
market their products. In many of them, the Corporation has been present for more than
100 years. 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, the
Corporation combines the advantages of a global company with the advantages of
smaller, local businesses.
Although Nestlé is very global, essentially it is a company made up of smaller
local units. Wherever Nestlé is, it is not an anonymous giant. Global sales are simply
the result of adding together the sales of each local company. Around the world the
average number of employees in factories is 270. The average number of employees in
any single country is around 3,000.
Investments have to be good for the country as well as good for the Corporation.
This has been a fundamental Nestlé belief since its founding. The Company has always
found that creating long-term value for the countries in which it operates also creates
long-term value for shareholders. By taking a forward-thinking view of business
development – especially in developing countries – and managing responsibly, it is
possible to make reasonable profits and at the same time stimulate significant local,
social, environmental and economic development.
Long-term investment, transfer of technology, and training in agriculture are just
three ways in which Nestlé is a force for good around the world. An example is Nestlé
in China. In 1987, the first joint-venture company, Nestlé Shuangcheng Ltd, was
established in Heilongjiang Province. Applying the expertise in nutrition and food
processing, the first local production in mainland China started in 1990.
2.1.3 Unmatched product and brand portfolio
Nestlé has the largest range of foods and beverages of any food company. Its products
are consumed by all ages, from babies to old people and by people from many cultures.
Many of the brands are market leaders or a close second, and have built a powerful
consumer loyalty. These brands are extremely well-established and have become part of
people’s everyday life. Over the years, Nestlé has therefore built a solid foundation for
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17. future growth. Around 70% of their total Food and Beverages sales come from brands
that generate over 1 billion Swiss Francs each in sales.
Baby foods Cerelac, Gerber, Gerber Graduates, NaturNes, Nestum
Bottled water Nestlé Pure Life, Perrier, Poland Spring, S.Pellegrino
Chocapic, Cini Minis, Cookie Crisp, Estrelitas, Fitness,
Cereals
Nesquik Cereal
Aero, Butterfinger, Cailler, Crunch, Kit Kat, Orion,
Chocolate & confectionery
Smarties, Wonka
Nescafé, Nescafé 3 in 1, Nescafé Cappuccino, Nescafé Classic,
Coffee
Nescafé Decaff, Nescafé Dolce Gusto, Nescafé Gold, Nespresso
Culinary, chilled and frozen
Buitoni, Herta, Hot Pockets, Lean Cuisine, Maggi, Stouffer's, Thomy
food
Dairy Carnation, Coffee-Mate, La Laitière, Nido
Drinks Juicy Juice, Milo, Nesquik, Nestea
Chef, Chef-Mate, Maggi, Milo, Minor’s, Nescafé, Nestea,
Food service
Sjora, Lean Cuisine, Stouffer's
Healthcare nutrition Boost, Nutren Junior, Peptamen, Resource
Ice cream Dreyer’s, Extrême, Häagen-Dazs, Mövenpick, Nestlé Ice Cream
Alpo, Bakers Complete, Beneful, Cat Chow,
Pet care Chef Michael’s Canine Creations, Dog Chow, Fancy Feast, Felix,
Friskies, Gourmet, Purina, Purina ONE, Pro Plan
Sports nutrition PowerBar
Weight management Jenny Craig
Table 1
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18. Growth is based on the Nestlé Model of strong organic growth – between 5%
and 6% – combined with consistent improvement in EBIT margin. Nestlé’s policy of
decentralisation has been fundamental to their growth strategy. Wherever possible they
use locally-sourced raw materials and produce products locally. In this way Nestlé
contributes to local economies, not only as a tax payer, but also as a purchaser and
employer. Nestlé does not own farms or retail outlets. The Corporation focuses on their
core competence of transforming raw materials into high quality, safe food and
beverage products.
The Corporation invests a lot of effort in long-term mutually beneficial
partnerships with suppliers and retail trade customers. The Corporation’s growth is built
from this excellent relationship – from farm to shop.
2.1.4 Unmatched research and development capability
Innovation is one of Nestlé's key competitive advantages. The Corporation has more
than 140 years of research, development and scientific know-how at its disposal. While
there is a great deal of pure and applied scientific research that takes place in global
R&D centres, Nestlé ensures that the consumer, and the consumer benefit, remains at
the core of all our activities.
