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IUF Dairy Division

NestlSwitzerland

Abstract

Headquartered in Vevey, Switzerland, Nestl is one of the worlds largest food and nutrition
company. Nestl now operates 115 countries and has around 280,000 employees worldwide.
Nestl produces a diversified portfolio of product categories ranging from baby foods, bottled
water, chocolate, coffee, dairy to healthcare and sports nutrition. Wellknown product brands
ownedbyNestlincludeNesCaf,Nespresso,KitKat,HagenDazsandMvenpick.Milkproducts
andicecreamrepresentaroundonefifthofthecompany'stotalturnoverin2009.Accordingtothe
company's 2009 report, the operations, offices and manufacturing sites of Nestl are present in
115countriesaroundtheworldandNestlhas449factoriesin83countries.Throughengagingin
various partnerships with organisations that range from business enterprises to development
boards, Nestl is developing its business globally as well as establishing a favourable image. Its
dairy business jointventure with Fonterra, Dairy Partners Americas, operates in Bermuda, Brazil,
Argentina and Ecuador. In terms of its management structure, Nestl is governed by a Board of
Directors, while the daily management of the Nestl business is overwatched by the Executive
Boardmembers.TheNestlGroupismanagedaccordingtogeographies(ZonesEurope,Americas
andAsia/Oceania/Africa)formostofthefoodandbeveragebusiness,withtheexceptionsofNestl
Waters,NestlNutrition,NestlPurinaPetcare,Nespresso,NestlProfessionalandNestlHealth
Sciencewhicharemanagedonaglobalbasis.

Thecompanyvaluesresearchanddevelopmentandperceivesitasakeycompetitiveadvantagefor
thecompany.With29research,developmentandtechnologyfacilitiesworldwide,Nestlhasthe
oneofthelargestR&Dnetworksofanyfoodcompanythatemploysover5,000people.Currently,
Nestlsgoalistoberecognisedastheworldleaderinnutrition,healthandwellnessthatistrusted
by all its stakeholders. Nestls outstanding performance which developed significantly over the
past century clearly illustrates its effective business strategies and unique strengths. However,
despiteNestlsprominentglobalstatus,theenterpriseisstillfacinganumberofchallengesand
hasundergoneafewcontroversiesinthepastfewyears.Similartoalllargecorporations,Nestl
needs to further enhance its internal coordination and translation of messages across different
divisions and geographical regions. On the other hand, while the company has made efforts to
promote itself as an enterprise that values CSR in its practices, there had been numerous
controversies surrounding its operations. These include criticisms towards Nestls bottled water
advertisements,deforestationassociatedwithNestlssourcingofpalmoil,aswellastheIUFled

IUFDairyIndustryResearch [Nestl]

NespressureCampaignthattargetedNestlsviolationofunionrights.Overall,Nestlwillneedto
carefullymanageitsactivitiesandoperationstoensurethatitcanmaintainthegreenandsocially
responsibleimagethatithasbeentryingtoestablish.

Generalinformation

Foundedin1866byHenriNestlinVevey,Switzerland,Nestlisoneoftheworldslargestfood
andnutritioncompany.Nestlnowoperates115countriesand hasaround280,000employees
worldwide. Nestl is ranked third by milk intake and first by turnover among world dairy
companiesin2010. 1 2 Thetimelinebelowreviewsthesignificanteventsthatmarkthehistoryof
Nestl: 3

18661905 In 1866, two separae Swiss enterprises that would later form the core of Nestle,
the AngloSwiss Condensed Milk Company and the Farine Lactee Henri Nestle
Company,wereestablished.
19051918 The Company formed by the merger was called the Nestl and AngloSwiss Milk
Company.Bytheearly1900s,theCompanywasoperatingfactoriesintheUnited
States, Britain, Germany and Spain. In 1907, the Company began fullscale
manufacturing in Australia, its secondlargest export market. Warehouses were
built in Singapore, Hong Kong, and Bombay to supply the rapidly growing Asian
markets.
19181938 The manufacture of chocolate became the Company's second most important
activity.Newproductsappearedsteadily:maltedmilk,apowderedbeveragecalled
Milo,apowderedbuttermilkforinfants,and,in1938,Nescaf.
19381944 DuetoWorldWarII,neutralSwitzerlandbecameincreasinglyisolated,andmany
of Nestl's executives were transferred to offices in Stamford, Connecticut. To
overcome distribution problems, factories were established in developing
countries,particularlyinLatinAmerica.
19441975 Throughout this period, Nestl's growth was based on its policy of diversifying
withinthefoodsectortomeettheneedsofconsumers.Mergersandacquisitions
made by Nestl within this period include Alimentana S.A., the manufacturer of
Maggiseasoningsandsoups (1947),Crosse&Blackwell, theBritish manufacturer
of preserves and canned foods (1960), Findus frozen foods (1963), Libby's fruit
juices(1971),Stouffer'sfrozenfoods(1973),andfinallybecomingashareholderin
L'Oral(1974),whichisoutsidethefoodindustry.
19751981 Nestl's rapid growth in the developing world partially offset a slowdown in the
Company'straditionalmarkets,butitalsocarriedwithittherisksassociatedwith
unstablepoliticalandeconomicconditions.Tomaintainabalance,Nestlmadeits
second venture outside the food industry by acquiring Alcon Laboratories, Inc., a
U.S.manufacturerofpharmaceuticalandophthalmicproducts.
19811995 TheCompany'sstrategyforthisperiodwastwofold:improveitsfinancialsituation
throughinternaladjustmentsanddivestments,andcontinueitspolicyofstrategic
acquisitions. In 1984, Nestl's improved bottom line allowed the Company to
launch a new round of acquisitions, including a public offer of $3 billion for the

