Nestle (China) Ltd in Hot Drinks (China)

STRATEGIC DIRECTION
¦ Nestle is the world’s leading nutrition, health and wellness company. Considering the Greater China region is Nestle’s second largest market, annual capital investment in the Chinese market is expected to reach billions of renminbis in the forecast period, of which RMB500 million will be used for expanding the ice cream business in Guangdong. Nestle (China) Ltd will build two new research and development centres in Xiamen and Dongguan.
¦ Nestle is the world leader in hot drinks through its key brands Nescafe, Nespresso, Nesquik and Milo. Meanwhile in China, Nestle also leads in hot drinks where its key brands have recorded an outstanding performance. The company’s mission of “Good Food, Good Life” aims to provide consumers with the best-tasting, most nutritious choice in a wide range of food and beverage products. In the forecast period, the company will continue to make efforts in new product development and lead in product innovation for the entire hot drinks competitive landscape.
KEY FACTS
Summary 1 Nestle (China) Ltd: Key Facts
Full name of
company: Nestle (China) Ltd
Address: 9th Floor, Building B, LSH Plaza, No 8 Wangjing Street, Chao Yang District, Beijing,
China 100102 Tel: +86 (10) 8434 7888
Fax: +86 (10) 6433 1868
www: www.nestle.com.cn
Activities: Manufacturer and distributor of dairy, nutritional foods, bottled water, sauces and
dressings, cereal products, coffee, concentrates, RTD tea, confectionery, ice cream, pet food
Source: Euromonitor International from company research
COMPANY BACKGROUND
¦ Nestle (China) Ltd is a foreign-owned enterprise, a subsidiary of Nestle SA. In 1908, Nestle initiated its first trading office in Shanghai. In 1990, Nestle established its first joint venture in China with a local company. In order to serve the entire country, Nestle opened its corporate head office in Beijing in 1996, to operate manufacturing and sales in China. At the end of the review period, Nestle in Greater China operated 33 factories.
¦ Nestle (China) Ltd’s business portfolio covers most of the food and beverage categories, including soft drinks and hot drinks, chocolate and confectionery, ice cream, baby foods, consumer health, culinary food, pet care and foodservice. Within soft drinks and hot drinks the company’s offerings include bottled water, coffee, cereal/pulse-based drinks and concentrates. In addition, Nestle has invested in coffee growing in Yunnan Province and fresh milk collection in Inner Mongolia, Shandong and Heilongjiang Provinces.
¦ Nestle (China) Ltd has a sales network consisting of 59 sales offices in 53 cities with national coverage. There are three Nespresso direct selling stores in Beijing, Shanghai and Chengdu. Nestle has a wide range of distribution networks throughout China via all leading grocery retailers. Nestle’s food and beverages are usually allocated the best shelf positions in most grocery outlets, such as supermarkets, hypermarkets and convenience stores. Besides the traditional sales channels, its online Nestle Tmall Flagship Store achieved a good sales record during the review period. The online shop
continuously engaged in promotional activities to attract consumers. In addition, joint ventures like Hsu Fu Chi and Yinlu have large distribution networks in China, which helps Nestle cover every corner of China.
¦ In October 2013, Nestle introduced its Nescafe Dolce Gusto coffee machines to China for the first time, with six kinds of coffee flavour capsules including latte macchiato, cappuccino, black coffee, espresso, chocolate milk and Hong Kong-style milk tea. Nescafe Dolce Gusto has a 15-bar pressure pump similar to those used in cafe coffee machines, which helps to produce a layer of frothy milk to create the perfect macchiato or cappuccino. The release of Nescafe Dolce Gusto in China helps Nestle generate a young and fashionable image which makes the company more attractive to young consumers.
PRODUCTION
¦ Nestle (China) Ltd has been expanding the production capacity actively. Through July 2013, Nestle (China) Ltd had established partnerships with Yinlu, Hsu Fu Chi, Totole, Wyeth Nutritionals, Haoji and Da Shan Water, and it operated 33 factories. It built three new factories in 2013, namely a water plant with 280,000 tonnes capacity in Jixian in Tianjin Province, a coffee plant with 120,000 tonnes capacity in Laixi in Qingdao Province and the Yinlu food processing plant with 900,000 tonnes capacity in Chuzhou in Anhui Province.