It is the task of R&D to apply nutritional science and expertise to create products
that combine great taste with nutritional benefits.
The Nestlé Group invests around 1.5 billion Swiss Francs in R&D every year.
It’s more than any other food company. Around 3,500 people from over 50 countries
work in Nestlé’s worldwide network of 17 research, development and product testing
centres. The Nestlé Research Centre in Switzerland is a major think-tank. It is a constant
source of new ideas and scientific knowledge that feeds the pipeline for all Nestlé
products. It covers over 100 different professional areas – including nutritional science,
the life sciences, raw materials, ingredients and production processes.
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19. Beyond sound nutrition, the future of foods will increasingly be driven by
science. Nestlé scientists are looking ahead to the foods of the future. Nestlé R&D is
transforming nutrition and food science in two ways:
• from consumer needs into research priorities;
• from emerging science into consumer benefits, and services.
The last years of the 20th century saw a change in Nestlé’s business strategy.
The Corporation moved from being a technology-led company that produced
convenient, tasty foods and beverages for sustenance, to being a science driven,
nutrition, health and wellness company.
2.2 Operational pillars
Food and beverages play an increasingly important role in people’s lives – not only
because of the enjoyment and social pleasure of eating together, but more and more in
terms of personal health and nutrition. Nutrition has always been at the core of Nestlé’s
business. People are living longer. Living standards have improved. Lifestyles have
changed. These, and other social factors, have had a considerable influence on Nestlé –
both in terms of making the products and the way of running the business. Nestlé today
is at the forefront of providing consumers with food and beverage solutions that support
a long, healthy life.
Although it is important, nutrition is only one aspect of “Good Food, Good
Life”. Consistent quality and safety, as well as value-for-money and convenience, all
play a part.
2.2.1 Innovation & renovation and operational efficiency
Nestlé further strengthens its R&D capability through Innovation Partnerships at each
stage of the product development process – from early-stage collaborations with start-up
and biotech companies to late-stage partnerships with its key suppliers.
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20. Nestlé R&D addresses three areas of benefits for consumers:
• Safety and Quality - this underpins all Nestlé products
• Nutrition and Health
• Taste, Texture and Convenience
By bringing together all of its global R&D resources, Nestlé is able to provide
high quality, safe food solutions to consumers worldwide – whether this is in terms of
nutrition, health, wellness, taste, texture or convenience. Above all, Nestlé brings to
consumers products that are of the highest quality. And safety is non-negotiable.
R&D is also critical in ensuring regulatory compliance of all Nestlé products.
Nestlé is able to launch new products quickly and efficiently, in countries all over the
world, by integrating regulatory affairs in all its R&D activities, from start to finish.
Nestlé scientists also play their part in communicating the health and wellness
benefits of products to consumers. Nestlé nutritionists world-wide work to ensure that
all nutritional information, both on and off the pack, is locally relevant, as well as
scientifically sound.
Nestlé’s beverage R&D capabilities cover all aspects from farm to cup,
including raw materials, flavour extraction, systems and packaging. The personalised
consumer experience is at the heart of the Nespresso offer, with more than 200
boutiques, whilst Nescafé Dolce Gusto provides a fun and exciting experience for
consumers who want café-quality coffee at home. These systems enjoyed double-digit
growth in 2010 and will continue to do so in 2011
The Nestlé Corporate Wellness Unit, together with business units, is helping the
Corporation to be the leader in nutrition, health and wellness. In nutrition, for example,
the Corporation is pioneering the use of probiotics in our products to reduce
gastrointestinal diseases. They are also working on scientific innovations to address
obesity and diabetes. Other personalised nutrition initiatives address the special
nutritional needs of patients with Alzheimer’s disease and illness related to ageing. In
specialised areas such as genomics, proteomics and metabolomics, the Corporation is
investigating the unknown territories of genes and proteins with the aim of adapting
foods to meet very individual needs. There is still much to explore.
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21. Nestlé is a very human company and cares about our people. People not only
move from country to country, often with a spell in Head Office as well, but also
between disciplines. That is one reason why so many people make a career at Nestlé for
life.