IUFDairyIndustryResearch [Nestl]

19962002

20032009

AmericanfoodgiantCarnation.Atthetime,thetakeover,sealedin1985,wasone
ofthelargestinthehistoryofthefoodindustry.
InJuly2000,NestllaunchedaGroupwideinitiativecalledGLOBE(GlobalBusiness
Excellence), aimed at harmonizing and simplifying business process architecture.
Two major acquisitions took place in North America in 2002 Dreyer's and Chef
America, Inc. Also in 2002, the joint venture Dairy Partners Americas was set up
withFonterra;andLaboratoiresinnovwassetup,anotherjointventure,thistime
withL'Oral.
Acquisitions made during this period include Mvenpick Ice Cream, Jenny Craig,
UncleToby's,NovartisMedicalNutrition,GerberandHenniez.Also,Nestlentered
intoa strategic alliance with the Belgian chocolatier Pierre Marcolini. In 2008,
Nestl began a process of selling Alcon by divesting 24.8% to Novartis. In 2009,
Nestl opened the Chocolate Centre of Excellence in Broc, Switzerland, with
PierreMarcolinioneofthemasterchocolatiers.

BelowarethekeydataofNestle(2010Data): 4

AnnualSales(Total)
Netprofit(Total)

AnnualSales(Dairy)5

MilkEquivalentIntake(Worldwide) 6

No.ofEmployees(Worldwide)

CHF110billion
(EUR98.65billionasofAug2011)
CHF34billion
(EUR30.5billionasofAug2011)
EUR18.55billion
12MillionTonnes
Around280,000

IUFDairyIndustryResearch [Nestl]

BrandsandProductmix

Nestlproducesadiversifiedrangeofproductcategories(seeFigure1)andownsvariousproduct
brands,including: 7

Babyfoods:
Cerelac,Gerber,GerberGraduates,NaturNes,Nestum
Bottledwater:

NestlPureLife,Perrier,PolandSpring,S.Pellegrino

Cereals:

Chocapic,CiniMinis,CookieCrisp,Estrelitas,Fitness,NesquikCereal

Chocolate&confectionery:Aero,Butterfinger,Cailler,Crunch,KitKat,Orion,Smarties,Wonka
Coffee:

Nescaf,Nescaf3in1,NescafCappuccino,NescafClassic,Nescaf
Decaff,Nescaf,DolceGusto,NescafGold,Nespresso

Culinary,chilledandfrozenfood:Buitoni,Herta,HotPockets,LeanCuisine,Maggi,Stouffer's,

Thomy
Dairy:

Carnation,CoffeeMate,LaLaitire,Nido

Drinks:

JuicyJuice,Milo,Nesquik,Nestea

Foodservice:

Chef,ChefMate,Maggi,Milo,Minors,Nescaf,Nestea,Sjora,Lean
Cuisine,Stouffer's

Healthcarenutrition: Boost,NutrenJunior,Peptamen,Resource
Icecream:

Dreyers,Extrme,HagenDazs,Mvenpick,NestlIceCream

Petcare:

Alpo,BakersComplete,Beneful,CatChow,ChefMichaelsCanine
Creations,DogChow,FancyFeast,Felix,Friskies,Gourmet,Purina,Purina
ONE,ProPlan

Sportsnutrition:

PowerBar

Weightmanagement: JennyCraig

Figure1.Salespercentage,salesvolumeandorganicgrowth(%)byproductcategory 8

IUFDairyIndustryResearch [Nestl]

TheDairyBrands:

1. Carnation:Thisbrandproducesthefollowingproducts

SweetenedCondensedMilk(includingSweetenedCondensedMilkandLight

SweetenedCondensedMilk)

Caramel

EvaporatedMilk

ExtraThickCream

2. CoffeeMate:Anondairycreamerthatislactoseandcholesterolfreeandusedtomake
coffeericherandsmoother.Thisbrandproducesthefollowingproducts

CoffeeMatePowder(27variations/differentflavours/packaging)

CoffeeMateLiquid(55variations/differentflavours/packaging)

3. Dreyers:Icecreamandfrozentreats.Encompassesthefollowingbrands
Grand
SlowChurned
Dibs
FruitBars.
4. HagenDazs:Thisbrandproducesthefollowingproducts
Icecream
Sorbet
Frozenyogurt
5. LaLaitire:Thisbrandmanufactureslightdesserts.Examplesofitsproducesinclude

Sorbetrange

Bulkicecreamwithoutanyartificialcolouringsorflavourings

6. Mvenpick:ThisbrandproducesSwissicecream

7. NestlIceCream:Producesarangeoficecream
Allnatural
Low/Nosugar
Lactosefree
8. Nido:Thebrandoffersacompleterangeofmilkandmilkbasedproductsthatoffernutrition
solutionsforeachstageofchildhood.Nidoproductsfeatureinstantdrywholemilkwith
VitaminsA&D.Theproductsrangeinclude

NidoClasica(wholepowderedmilkthatcontainscalcium,
vitaminsAandD,andprotein)
NidoKinder1+(nonfatpowderedmilkthatisfortifiedwithPrebio1,aprebiotic
fibrethatbenefitsachildsdigestivesystem)
9. Sjora:Producesabeveragemadefromablendofmilkandfruitjuices.

