SWOT Analysis

SWOT Analysis of Nestle

by Prithiraj Prodhan

Nestle has been one of the largest FMCG companies in the world. With the objective of making good nutrition accessible and affordable to everyone, the company has been dominating the global FMCG industry for over 150 years. Nestle has developed some key internal strengths to sustain in the market for this long time. When the FMCG sector is highly volatile and extremely competitive, the company succeeded in overcoming most issues to come to the position it is in. Nestle’s success is an example for other businesses and strategic management learners. The article will do a SWOT analysis of Nestle to discuss the strengths the company has developed, the weaknesses that hinder its growth, and the threats & opportunities laid ahead to impact its future path.

Related Reading: Nestle Competitive Advantages
Nestle Competitors' SWOT: PepsiCo | Coca-Cola

Strengths of Nestle

In this long journey of Nestle, the company has experienced all the aspects of the FMCG sector and made itself a renowned name in the global market. Its core strengths like its diversified product lines, strong brand image, wide distribution systems help the company stay on the top list and be a contributor of “Good food, Good life.” This part of the discussion will focus on the strengths of Nestle.

  • Well-diversified brand portfolio: Nestle has over 2000+ brands in its portfolio in different categories. Its product portfolio covers every food and beverage category. [1] The company offers products and services for all stages of life. Some of its brands are globally renowned, and some are strong in local geographies. This well-diversified portfolio allows the company to grow continuously and expand into new areas.
  • Continuous innovation: The R&D of Nestle is really strong and innovative. Over the years, it has made it possible for the company to deliver consumer-centric products and services properly. Constant innovation by its R&D department is helping Nestle cope up with changing consumer behaviours and meet their modern need.
  • Efficient Global distribution:  As of now, Nestle has a presence in 186 countries, 376 factories in 81 geographical areas. [1] To manage these vast operations and distribution, it has decentralized the distribution system, and each country has its own ways and strategies. This localized approach has made the company capable of maintaining good relationships with its dealers, retailers, employees to reach the ultimate consumers worldwide.
  • Worldwide brand recognition: Nestle’s brands have created a strong image worldwide. Consumers recognize its products as reliable, credible and they’re loyal to these brands. This gives the company a competitive advantage and more scopes to introduce new brands and products as growth strategies. Especially in the health and nutrition sector, brand image matters the most, which Nestle has developed over the years by providing superior value.

Weaknesses of Nestle

Like all other business entities, Nestle has its own limitations and internal shortcomings. These factors conflict with the activities and make it difficult for the company to utilize its resources efficiently. The worldwide awareness against the use of plastics, the conflict between the brands of Nestle, less return from most of the brands and over-dependence on marketing campaigns are some major issues that need to be resolved by the company. Let’s discuss the weakness of Nestle in detail.

  • Brand conflicts: Nestle has developed numerous brands that are battling in the market to gain consumers. Some of its brands are of the same product category but different in names. The issue of having multiple brands for the same kinds of products creates external rivalry. This conflict ultimately leads to confusion among the consumers.
  • Less return from unpopular brands: The biggest portion of the revenue comes from popular brands Nestle, while most of the brands fail to ensure greater returns. Among 2000+ brands, only a few could establish names in the global arena.This weakness questions the company’s long-term growth and sustainability.
  • Dependence on marketing campaigns: Nestle has to depend on marketing campaigns to prevail over the competitors and increase sales. The organic growth of its brands is not seen conspicuously. This huge marketing expenditure either makes the products costlier, or the company needs to cut its profit margin. In the competitive FMCG market, organic growth is more sustainable and effective.
  • Plastic issues:  Nestle uses plastics for the packaging of most of its products. Its contribution to environmental pollution is disdained by the environmentalists, which is highly alarming for the company’s brand image. The worldwide awareness against the use of plastics and regulations by different authorities and governments will disrupt Nestle’s operations if it fails to eliminate its dependence on plastics.