The future success of Nestlé is dependent on its ability to attract, motivate and
retain good employees. Among the various programmes to support this ambition is a
competitive remuneration policy. Nestlé believes in a performance culture as well as
good corporate governance and corporate social responsibility.
2.2.2 Whenever, wherever, however and consumer communication
Nestlé sells products in all four corners of the world at millions of different points of
sale. 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 ice-cream
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.
Consumers eat and drink on the go more and more. Nestlé offers products for any
occasion and any place.
The whole company is dependent on the consumer choosing Nestlé products
over competitors’ products. That is why Nestle is wholeheartedly dedicated to the
consumer and focused on meeting his or her needs. For success and growth, the
Corporation has to build the greatest possible consumer trust in both the Corporation
and its products. One way is to get as close to the consumer as possible.
Nestlé’s success is based firmly on the concept that "food is local". Products are
available in virtually every corner of the world, they do not believe in a standard
worldwide taste. Different cultures, different locations, different needs, tastes, flavours
and habits all influence what consumers eat and drink. It is vital that the Corporation
has local knowledge and local experience.
For example, Nestlé employees spent three days living with people in the
suburbs of Lima in Peru to understand their motivations, routines, purchasing habits,
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22. decision-making and everyday aspects of their life. Based on what they learnt, Nestlé
created the NutriMóvil advisory service, a mobile exhibition van that goes into the busy
back streets. Nestlé nutritionists can talk one-to-one with mothers. Relevant Nestlé
products are sold in local markets and stalls.
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23. 3. NESTLÉ ICE-CREAM STRATEGY
The Nestlé Corporation has much experience in the food processing industry. In the
1990s they decided that starting production of ice-cream would provide a good
opportunity for expansion. Ice-cream is one of the world’s largest and fast growing food
categories. Today we saw that in Turkey 1991 ice-cream consumption was 0,3 l per
capita and 2010 2,8 litres per capita. For example, in Australia and New-Zealand, 23
litres of ice-cream is consumed per person per year. In the USA, it is 13 litres. Our
neighbours in Finland, despite their cold climate, consume 15 litres and in Estonia, we
consume 8 litres of ice-cream per person per year. Nestlé’s aim was to become the
world’s biggest ice-cream producer. This task was complicated by the fact that “food is
local”. That is to say that people’s taste preferences vary from country to country and in
some cases from region to region. Nestlé had an advantage in that they were already
well-established in most food categories such as chocolate, baby food and coffee in
many countries all over the world. Thusly the Corporation was already armed with the
information of the consumer’s preferences in different regions. From 1991, they put
their plan in motion with the goal to secure Nestlé a considerable global market share.
This chapter will describe the strategy through which Nestlé planned to achieve
the aforementioned goal. In December 2005, after purchasing the Greek company Delta
Ice-Cream, they achieved a global market share of 17.5%, which put them ahead of
Unilever, a major competitor. Nestlé is actively working to maintain this position. Their
strategy for taking over the ice-cream market is based on corporation strategy, which
has been modified to fit their specific goals, as described in chapter two.
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24. 3.1 Value propositions
Ice-cream is a traditional dessert, popular the world over. However, depending on
regional tastes and eating habits the preferred flavours and fat content varies. Nestlé’s
primary goal is to offer the ice-cream lover an enjoyable, flavourful experience. Nestlé
takes the time to make sure that their products and ingredients are of the highest quality,
so the consumer can rest assured. As obesity is a major problem worldwide, Nestlé has
provided nutritional information on all of their products, specifying the recommended
daily allowance (RDA) and in this way, increasing consumer awareness. Furthermore,
the Corporation actively works on product development. One of their latest
achievements is a low-fat ice-cream, which still has the rich, creamy flavour of a regular
ice-cream.
Ice-cream is a seasonal product and every year Nestlé update up to 20% of their
catalogue and they are constantly in search of new and interesting flavours – the latest
being their innovative lychee and rose-flavoured ice-cream. Also, they are attempting a
global launch of their unique peelable ice-cream, which was very popular in Thailand
last year. So in each region in which Nestlé sell their ice-cream, they cater to the local
tastes.