IUFDairyIndustryResearch [Nestl]

Operationsbyregionandcountry

With its headquarters in Vevey, Switzerland, the operations, offices and manufacturing sites of
Nestl are present in 115 countries around the world. As of 2009, Nestl has 449 factories in 83
countries. See Tables 1 to 5and below for a summary the spread of Nestls sales, factories and
employeesworldwide.9

IUFDairyIndustryResearch [Nestl]

SummaryofNestlsactivitiesbygeographicalunit

10

Europe

In 2007, Nestl outsourced its European yoghurt and desserts business to either its 60/40 joint
venturewithLactalis(Lactalisholdsthe60%)orlicensedproducersinGermanyandSwitzerland.In
2008,NestlacquiredDelta,aGreekbasedicecreamproducerandfortifieditspresenceinsouth
easternEurope.Furthermore,in2009,thecompanybegantodisinvestfromitsicecreambusiness
andinsteadfocusedmoreonpremiumbrands. 11 Nevertheless,Nestlstillhasanimportantmilk
basedinfantnutritionbusinessinEurope.Asof2009,thereareatotalof159factoriesinEurope
and these factories are spread throughout the following countries (the number in the bracket
denotesnumberoffactories): 12
Russia(11)
Hungary(3)
Austria(1)
SlovakRepublic(1)
Italy(15)
Belgium(3)
Spain(13)
Netherlands(2)
Bulgaria(2)
Sweden(2)
Poland(8)
CzechRepublic(3)
Switzerland(12)
Portugal(4)
Finland(2)
Turkey(4)
RepublicofIreland(1)
France(30)
Ukraine(2)
RepublicofSerbia(1)
Germany(22)
UnitedKingdom(12)
Romania(1)
Greece(4)

Outoftheabovecountries,thefollowingcountriesbothimportandproducedairy(includingice
cream)andnutritionproductslocally:
Bulgaria
Hungary
RepublicofSerbia
Finland
Italy
Russia
France
Netherlands
Spain
Germany
Poland
Switzerland
Greece
Portugal
UnitedKingdom

OtherEuropeancountries,includingAustria,Belgium,CzechRepublic,RepublicofIreland,Romania,
SlovakRepublic,Sweden,TurkeyandUkraine,onlyimportdairyandnutritionproductsanddonot
producelocally.

Americas 13

Asof2009,thereareatotalof167factoriesinEuropeandthesefactoriesarespreadthroughout
thefollowingcountries(thenumberinthebracketdenotesnumberoffactories): 14
Peru(1)
Dominican Republic (2)
Argentina(8)
TrinidadandTobago(1)
Ecuador(2)
Brazil(23)
UnitedStates(81)
Guatemala(1)
Canada(10)
Uruguay(1)
Jamaica(1)
Chile(6)
Mexico(13)
Colombia(4)
Venezuela(7)
Nicaragua(1)
CostaRica(1)
Panama(1)
Cuba(3)

IUFDairyIndustryResearch [Nestl]

Outoftheabovecountries,thefollowingcountriesbothimportandproducedairy(includingice
cream)andnutritionproductslocally:
Panama
Cuba
Argentina
Peru
DominicanRepublic
Brazil
TrinidadandTobago
Ecuador
Canada
UnitedStates
Jamaica
Chile
Venezuela
Mexico
Colombia
Nicaragua
CostaRica
OtherAmericancountries,includingGuatemalaandUruguay,onlyimportdairyandnutrition
productsanddonotproducelocally.

Asia,Oceania,AfricaandMiddleEast 15

AfricaandMiddleEast
Asof2009,thereareatotalof54factoriesinAfricaandMiddleEastandthesefactoriesarespread
throughoutthefollowingcountries(thenumberinthebracketdenotesnumberoffactories):16
SaudiArabia(7)
Israel(9)
Algeria(1)
Senegal(1)
Jordan(1)
Bahrain(1)
SouthAfrica(9)
Kenya(1)
Cameroon(1)
Syria(1)
Lebanon(1)
CtedIvoire(2)
Tunisia(1)
Morocco(1)
Egypt(3)
UnitedArabEmirates(2)
Nigeria(1)
Ghana(1)
Uzbekistan(1)
Pakistan(4)
Guinea(1)
Zimbabwe(1)
Qatar(1)
Iran(2)

OutoftheaboveAfrican,MiddleEasternandCentral/WesternAsiancountries,thefollowingboth
importandproducedairy(includingicecream)andnutritionproductslocally:
Syria
Kenya
Cameroon
Tunisia
Morocco
CtedIvoire
UnitedArabEmirates
Nigeria
Egypt
Uzbekistan
Pakistan
Ghana
Zimbabwe
SaudiArabia
Iran
SouthAfrica
Israel

OtherAfrican,Central/WesternAsianandMiddleEasterncountries,includingAlgeria,Bahrain,
Guinea,Jordan,Lebanon,QatarandSenegal,onlyimportdairyandnutritionproductsanddonot
producelocally.