¦ About 99% of Nestle products sold in China are locally manufactured, except for some coffee, baby food and pharmaceutical products. For example, Nespresso coffee pods and machines are imported from Switzerland, and some baby food products are imported from Switzerland, Germany and France. Most of the company’s local production services the Chinese market, and the exported products mainly focus on some culinary foods of the Maggi brand. They are exported to 16 countries and regions, such as North America, Europe, Japan and Australia.
¦ The majority of Nestle (China) Ltd’s products are manufactured by its own factories. Since Beverage Partners Worldwide withdrew from the Chinese market in 2012, Nestle (China) Ltd has sought out other OEMs for Nestle Icy Tea Drinks.
COMPETITIVE POSITIONING
¦ The off-trade value share of Nestle in hot drinks was 7%, ranking it in first place in 2013. As one of the largest hot drinks manufacturers in China, Nestle showed very strong competitive power in coffee and other hot drinks. Its strong research and development and innovation capability, high brand awareness and wide sales network helped Nestle (China) Ltd show good market presence.
¦ The market share of Nestle (China) Ltd increased during the review period. Since 2012, Nescafe has changed its previous “warmth” theme and instead started the new marketing communication strategy with the idea to “live out your boldness”, to encourage young people to communicate with others through sharing coffee with them. In its marketing platform, in addition to traditional media, Nescafe innovatively started social media channels, to interact with the young consumer groups and listen to their concerns.
¦ Nestle (China) Ltd set up very comprehensive distribution coverage, including the fastest-growing and emerging channels, which guarantees the products’ availability. In almost all channels, Nescafe occupies more than 50% of the coffee shelf space. Therefore, Nescafe is always the first coffee brand to attract consumers’ eyes.
¦ Nestle (China) Ltd has a wide product portfolio and customer base. Firstly, it provides the right products and solutions in-home and out-of-home for customers. For example, consumers can drink fresh ground coffee or Nescafe Gold at home. Meanwhile in the office, consumers can enjoy its instant coffee. Secondly, it has been adapting product tastes and formats to local preferences – for example, Nesvita cereal-based drinks and the peanut and milk drinks from the acquired brand Yinlu are traditional drinks for Chinese consumers.
¦ Overall, Nestle (China) Ltd provides comprehensive ranges of products to match all income levels and positions different brand variants to different markets. Specifically, Nespresso coffee pods and coffee pod machines, Gerber puffs, Perrier bottled water and Fitness cereal-based drinks are targeted for the high-end market. Nescafe Gold coffee and Nestle Milo concentrate drinks are targeted for the
middle- and high-end market. Nescafe 1+2 coffee, Nestle Pure Life bottled water, Nestle Icy Tea drinks, Nestle C+ concentrate drinks, Nesvita, Hsu Fu Chi and Yinlu are aimed at the middle- and low-end market. These actions help Nestle build a stronger customer base and increase the cross-sales between different consumer groups, which will promote sustained sales growth.
¦ Nestle (China) Ltd is typically a leader in terms of market innovation. It has two research and development centres in Shanghai and Beijing, and will build two more centres in Xiamen and Dongguan. The research and development centres provide solutions for Chinese consumers’ special needs in nutrition and taste, and keep updating the food technology, processing and packaging.
Summary 2 Nestle (China) Ltd: Competitive Position 2013
Product type Value share
Coffee 73.5%
Other hot drinks 0.8%
Hot drinks ^6.7%
Source: Euromonitor International from company research, trade sources, trade interviews
make analysis for the cases by using the points mentions dounw and make font size 7
Guidelines for Conducting Case Analysis

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External Analysis– Porter’s Five Forces:
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Internal Analysis:
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Key Success Factors…………………………………………………………………………

Alternatives (Strategic Choice of Business Strategies and Corporate Strategies)

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Action Plan……………………………………………………………………………………

Contingency Plan …………………………………………………………………………….

References..…………………………………………………………………………………

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