3.2 Distribution channels
Ice-cream is a dessert which can be enjoyed by all. “By all” has a very wide meaning
and in reality products are segmented based on their distribution channels. For example,
in big chain supermarkets where people do their weekly shopping, mostly larger 450ml-
1400ml family-sized ice-creams are sold with only a small selection of individually-
packaged ice-creams. However, in smaller stores and at kiosks, usually only
individually packaged ice-creams are sold, which individuals can buy on impulse.
The third-most important distribution channel is catering. A major difference
here, is that in addition to classic flavours such as vanilla and chocolate, different
unique flavours are available depending on if you are buying your ice cream in a
shopping mall or a restaurant. That is to say, the flavours of ice-cream on offer in a
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25. restaurant will not necessarily be available in supermarkets. Nestlé takes pride in the
fact that they offer products that cater to all tastes, including very exclusive premium
products for the discerning consumer.
For Nestlé, the wants and needs of the consumer always come first. To fulfil
these needs, they endeavour to always be available as and when the consumer needs
them. Nestlé’s goal is to educate their loyal customers about eating sensibly and to
follow their vision – “Good food. Good Life” – every step of the way.
The task of choosing distribution channels is complicated by the nature of the
product – ice-cream is a seasonal product, which must be kept under controlled
temperatures and requires specialised storage equipment. Product placement and
increase of awareness at points of sale is very important to Nestlé, who gives the
retailers information on how to do so effectively according to their Principles of
Category Management. Category Management is a process where the manufacturers
and the retailers co-operate to lead the business in each retail site strategically, the result
of which will be favourable for the business because it understands and is fulfilling the
wants and needs of the consumer. The core principle of Category Leadership is an
improved understanding of the consumer’s needs, which in turn is the basis for the
strategy, goals and processes that the retailers and the wholesalers make use of. This is a
specific method for dealing with complex changes in the consumer’s needs and
purchasing behaviours.
Because 50% of ice-cream consumption is while people are out and about, one
must place oneself where the consumer is. Ice-cream parlours are being opened in big
shopping centres so as to be readily available to potential customers. The goal is to be
available “wherever, whenever, however.”
3.3 Partnerships, Activities and Resources
For all dealings with their partners, Nestlé has very high demands for themselves as
well as their partners, because that is the only way to ensure and deliver their promise of
high-quality food. As all products start as raw materials, it is vital to carefully control
the quality of these materials. For example, Nestlé has developed their own standards
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26. and controls which the waffles in their cone ice-creams must adhere to, to ensure that
they will not break in transit or when being used by the customer.
Of utmost importance are focus groups located all over the world. There are 24
of them, located near to ice-cream factories, and from these focus groups one can listen
to the locals’ wants and ideas to determine the preferred flavours and consumer
expectations in each area, illustrated by the figure 2. Nestlé also has a practice where a
very successful flavour is slightly adapted to cater to the tastes of other areas. It is quite
common for the same product to taste different depending on which part of the world it
is being sold in.
Figure 2 Ice-cream R&D and application group’s network
Ice-cream is a seasonal product which is in demand in warm months, the length
and time of which differs from location to location. This is why Nestlé teams up with
local distributors who have connections in the local markets and employ a Zone
Manager to monitor this activity to comply with Nestlé’s standards.
26

27. Logistics are important. It is crucial to maintain efficient distribution networks
to ensure that the frozen products remain refrigerated in transit from the distributor to
the retailer. Mistakes here are costly and irreversible. Some of Nestlé’s partners are
international retail chains who have their own distribution centres and warehouses, so in
this case do not need to use a middle-man. To keep the consumer informed about
nutritional values and healthy eating, Nestlé has developed free apps for smartphones.
Research and development centres are actively collaborating with institutes and
universities.
The main thing that Nestlé does to improve their overall sales results is to invest
heavily in product development. In addition to the 24 focus groups mentioned above,
they also have two research and development centres – one in Europe and one in
America. The key word is ‘innovation’. For example, the unique peelable ice-cream that
Nestlé released in 2010. As it met with great success in Thailand, Nestlé is planning to
release this product in many other countries. In January 2011, sales started in Malaysia
and the Philippines and a European release is scheduled for March 2011.