IUFDairyIndustryResearch [Nestl]

AsiaandOceania
Asof2009,thereareatotalof69factoriesinAsiaandOceaniaandthesefactoriesarespread
throughoutthefollowingcountries(thenumberinthebracketdenotesnumberoffactories):
Singapore(1)
Malaysia(6)
Australia(11)
SriLanka(1)
NewCaledonia(1)
Bangladesh(1)
Thailand(6)
NewZealand(2)
GreaterChinaRegion(18)
Vietnam(3)
PapuaNewGuinea(1)
India(6)
Philippines(4)
Indonesia(3)
RepublicofKorea(2)
Japan(3)

Outoftheabovecountries,thefollowingAsianandOceaniacountriesbothimportandproduce
dairy(includingicecream)andnutritionproductslocally:
Philippines
Japan
Australia
SriLanka
Malaysia
Bangladesh
Thailand
NewCaledonia
GreaterChinaRegion
Uzbekistan
PapuaNewGuinea
Indonesia

Ontheotherhand,IndiaandRepublicofKoreaonlyproducedairyandnutritionproductslocally,
whereasSingaporeonlyimportstheseproducts.

Milkcollection 17

ChinaNearly24000farmersinHeilongjiang,NortheastChina,delivertheirfreshmilkto78milk
collectioncentres.NestlinvestsnearlyUSD200millionayearintothelocaleconomythroughmilk
payments,taxes,servicesandsalaries.

ColombiaNestlisthethirdlargestbuyerofmilkinColombiawheretwomilkdistrictsproduce
226000tonnesayear.NestlpaysaroundUSD5millionamonthto4000localdairyfarmers,and
afurther10000peopleintheregionworkinthemilksupplychainasmilkers,ruralworkers,
transportersandtraders.

IndiaTheNestlmilkprocessingfactoryinMoganorthernIndiaopenedin1959.Sincethenthe
supplierbasehasgrownfrom4600farmersproviding2000tonnesofmilkto100000farmersin
2,600villagesproducingmorethan300,000tonnes.

IndonesiaLocatedinWaru,EastJava,theNestlfactorystartedpurchasingmilkfromlocal
cooperativesinMay1975.Today,NestlIndonesiasources480tonnesoffreshmilkeveryday(141
000tonnesayear)from27localcooperatives.

PakistanNestlinvestsmorethanUSD180millionayearinmilksourcinginPakistan.Through
milkdeliverypointsin2000villages,morethan135000dairyfarmerssupplyclosetohalfamillion
tonnesofmilkayeartotwoNestlfactories.

IUFDairyIndustryResearch [Nestl]

Partnerships
Nestlisengagedinvariouspartnershipswithorganisationsthatrangefrombusinessenterprises
to development boards. While some of these collaborations aim to expand the company across
overseasmarkets 18 ortodevelopnewproducts 19 ,otherpartnershipsaretargetedatcommunity
developmentorcurrentissues(suchasclimatechange). 20 21 BelowaresomeexamplesofNestls
partnershipwithotherentities.

JointVentures:

DairyPartnersAmericas(DPA) 22

InMarch2002NestlestablishedanalliancewithFonterratosetupjointventurestheAmericas.
The joint venture, Dairy Partners Americas, operates in Bermuda, Brazil, Argentina and Ecuador.
The alliance is established on a 50/50 basis, with Fonterra managing the largescale milk
procurement, processing, technologies and brands and Nestle providing its brands, product
development expertise and distribution infrastructure. The partnership sources fresh milk from
dairyfarmersintheAmericasanditsingredientsfromNewZealand.

CerealPartnersWorldwideS.A. 23

Establishedin1989,CerealPartnersWorldwide(CPWS.A.)isa50/50jointventurebetweenNestl
S.A. and General Mills Inc. It is one of the worlds leading breakfast cereals producers, with 2.8
billion CHF sales in 2008. This joint venture now owns over 50 brands including the Fitness
franchise, Cheerios, Chocapic and Nesquik with sales in over 130 countries worldwide. The
companyisheadquarteredinLausanne,Switzerlandandoperatesthroughsevenregionscovering
Europe, Middle East & Africa, Latin America, Asia and Oceania with strong positions in emerging
marketssuchasRussiaandBrazil.CerealPartnersWorldwidehas14factoriesandemploysnearly
4000peopleallovertheworld.

BeveragePartnersWorldwide(BPW) 24 25

Beverage Partners Worldwide (BPW) is an entrepreneurial joint venture between The CocaCola
Company and Nestl S.A. It focuses on producing readytodrink tea and combines the leading
nutritionexpertiseofNestlS.A.withthemarketinganddistributionleadershipofTheCocaCola
CompanyanditsnetworkofBottlers.
Formed in 2001, the Joint Venture (JV) has steadily and BPW now operates in more than 60
countries worldwide, with headquarters in Zurich and offices in the Americas and Asia. The JV
operates globally with the exception of the USA and Japan. Leading brands, NESTEA has been
growing consistently to become a leading brand worldwide. In 2008, YUAN YE was introduced
andhasbecomeoneofthefastestgrowingreadytodrinkteabrandsinChina.

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IUFDairyIndustryResearch [Nestl]

LaboratoiresInnov 26 27

Formed in 2002, Laboratoires Innov is a 50/50venture formed by LOreal and Nestl to develop
cosmeticnutritionalsupplement.Innov'sEuropeansubsidiaries,allbelongingtotheLaboratoires
Innov,hasbeensetupinGermany,Belgium,Spain,FranceandPortugal.

