Strategic Model

Ammar Yasir
Atif Raza
Bilal Ahmed
Fatima Batool
Hammad Yousaf
Hammad Rasheed
Umair Makki
Zulqarnain Bajwa

(08)
(46)
(47)
(55)
(16)
(11)
(57)
(21)

Case-Study Overview
Internal:

History, Nike overview, Key

Facts, Our Brands and Stock
Information
Nike Actual & Proposed Vision
and Mission
Economic Performance
Evolution of Financial Ratios
Strengths and weaknesses
Analysis: IFE

External:

Industry overview and

comparison of financial ratios
Manufacturing
Opportunities and threats
Analysis: EFE
Competitors
Market Share
Analysis: CPM

Analysis

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 Nestl, 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 Nestl 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, Nestl's management responded quickly, streamlining operations and
reducing debt. The 1920s saw Nestl's first expansion into new products, with
chocolate the Company's second most important activity
1938-1944
Nestl 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, Nescaf, which was a staple drink of the US military.
Nestl's production and sales rose in the wartime economy.

1944-1981
Nestl's growth in the developing world partially offset a slowdown in the Company's
traditional markets. Nestl made its second venture outside the food industry by
acquiring Alcon Laboratories Inc..
1981-1995
Nestl divested a number of businesses1980 / 1984. In 1984, Nestl'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 Nestl: 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, Nestl 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 ofMvenpick Ice Cream,
enhancingNestl'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 Nestl portfolio
and 2007 sawNovartis Medical Nutrition, Gerber and Henniez join the Company.

Overview

Nestl 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 Nestl Company has
aimed to build a business as the world's leading nutrition, health
and wellness companybased on sound human values and
principles
While Nestl Corporate Business Principleswill 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 Nestl, our products are developed keeping our consumers, their
preferences and health in mind.
Millions of consumers the world over trust Nestl products for good reason:
when they choose a Nestl 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 Nestl 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, Nestl products
1. Customers
bring
consumers the vital ingredients of Yes
taste and
2. Products or services
Yes
pleasure
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, Nestl 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
Strengths
Socially Responsible Company
Nestle products enjoy strong brand image
Sales force as a major physical resource
strength
Quality product distribution networks in country
Net Profit increased by 94% in 2009.
Price earning ratio decreased from 38.9 to 18.8
Export Sales increased by 48% to PKR 3.3 billion

Weight

Rating

Weighted Score

0.03
0.07
0.05

3
3
3

0.09
0.21
0.15

0.08
0.20
0.05
0.18

2
4
3
4

0.16
0.80
0.15
0.72

Lack of awareness among target market

Nestle milk always stands at last because of low
advertisement.
Revenue from confectionary decreased by 14%
Low credit sales and profit margin to retailers
Weak promotional activities through websites
Cant launch expensive brand due to low income
groups

0.04
0.09

2
2

0.08
0.18

0.08
0.05
0.05
0.03

2
2
3
1

0.16
0.10
0.15
0.03

Total

1.00

Weaknesses

2.99

Key Ratios: Overall Comparison

(2009)
Ratios

2009

Industry

Liquidity Ratios:

Current Ratio
Quick Ratio

1.11
0.37

1.19
.42

Solvency Ratios:

Long Term Debt to Equity

Long Term Debt to Assets
Debt-to-Equity Ratio
Times-Interest-Earned Ratio

1.94
0.89
1.37
10.49

.47
.126
1.1
7.2

Activity Ratios:

Inventory Turnover Ratio

Average Age of Inventory (Days)
Total Assets Turnover Ratio
Receivable Turnover Ratio
Average Collection Period (Days)
Fixed Assets Turnover

9.2
40
2.3
119.5
4
3.51

4.56
102
1.23
67.74
5
1.23

Profitability:

Gross Profit Margin

Net Profit Margin
Return on Assets
Return on Equity
Earning per Share
Price-Earning Ratio

29%
7%
44%
40%
66.27
18.8

30.86
5.8
41.41
48.9
91.62
25.45

Growth Ratios

Sales

+20%

Net Income

+94%

Earning Per Share

+94%

EFE External Factor Evaluation Matrix

Key External Factors

Weight

Rating

Weighted Score

Few and weak competitors in the market

0.12

0.24

Disposable income increased by 3.6%

0.07

0.21

Consumer expenditure on food has increased by 3.6%

0.09

0.36

Population density increased by 2.18% (per sq.km)

0.05

0.15

Credit policy can be adopted to increase sales

0.03

0.09

Potential in cold dairy market

0.02

0.06

All companies contribute only 2% to processed milk market

0.12

0.48

Pakistan as 7th largest milk producing country with milk output of 200 billion liters

0.12

0.36

Increase in consumer food industry by 14%

0.05

0.20

Engro and Shakarganj as major competitors

0.14

0.42

Market segment growth could attract new entrants

0.04

0.08

Taste of the consumer has already developed

0.02

0.04

Legal & ethical issues

0.01

0.02

Economic slow down can reduce demand

0.01

0.02

Effect of seasonality upon sales

0.05

0.15

Strong advertisement by major competitors

0.08

0.24

Total

1.00

Opportunities

Threats

3.02

CPM

Competitive Profile Matrix

Nestle 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
Inventory System
Financial Position
Product Quality
Consumer Loyalty
Relationship with
Suppliers
Global Expansion
Organization Structure