Nestlé is a company that has built itself on strong brands. One constantly
monitored goal is that of increasing brand awareness. When entering new markets,
Nestlé constantly monitors how consumers perceive their brand and whether they
recognise the same values which Nestlé is trying to convey. They use research which
meets Nestlé’s trading standards. The aim of the research is to determine the
communicational strategy for the Nestle brand and to verify to what extent Nestle is
associated with health and wellness. Its aim is also to determine whether in the opinion
of consumers it is a company which operates responsibly. This research is carried out
each and every year.
As with most production, it is important to work in a way which does not harm
the environment. As in the production of ice-cream as well as in the practices of the
Corporation as a whole, Nestlé has set standards with the aim of reducing any negative
impact on the surrounding environment. This is very important as it protects the
environment of the countries in which Nestlé’s factories operate. All this is being done
with the goal of mutual benefit in mind.
Nestlé’s internal advantages for putting their plans into action are their
experience in the food production industry and their pre-existing development centres.
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28. They all work with the goal to find the best solutions to satisfy the consumer’s needs.
This is all done specifically with healthy eating in mind. Many countries have approved
of Nestlé’s ice-creams, in particular for their low fat and sugar content while still be
able to maintain a wonderful taste. All of their new inventions are patented to give them
a competitive edge.
Nestlé is a corporation which has been built on brands and has found an internal
synergy. Who doesn’t know KitKat, Lion, and Aero chocolate, or Nesquik cocoa
powder or Nestea? These brands carry inherent value and they help the consumer to
identify trustworthy products. Creating a brand is a very expensive task, so to save
money and time, Nestlé is taking their well-known existing brands and using them in
the ice-cream sector. An example of this practice is their KitKat ice-cream. They have
done the same with breakfast cereals and desserts, for example Nestlé cereal and cereal
bars. This way, Nestlé does not have to create a whole new brand for every product, but
the consumer can still find a familiar brand and flavour in another aisle.
Nestlé already has the necessary production equipment, which is an important
resource as it is well-known that purchasing equipment is the most expensive aspect of
production. It is very common to exchange production equipment between factories in
different countries. The life-cycle of ice-cream products is very short and every year
there is a new season where 20-30% of the product catalogue is renewed. The
production lines are positioned in factories in areas which require the largest quantity of
the given product. By optimising resources this way, one can make a considerable
saving on cost.
3.4 Cost structure and revenue streams
For fast expansion, Nestlé has come up with a relatively costly, but majorly effective
solution of partnering up or taking over with local businesses. This way, upon entering a
new local market, they will already have an existing distribution network of people who
know how to effectively transport frozen products. Upon entering new markets, Nestlé
does not try to immediately force out the local brands. This sort of expansion strategy
allows Nestlé to gain knowledge from the recipes of the local brands. Examples of this
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29. would be Mövenpic, Häagen-Dazs and Dreyer’s. The figure 3 illustrates how Nestlé has
adapted their logo to fit in in local markets.
R&D is necessary in order for Nestlé to maintain their position as market leader
and to be an innovator and trend-setter. In 2010, they invested 1, 403 Swiss Francs in
R&D. Unfortunately, it was not possible to ascertain exactly how much of that was for
just ice-cream and dairy products.
High-quality raw materials which are important in making healthy and quality
products are not cheap and present a large cost to the Corporation. However, this is
definitely not an area where Nestlé would ever think of buying lower-quality products
to save money, as the consumer is paying for the promise of receiving a product of high
quality.
Figure 3 Nestlé ice-creams worldwide positioning
Another marketing expense that ice-cream has compared to other food
categories is the requirement for special storage conditions at the point of sale. To
ensure that the customer receives a quality product, Nestlé provides the retailer with
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30. special freezers. They also provide special freezers for outdoor points of sale, to keep
their promise of always being readily available for the customer.