Projectsandcampaignsondevelopmentandcurrentissues:

InternationalFederationofRedCross 28

In November 2010, Nestl and the International Federation of Red Cross and Red Crescent
Societiesrenewedtheircollaborationuntil2013andwillfocusespeciallyonbuildingmoreresilient
ruralcommunitiesinCtedIvoire.Underthisagreement,NestlwillcontributeCHF2.25million
over three years to projects related to water and sanitation, food security and to assist with the
IFRCsWorldDisastersReport.

PartnershipsonEnvironmentalSustainability 29

Nestl also promotes sustainable environmental performance through taking part in or initiating
projects such as the Carbon Disclosure Project, Greening the Supply Chain programme. Global
issues such as climate change, biodiversity and resource depletion are also covered through
strategicpartnershipwiththeUniversityofCambridgeProgrammeforSustainabilityLeadership.

11

IUFDairyIndustryResearch [Nestl]

Ownershipandmanagementstructure 30

Nestl has a Board of Directors, led by Chairman Peter BrabeckLetmathe, who was the former
NestlCEO.Thereare14membersoftheBoardofDirectors.

The day to day management of the Nestl business is overwatched by the Executive Board
members.The13designatedBoardMembersmanagediversepartsoftheglobalbusiness,which
couldshowninFigure2below.

TheNestlGroupismanagedbygeographies(ZonesEurope,AmericasandAsia/Oceania/Africa)for
most of the food and beverage business, with the exceptions of Nestl Waters, Nestl Nutrition,
Nestl Purina Petcare, Nespresso, Nestl Professional and Nestl Health Science which are
managedonaglobalbasiswhicharepresentedastheGloballyManagedBusinesses.

Figure2.OrganisationalDepartmentsforNestl 31

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IUFDairyIndustryResearch [Nestl]

Companystrategy 32 33

NestlscurrentkeyobjectivesaretoberecognisedastheworldleaderinNutrition,Healthand
Wellness, trusted by all its stakeholders, and to be the reference for financial performance in its
industry.Inordertoachievethese,thecompanyhasoutlinedanumberofgrowthdriversaswell
asoperationalpillars.

Fourcompetitiveadvantages
1. Unmatchedproductandbrandportfolio:Focusedanddiverseproductportfolio,with75%
ofsalesaccountedforbyaround30brandsandanunderstandingoflocalneeds.
2. Unmatched research and development capability: An impetus from R&D that supports
growththroughconsumercentricinnovationandrenovation.
3. Unmatchedgeographicpresence:Companypresenceinmanymarkets,includingemerging
markets,whichcreatedcloserelationshipsbetweenthecompanyandtheconsumers.
4. People,culture,valuesandattitude:Decentralisedstructurewithdevolvedresponsibilities
aswellascohesivestrategicdirectionstoencourageentrepreneurialspirit.

Fourgrowthdrivers
1. Nutrition, health and wellness: These are the main goals that the company is aiming to
achievethroughsciencebasednutritionalexpertiseandallofitsactivities.
2. Emerging markets and popularly positioned products: Nestls operations in emerging
marketsarebothwelldevelopedandrichwithopportunity.
3. Outofhomeconsumption:NestlProfessionalisthelargestbrandedmanufacturerinthe
outofhome segment, and this segment has two divisions Branded Beverages and
CustomisedFoodSolutions.
4. Premiumisation:Increasingincomesandleisuretimearepositivetrendsforthissector.

Fouroperationalpillars
1. Innovationandrenovationtoensureproductsareneworremainrelevanttothecustomers
2. Operationalefficiencytoensurethehighestquality,thelowestcostandthebestcustomer
service
3. Whenever, wherever, however...to have the products always in an arms reach of the
consumers
4. Consumercommunicationtoexciteandtolearnfromtheconsumers

13

IUFDairyIndustryResearch [Nestl]

ResearchandDevelopment(R&D)
NestlsResearchandDevelopmentVision 34
Nestl values research and development as it is a key competitive advantage for the company.
With 29 research, development and technology facilities worldwide, Nestl has the one of the
largestR&Dnetworksofanyfoodcompany(seeTable6belowforthegeographicalspreadofthese
research centres). Nestls research, development and technology network, together with local
marketapplicationgroups,employsover5,000people.
R&DisalsocriticalinensuringregulatorycomplianceofallNestlproducts.Nestlisabletolaunch
new products quickly and efficiently, in countries all over the world, by integrating regulatory
affairs in all its R&D activities. Nestl R&D translates nutrition and food science both from
consumer needs into research priorities and from emerging science into consumer benefits, and
services.
NestlsAreasofResearchInterest 35
Nestlfocusesoninnovationsinthefollowingfields:
Energy&WeightManagement
HealthyAging
HealthyRecovery
Growth&Development
Sensory properties of food (taste,
PhysicalandMentalPerformance
texture,etc.)
DigestiveComfort
productsafetyandquality
Protection
Sustainability
Natural
SkinHealth&Beauty

Innovation
BelowaresomeexamplesofNestlsinnovations: 36
Past
1867InfantFormulaFarineLacte
1935AeroBubblyinnovation
1904MiloFortifiedbeverage
1935KitKatWafertechnology
1938NescafThefirstdrinkableinstantcoffee
1986Nespresso
Current
Meatysoupgranules
SveltyGastroProtect
Affordablefortifiedmilks
CrunchNougatRolls:Indulgentbreakfastcerealswithwholegrains,mineralsandvitamins
Protectionthroughprobiotics
Easyopeningandsidepouring