Opportunities for Nestle

There are opportunities in the market that Nestle can avail and go further with its business. The growing income of people, rapid digitalization, need for alternative products, and people’s health consciousness are some key opportunities the company can be benefitted from and explore to enter into new market spaces.

  • Demand for Plant-based products: According to some estimation, there are 1.5 billion vegetarians in the world, and the number will only increase gradually. [2] Nestle already has innovated plant-based products for its consumers as alternatives to traditional goods. This increasing demand for plant-based alternatives possesses huge potentials for the company to grab.  
  • Growing income: People’s income is growing, and living standards are improving. This leads to more demand for consumer goods and also premium products. Due to the rapid urbanization and modernization in the 2nd and 3rd world countries, the demand for health and nutritional products is increasing. Therefore, penetrating these markets with health and nutritional products would be extremely beneficial for the company.
  • Health consciousness of consumers: People are now more aware of their health and sanitization than ever due to the pandemic. Nestle can grab this opportunity as most of its products are beneficial for health. It would be easier for Nestle to develop new health or sanitization-related brands to position those in the consumers’ mindset.
  • Use of digitalization: The revolutionary change in the digital world and increment in the use of digital mediums have opened new avenues for the company. People have become more internet-centric and dependent on online mediums. Nestle can take this opportunity to reach more consumers using digital marketing strategies at less cost. Focusing on online sales channels will also help the company minimize intermediaries and overall costs.

Threats for Nestle

Outside of Nestle’s internal environment, some critical issues threaten the company’s business. If such issues are not resolved, Nestle might become a victim of such threats stagnating its growth. The shift in consumer behaviour, rise of local and global competitors are the key threats for Nestle. Let’s analyze these factors.

  • Volatile consumer behaviour: The behaviour of FMCG consumers is shifting into some new norms that are unpredictable and tough to cope up with. If Nestle fails to deliver the value consumers want, the competitors will capitalize on these lacking and snatch away market share easily. So, the company must be vigilant to tailor its offerings just according to consumer needs to tackle such issues.
  • Cut-throat competition: The global FMCG companies like Unilever, Marico, P&G, JBS are competing ferociously in almost all of the markets Nestle has a presence in. this extreme competition has led these companies to take too many promotional campaigns to penetrate the markets. This practice is harmful to companies like Nestle and makes them lose control over cost to sustain in the market.  
  • Products are Easy to imitate: The products Nestle produces are easy to imitate. Due to the lack of government regulations, local manufacturers of some countries are imitating the products of Nestle and selling at a lower price. The quality of such products is not up to the mark. This kind of unethical practice threatens Nestle’s brand image in some countries.
  • High Bargaining power of consumers: The cost of switching FMCG brands is very low for the consumers. Besides, there are many alternative options for them to choose from. If the company fails to maintain quality or gets exposed to any kind of issues like the one it faced in India about Maggi, in such cases, it will lose its credibility in the market and ultimately consumers-base.

Recommendations for the company

Nestle’s product portfolio is already diversified, and thousands of its brands dominate worldwide. But as we discussed earlier, it depends on the top brands for revenues which should be minimized for further growth. Using digital mediums would be the best solution to market its other brands properly. Especially, the emerging countries should be the company’s focus to strengthen its health and nutrition brands. The R&D of the company should utilize its strengths to reduce the use of plastics in packaging and innovate more plant-based products to grab the market opportunities as well as tackle the threats. Thus, Nestle can boost its business to the next level.

Sources Used To Conduct This Analysis

  • https://en.wikipedia.org/wiki/Nestl%C3%A9
  • Nestle, annual Report – 2019 & 2020
  • Forbes Magazine
  • http://www.forbes.com/sites/levelup/2016/12/05/too-good-to-be-true-nestle-is-promising-same-great-kit-kat-taste-with-less-sugar/#1c69a2a09362
  • en.wikipedia.org/wiki/List_of_Nestl%C3%A9_brands
  • The company website; https://www.nestle.com/aboutus/overview
  • Researchgate;https://www.researchgate.net/publication/254412281_An_Estimate_of_the_Number_of_Vegetarians_in_the_World