Upon entering new markets, the most costly aspect is the building of new
brands. One must win the consumer’s trust, which does not come cheap. Nestlé, selling
ice-cream, is news to the consumer. This is why they adopted the aforementioned
strategy for expansion. By merging and taking over the existing local competition, they
ensure that they already have a strong, well-known brand in the market. In the first few
years, they conduct annual surveys to determine whether the local brand carries the
same values as Nestlé. If the local brands do have the same values and their popularity
continues to grow, then they are kept. To quickly expand their product portfolio, they
use existing brands which are already popular in other markets. An example from the
Estonian market is the familiar KitKat brand - “Have a break, have a KitKat!” While the
chocolate brand was heavily advertised, the ice-cream version was released without any
publicity. Similarly, everybody knows the children’s favourite, Nesquik, which is sold
as a breakfast cereal, hot chocolate, chocolate and also ice-cream. Furthermore, Nestea
iced tea is well-known and has a familiar flavour, and has now been made into an ice-
cream. Thanks to these brand tactics, they have managed to minimise the costs of
launch and successfully introduce existing products into other markets by using the
Corporation’s internal synergy.
Licensing is when one uses other developed and popular brands to achieve
success in their own segment. For example, when the movie Spiderman was popular
amongst youngsters, Nestlé released a branded Spiderman ice-cream. The same tactic
was employed the following year with the release of an Indiana Jones ice-cream.
Similarly, noticing the craze amongst little girls for Hello Kitty, Nestlé released another
branded ice-cream aimed towards these loyal fans. Therefore, Nestlé purchases licenses
to use certain brand names for a certain period of time, thus making a saving in
marketing expenses which they would otherwise have to spend on launching a whole
new brand.
Production always entails large investments such as purchasing the equipment
for production lines. Quick expansion and attaining the position of global market leader
was profitably and cost-effectively enabled by the fact that certain trends do not emerge
at the same time all over the world. As ice-cream ranges and trends change as quickly as
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31. fashion, Nestlé does not purchase new product lines in all of their new factories.
Instead, they are exchanged between the factories because the life cycle of the product
line and the payoff period is longer than that of a single product’s life cycle in any given
area.
Figure 4 summarize all before described parts of Nestlé ice-cream strategy what
gives them world lieder position ice-ream market what takes time eleven years.
Figure 4 Nestlé ice-cream business model
In summary, the main factors of success that Nestlé focused on in their strategy
is “Food is local” and branded synergy. They found a way to differentiate themselves
from the competition. Nestlé had decided to take every available opportunity by using
their own well-known brands and licensed brands and finding an internal synergy with
their own brands from other markets. Thus, their product range is designed so that
everyone can find something that they like – customers with local tastes; Hello Kitty for
those who follow trends; Kit Kat, Lion bar, Princessa, Nesquik and Nestea for those
who are loyal to brands that they are familiar with. Furthermore, they have also
31

32. customised their own Ice Cream brands such as Pirullo and Extreem, which are gaining
popularity. The aforementioned strategy built upon branding secured Nestlé a success in
their endeavour to take over the global ice-cream market. They were able to consider
their goal achieved in 2003 when Nestlé acquired Dreyer’s Grand Ice Cream, giving
them a 17.5% total share of the global market, leaving their competitor, Unilever, in
second place. Since then, there has been an on-going struggle amongst the market giants
over the position of market leader. The way to goal describe figure 5.
Figure 5 Nestlé ice-cream growths
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33. 4. COMPETITIVE STRATEGY
Upon analysing Nestlé’s strategy for taking over the ice-cream market, at first glance, it
seem that they have covered all their bases, but there is still room for improvement. We
have learned from their successes that “Food is local” and that ice-cream is an impulse
product which must be available to the potential customer whenever and wherever,
which is why one of Nestlé’s principles is to be where the people are. We also know
that creating new brands is very costly, so where to go from here?
Our idea is to provide the consumer with the opportunity to purchase ice-cream
whenever and wherever they may get the urge, and to be very noticeable so as to entice
potential customers. We propose putting fully-automated ice-cream machines in areas
with heavy footfall and where people linger such as: bus stops; the entrances to
shopping centres; busy sidewalks; beaches during the summer and so on. Currently, it is
not possible to buy ice-cream without there being a middle-man because it is a product
which requires special storage conditions. All the logistics and sales chains carry these
extra costs.