14

IUFDairyIndustryResearch [Nestl]

Future
Reductioninenvironmentalimpactofpackaging
FunctionalGenomicsandgeneexpression
Bioavailabilityofnutrients

Region
Country
No.ofCentres Centre(s)
Europe
France
5
PTCBeauvais,PTCLisieux,PTCVittel,
R&DAmiens,R&DTours
Germany
1
PTCSingen
Italy
1
R&DSansepolcro(CasaBuitoni)
Poland
1
R&DRzeszow
Switzerland
4
NestlResearchCentre,Nestl
ProfessionalBeverageCentreOrbe,
PTCKonolfingen,PTCOrbe,
UnitedKingdom
2
CPWInnovationCentreWelwyn
GardenCity,PTCYork
Americas
Chile
1
R&DSantigo
Mexico
1
R&DQueretaro
United States of
7
PTCFremont,PTCMarysville,PTCSt.
America
Joseph,PTCSt.Louis,R&D
Minneapolis,R&DSolon,R&D
Bakersfield
Asia&Oceania
Australia
1
CPWR&DRutherglen
China
2
R&DShanghai,R&DBeijing
Singapore
1
R&DSingapore
Africa&MiddleEast IvoryCoast
1
R&DAbidjan
Israel
1
R&DSderot

Table6.NestlsGlobalResearchandDevelopmentCentres 37

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IUFDairyIndustryResearch [Nestl]

NestlCommentarySummary
Established in 1905 through the merger of the AngloSwiss Condensed Milk Company and the
Farine Lactee Henri Nestle Company, Nestl is now one of the worlds largest food and nutrition
company. Its annual turnover was around EUD85 billion in 2010, just over a fifth of which was
accountedforbydairysales. 38 Itsoutstandingperformancewhichdevelopedsignificantlyoverthe
past century clearly illustrates its effective business strategies and unique strengths. However,
despiteNestlsprominentglobalstatus,theenterpriseisstillfacinganumberofchallengesand
hasundergoneafewcontroversies.ThesectionsbelowwillsummariseNestlsbusinessstrategy,
thecompanysstrengthsandweaknesses,theeffortithasmadetowardspromotingsustainability
aswellasthreedisputesthattheglobalgianthasexperiencedinthepastthreeyears.
1. BusinessStrategy
AccordingtothecompanyspublishedCodeofConduct,Nestlsstrategiesrunalongthetracksof
producing quality and diversified range of products, decentralising operations while ensuring
uniformityandallowingforflexibility. 39
First,Nestlbelievesthatbyofferingqualityproducts,thecompanywillbeabletoremainfirmlyin
itsleadingpositioninthefaceofcompetition.Second,whileNestlseekstodiversifyitsportfolio
throughacquisitions,itmakessurethatitisexpandingintofieldswherethecompanyhasexpertise
aftercarefulconsideration.Third,duetoitsinternationalpresence,Nestladoptsadecentralised
managementstructure.Aminimumpolicystandardisreinforcedtoensurerequisiteuniformity.By
decentralising its operational responsibility, Nestl could better adapt to the different needs in
differentregions,andthusmakingitspracticesmoreflexible.
However, despite Nestls claims, some are doubtful in regards to Nestls move into the
pharmaceuticalindustry. 40 Mijuk(2010)arguesthatwhilefoodcompanieshavetriedtoclaimthat
theirproductsarenotonlydeliciousbutalsogoodforhealth,regulatorsarenowaskingformore
scientificsupporttotheseclaims.Undersuchcircumstance,Mijuk(2010)isdoubtfulastowhether
Nestl would be able to scientifically prove that its products can help treat diseases such as
diabetesor Alzheimers,withwhich pharmaceuticalcompanies havestruggledtodo. Inaddition,
many of the claims that derive from scientific tests may not be entirely trustworthy or mature
enough.Also,itisverylikelythatotherfoodcompanieswillfollowNestlsstepsandbegintosell
theirproductsunderthehealthlabel,whichwillinturnbringmorecompetition.ThereforeifNestl
would like to maintain its position as a leader, the company will need to prove that it has the
capacitytosucceedinboththefoodandpharmaceuticalindustries.
Ontheotherhand,whilesteepincreasesinputcostswereexpectedfor2011,Nestlbelievesthat
it could benefit from its global spread and offset these increasing costs through its sales in
emerging markets. 41 Consumption rate in emerging markets are expected to grow in spite of
escalating food price. Nestl has a strong presence in emerging markets and its underlying sales
growth in these markets was 11.5 percent in 2010. In addition, prices for the popular products
includingNescafeandNespressocouldbefurtherraisedtobalancetherisingcosts.