0.12
0.05
0.20
0.15
0.07
0.03

3
3
4
4
3
3

0.36
0.15
0.80
0.60
0.21
0.09

2
2
2
3
2
3

0.24
0.10
0.40
0.45
0.14
0.09

1
2
3
3
1
2

0.12
0.10
0.60
0.45
0.07
0.06

0.06
0.02

3
3

0.18
0.06

1
2

0.06
0.04

1
1

0.06
0.02

Production Capacity
Advertising
Efficient cost
Management

0.05
0.15
0.05

3
2
3

0.15
0.30
0.15

2
4
3

0.10
0.60
0.30

2
3
2

0.10
0.45
0.20

Product R&D

.05

0.15

.04

.04

Totals

3.20

2.56

2.27

THE MATCHING STAGE

SPACE SPACE MATRIX

Financial Strength
Nestles net sales increased by 20% in 2009 as compared to 2008
Net profit increased by 94% in 2009 as compared to 2008
Debt equity ratio changes from 63:37 to 66:34
Price earnings ratio in 2009 was 18.8 as compared to 2008 38.9
Return on capital employed increases by 40%
Average financial strength

3
5
3
5
4
4

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

Competitive Advantage

5
4
5

4
4.5

Nestle enjoys strong customer loyalty

Quality product distribution networks in country
Nestle extended product life cycle is being ensured due to quality brand
extension strategy
Nestle product are market leaders in many product categories
Average competitive advantage

-2
-1.75

Economic slowdown can reduce the demand

Fluctuating rate of inflation in the country
Price range of competing products
Average Environmental Stability

-2
-2
-1
-1.75

Environmental Stability

-2
-1
-2

BCG
Brands

Sales

%
Sales

Profit

%
Profit

% Market
Share

% Growth
Rate

Milk and Dairy

13993

34

1082

38

100

+15

Beverages

7820

19

661

20

85

+10

Bottled Water

9054

22

511

17

100

+3

Confectionary and
Chocolate

1646

150

31

-15

Baby Food

5350

13

331

11

60

-5

Foods and Cereals

3293

270

40

41156

100

3005

100

100

Total

BCG

GSM

THE DECISION STAGE

QSPM
Key factors

Weights

Acquisitions
Shangrilla &
Youngs food
AS
TAS

No Aquisitions

AS

TAS

0.24

OPPERTUNITIES
Few and weak competitors in the market
Disposable income increased by 3.6%

0.12

0.07

Consumer expenditure on food has increased by 3.6%

Population density increased by 2.18% (per sq.km)
Credit policy can be adopted to increase sales

0.09
0.05

3
3

0.03

0.02

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

0.20

0.10

0.12
0.02

4
4

0.48
.08

Potential in cold dairy market

All companies contribute only 2% to processed milk market

THREATS
Engro and Shakarganj as major competitors

0.48

0.27
0.15

0.09
0.10

0.14

Market segment growth could attract new entrants

Taste of the consumer has already developed
Legal & ethical issues

0.04
0.02

3
1

0.01

Economic slowdown can reduce demand

Effect of seasonality upon sales

0.01

0.02

0.05

Strong advertisement by major competitors

1
2

0.08

.03

QSPM(Continued)
Key factors
STRENGHTS
Socially Responsible Company

Weights

Acquisitions
Shangrilla &
Youngs food
AS
TAS

No
Aquisitions
AS

0.03

0.07

0.05

0.08

0.20
0.05
0.18

3
2
3

0.04

0.09

0.08

Low credit sales and profit margin to retailers

Weak promotional activities through websites

0.05

0.05

Cant launch expensive brand due to low income groups

0.03

Total

1.00

Nestle products enjoy strong brand image

Sales force as a major physical resource strength
Quality product distribution networks in country
Net Profit increased by 94% in 2009.
Price earnings ratio decreased from 38.9 to 18.8
Export Sales increased by 48% to PKR 3.3 billion
WEAKNESSES
Lack of awareness among target market
Nestle milk always stands at last because of low Advertisement.
Revenue from confectionary decreased by 14%

TAS

0.14

0.60
0.10
0.54

0.05

1
1
1

0.07

0.20
0.05
0.18

0.15

0.06
2.75

0.12
1.89

Matrix Analysis
Alternative Strategies

Space

Back ward integration

Grand Strategy
Matrix

Count

Forward integration

Horizontal integration

Product Development

Market Penetration

Market Development

Related Diversification
Unrelated
diversification
Retrenchment
Divestiture
Liquidation

BCG

IMPLEMENTATION STAGE

Decision
This seemed to an important step where we had to
choose either to go for a horizontal integration or more
product development. The interesting fact was that from
2008-2009 Nestle Pakistan introduced three new
products into the market
The major new product launches the year 2009
Included: NESQUIK milk enhancer, NIDO BUN YAD,
LACTOGEN GOLD, and CERELAC fruit cereals.

Our Recommendation:
Considering this fact now we recommended Nestle
Pakistan to Acquire Shangrila foods and youngs
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