The solution would be an ice-cream vending machine which contains capsules
of ice cream with your chosen fillings and toppings. To make paying more convenient,
one could pay by cash, card or mobile phone credit depending on the specific local
market. As this has never been done before, we would patent our unique design to
ensure that it could not be copied or stolen, giving us the opportunity for expansion in
developed countries where time and convenience is appreciated.
All the machines would be connected to a computer system located in a local
distribution centre where the employees can monitor the machines to ensure availability
of the products as efficiently and at as little cost as possible. As there would not be a
long distribution chain and there would be fewer employees, the cost of distribution
would be lower.
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34. As well as the vending machine, we would also patent the technology for
producing the accompanying capsules, which would give us an advantageous
opportunity to find a partner in local markets and grant them use of the machine.
Since “food is local” and the machine is patented, upon entering a new market
we would aim to make one of the local market leaders our partner and order from them
the flavours which are suitable for that market. This would be a mutually-beneficial
arrangement as the other party would gain an innovative technology and we would be
able to quickly enter the market with suitable flavours in un-touched niches. For the
local producer, this solution is attractive because we offer them a new distribution
channel and continue to sell the ice-cream under the local brand name. This
arrangement ensures a mutual interest and benefit. The market leader gains wider
coverage for their brand and we receive an increased profit due to reduced labour costs
by way of the shorter distribution chain. Author’s idea summarizes on figure 6 below.
Figure 6 Ice-cream vending machines business model
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35. SUMMARY
In this paper, we have provided an overview about how Nestlé was able to take over a
challenging segment of the global food production market. As “Food is local”, finding
ways to expand quickly in this sector is a major challenge.
Nestlé was founded in Switzerland when Henri Nestlé came up with a new
product for mums who are unable to breastfeed. This paper has given a summary of
Nestlé’s early history from 1866 as well as their now fully-developed global business
strategy. The Nestlé Corporation have many different strategies for success in different
market segments but they all have to adhere to the Corporation’s core values.
In 1991, Nestlé decided that ice-cream was a rapidly expanding segment of the
market. So then they developed a plan to take over that market. They actively put their
plan into action from 1992 where they already had a presence in the UK and Hong
Kong. Their main objective was to merge with and take over the local businesses before
entering a new market to ensure fast and effective entry through knowledge of the local
market and consumers’ taste preferences.
Big ice-cream producers tend to have their own local brands or only licensed
brands. Nestlé found a way to separate themselves from their competition. They decided
to take advantage of all of their opportunities and used their own brands, brands already
known in the local market, licensed brands and brands gained from their internal
synergy between their own brands in different market segments. Thus, their product
range is designed so that everyone can find something that they like – customers with
local tastes; Hello Kitty for those who follow trends; Kit Kat, Lion bar, Princessa,
Nesquik and Nestea for those who are loyal to brands that they are familiar with.
Furthermore, they have also customised their own Ice Cream brands such as Pirullo and
Extreem, which are gaining popularity. The aforementioned strategy built upon
branding secured Nestlé a success in their endeavour to take over the global ice-cream
market. They were able to consider their goal achieved in 2003 when Nestlé acquired
Dreyer’s Grand Ice Cream, giving them a 17.5% total share of the global market,
35

36. leaving their competitor, Unilever, in second place. Since then, there has been an on-
going struggle amongst the market giants over the position of market leader.
From all of the success strategies, we can draw the conclusion that the well-
branded and well thought-out product range, resulting from mergers, enabled them to
quickly expand in new markets. Mergers and acquisitions are expensive and to
compensate for this, Nestlé found ways to economise on use of equipment more than
their competitors by exchanging production lines between their own factories. Another
important economy was in advertising costs as Nestlé instead used their brand synergy
to launch new products. Nestlé uses the same strategy in other food categories such as
cereals, dairy products and confectionary. All other strategies are geared towards
ultimately contributing to the Corporation’s overall main strategy.
The authors have proposed an alternative strategy as even though the
aforementioned one seems perfect, there is always room for improvement. The strategy
is to install ice-cream vending machines in places of heavy footfall so that ice-cream is
readily available to the consumer as and when they desire it.
36