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IUFDairyIndustryResearch [Nestl]

2. StrengthsandWeaknesses 42
There are various commonly acknowledged strengths for Nestl. It could be seen from
internationalcomparisonreportsandthecompanysprofilethatisrecognizedasoneofthelargest
andmostpowerfulfoodproducersworldwide,withfactoriesandoperationsin115countries. 43 It
alsohasadiverseportfolioofproductsthatrangefromicecreams,chocolate,petcarenutrition,
beverages to infant formula. This allows Nestl to have a powerful brand positioning within the
market.
Besides expanding its activities internationally, Nestl has also established various joint ventures
withotherprominentglobalcompanieslikeCocaCola,GeneralMillsinthefoodindustry,LOrealin
thecosmeticsindustryandFonterrainthedairyindustry.TheseventureshaveenabledNestlto
gainfurtherknowledgeandresourcesthatcouldsupportitspracticesaswellasfurtherextendits
internationalnetworks.
Ontheotherhand,anumberofweaknesseshavealsobeenidentifiedforNestl.First,inorderto
transportingredientsandproductsinternationally,thecompanyhastocopewithhighlogisticcosts
as well as storage issues. Second, due to its international spread and diverse portfolio, the
effectiveness of decision making and coordination between country specific sites and the
headquarters could decrease. Third, while Nestl is actively promoting innovation and new
products,someinventionsorproductsmaynotbeunderstandableorsuitedindifferentregionsor
countries.
OneexampleofsuchmismatchbetweenNestlsproductandconsumersinterestisthefailureof
LC1Go!inEuropein2001.LC1Go!isafermenteddairydrinkthatoffersdigestivehealthbenefits
and Nestl initially believed that its launch would further strengthen the companys position in
Europe.YettwoyearslatertheproductwaswithdrawnfrombothFranceandtheUnitedKingdom,
whichweretwoofEuropesthreelargestmarkets.Heasman&Mellentin(2001)suggestthatbeing
the worlds largest food company, Nestl and its Research and Development (R&D) centres
definitelyhavethepotentialtoalsosucceedasafunctionalfoodcompany. 44 Yetthecompanys
market performance did not reflect such capacity. Heasman & Mellentin (2001) point out that
priceoftheproductisnotbeblameandattributethisfailuretotheHeasman&Mellentin(2001)
brand itself, which is usually associated with icecream and desserts rather than health or
functionalfood,aswellasthegapbetweenitsR&Danditsmarketingstrategy.Thedisconnection
between Nestls R&D and marketing team has hindered the ideas from being effectively
translatedtothemarket.Therefore,asthecommentarysuggests,Nestlsmarketingteamwould
needtolearnandovercomethenewchallengesofnutritionalmarketingbeforethecompanycould
succeedinitsfunctionalfooddivision.
3. SustainabilityEfforts
In the past decade, Nestl has actively established a green and charitable public image through
engaging in partnerships and projects that promote environmental sustainability and community
development.

45

Examples of these involvements include the formation of the World Cocoa

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IUFDairyIndustryResearch [Nestl]

Foundation in 2000, which was a membership based company that promotes sustainable cocoa
farming. 46 AsafoundingmemberintheInternationalCocoaInitiative,Nestlisalsodedicatedto
eliminatingunethicallabourincocoagrowing. 47 Furthermore,followinganumberofconsecutive
years in which cocoa supply has fallen, Nestl announced in October 2009 that it will invest CHF
110million to its Cocoa Plan, which aims to achieve sustainable cocoa supply in the next decade
throughreplacingthelessproductivecocoatreeswithnewandhealthierplantlets. 48 Blas(2010)
approvesNestlsinitiativeandhowitsexecutivesrealisethatthereisnothingelseotherthanroll
uptheirsleevesandstartworkthatcouldresolvecurrentshortagesofcocoasupply.
Afterasocialmediabacklashitexperiencedin2009,Nestlhasfurthersteppedupitsinvestment
in sustainability by partnering with The Forest Trust, which is a nonprofit group that assists
businessandenterpriseswithenvironmentallysustainableforestharvesting.Thispartnershipaims
toreducethesocialandenvironmentalimpactsofitssupplychain,includingNestlsuseofpalm
oil,whichhascontributedtodeforestation.Thisissuewillbefurtheroutlinedinthefifthsection. 49
4. CriticismGreenwashing 50 51 52
Despite the clean green image that Nestl has been trying to promote, it has faced a wave of
criticism that is directed to its advertising campaign in October 2008. Following a fullpage
advertisement, which claimed Nestls bottled water to be a product that brings numerous
ecologicalbenefitsandthemostenvironmentallyresponsibleconsumerproductintheworld,a
coalitionofenvironmentalgroupsincludingFriendsoftheEarthCanada,thePolarisInstitute,the
CouncilofCanadians,WellingtonWaterWatchersandEcojusticefiledacomplaintagainstNestlto
theCanadianCodeofAdvertisingStandards.
Laterinthemonth,Nestllaunchedapressreleaseandvideowebsiteintheattempttoconveyto
thepublicthatbottledwaterisanefficientchoicefortheconsumersandnumerousothervirtues
ofbottledwater.Itinsiststhatplasticwastesonlyrepresentlessthanonepercentofallsolidwaste,
bottledwaterhaslowassociatedcostsaswellasalighterenvironmentalimpact.
Yet many consumers did not buy into Nestls claims. In her opinion piece, Arena (2009) listed
researchoutcomeascounterargumentstocontrovertNestlsmessage.Shereportsthataccording
to Food and Water Watch, 47 million gallons of oil are required to produce the plastic used for
bottledwater,whichinturngenerates1.5milliontonsofplasticwasteperyearoncethesebottled
aredisposed.Moreover,over80percentofplasticbottlesarenotrecycledandinsteadendupin
landfills.Inaddition,intermsofcosts,asmuchas40percentprofitisaddedontopoftheactual
input cost of the bottled water. On top of this, Bell (2010) also reports concerns in regards to
Nestltappingspringsinpristineruralareasandsellingproductstounderdevelopedcommunities
afteramarkedupprice. 53
Arena(2009)believesthatNestlhasapublicrelationsproblemwhichismuchmoreseriousthan
signsandcatchphrasesagainsttheirproducts.ShesuggeststhatNestlespublicrelationsproblemis
its sterile, detached response and the assumption that consumers will accept its onesided
communication. By doing so, Nestl is defying cardinal rules of social media, engagement of

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IUFDairyIndustryResearch [Nestl]

stakeholderandtransparency,andthusitisdifficultforstakeholderstointeractwiththecompany,
expresstheirownopinionsorleaveacommentthatisagainstthecompanysclaims.Subsequently,
thisadvertisingcampaignofNestlhasbeenreferredtoasgreenwashing.
5. PalmOilControversyandSubsequentSocialMediaDispute
A campaign launched by Greenpeace in March 2010 brought public attention to rapid
deforestation in Borneo and other regions due to hardwood harvesting and oil palm plantations.
Thishascausedmassivereleasesofcarbondioxideintotheatmosphereanddestroyedthehabitat
foranimalssuchastheorangutan.AsNestlwassourcingpalmoilfromthecompaniesthatare
causingthesedeforestationtomanufactureproductssuchasKitKat,thecampaignalsotargeted
Nestlsroleinthenegativeenvironmentalimpact. 54
This campaign has led to a large number of negative comments being left on Facebook and
consumerswerecriticaltowardsNestlsbusinesspractices.Anegativevideocommercialaswell
as an altered version of KitKat logo (which reads Killer rather than KitKat) posted by
Greenpeace were quickly shared across the web by thousands of protesters. In response, Nestl
hasquicklysetupaQ&ApageonFacebookthatcoversthepalmoilissue.55 Also,ithasattempted
toengagewiththeissue byasking GooglesYouTubevideositetoremovethevideocommercial
and informing Facebook users that their comments that included the altered logo would be
removed, in reference to copyright infringement. Yet these actions further incited social media
usersandweremetbyevenmorefuriouscriticismwhilethevideocontinuedtospreadonline.56
TwomonthsafterGreenpeacescampaign,NestlinvitedTheForestTrust,anotforprofitgroup,
toaudititssupplychainactivitiesandpromisedtoterminatecontractswithanycompanythatare
producing palm oil through deforestation. 57 The Forest Trust will monitor Nestls activities by
visitingitsplantationsandcheckingthatNestl'ssuppliersmeetasetofstandardsoutlinedbythe
two organisations. On top of this, Nestl also promised that it will be sourcing 100% sustainable
palmoilby2015. 58
InacommentarypublishedbyBowenCraggs&Co.Ltd(2010)itissuggestedthatinresponseto
thisincident,Nestlshouldhavebeenmoredecisiveinregardstothestrategythatitisgoingto
useratherthandiscussingwithasocialmediaagency.Also,theauthorsofthiscommentarybelieve
thatNestlshouldhaveabandoneditsFacebookpageassoonasitrealisesthatthecompanyisno
longerincontrolofit,asthiswillleaveitscriticsnothingtooppose. 59
6. IUFNespressureCampaign 60 61 62
In June 2009, The IUF and the Swiss union UNIA organised a joint press conference in Bern to
launchthe"StopNespressure"campaigninSwitzerlandandcallonNestltoStoptheNespressure
andrespectfundamentaltradeunionrights.IUFpointedoutthatNestlhadseriouslyviolatedthe
rights of its employees through various corporate actions, including instant closure of factories,
massredundancies,illegaldismissals,restrictingtradeunionrights,andwagediscrimination.Since
2007, the union at Nestl's Nescaf factory in Panjang, Indonesia had been struggling to include

19

IUFDairyIndustryResearch [Nestl]

wages in collective bargaining as well as the wage scale in the Collective Bargaining Agreement.
Nestl management refuses, saying it is not company policy to negotiate wages and that wage
scalesare"confidential".

ThecampaigncametoaconclusioninMarch2011,withasettlementreachedbetweenNestland
IUF,bringingrecognitionandbargainingrightstotheIUFaffiliatedSBNIPattheNescaffactoryin
Panjang, Indonesia. The agreement, which was initialed by the IUF and Nestl corporate
managementonMarch28,2011andsignedbytheunionandlocalNestlmanagementonMarch
31, 2011, sets the stage for the SBNIP to bargain the Panjang workers' collective agreement
includingthewagebargainingwhichNestlmanagementhadbeensteadfastlyrejectingforyears.

7. BriefConclusion
It is clear that while Nestl is at a leading position within the industry, it is still facing various
challenges.Similartoalllargecorporations,ensuringeffectiveinternalcoordinationandtranslation
of messages across different divisions and geographical regions require much effort, and this is
illustratedbythefailureofLC1inEurope.Ontheotherhand,acommonissuethatemergedfrom
the commentaries is the validity and reliability of Nestls advertisements. Should it be the
sustainabilityoftheuseofplasticbottlesortheextenttowhichNestlsfoodproductscanbenefit
consumers health, the company needs to make sure that the claims made for its products and
practices are wellsupported if it wishes to maintain its reputation and popularity. As consumers
nowadays are increasingly concerned with global issues, including both environmental
sustainabilityandhumanrights,Nestlwillneedtocarefullymanageitsactivitiestoensurethatit
couldmaintainthegreenandsociallyresponsibleimagethatithasbeentryingtoestablish.

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IUFDairyIndustryResearch [Nestl]

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