Strategic Evaluation Nestle

STRATEGIC EVALUATION Nestle SA

SWOT Analysis

Strengths

Broad geographic coverage - Nestlé is the leading player in hot drinks in every regional market, except North America (in which it ranked sixth in 2007), insulating it against downturns in particular markets.

Global leader in instant coffee - the company has a clear global lead in the important coffee sector, which is growing significantly in emerging markets, accounting for 21% of global value in 2007.

World number one in other hot drinks - Nestlé's portfolio of chocolate and malt milk products have established it as the leading player in global other hot drinks, in which it held a 23% share in 2007.

Strong brand portfolio - the company's hot drinks portfolio includes a number of high-recognition brands supported by considerable marketing and research and development resources, including Nescafé, Nesquik and Milo.

High levels of research and development expenditure - Nestlé's high levels of investment in research and development offer significant opportunities to develop its operations beyond the Nestlé Nutrition division, including hot drinks.

Solid financial base - Nestlé has a number of cost-savings programmes (notably GLOBE) in place and as a result, has been able to place itself in a position where it is able to afford sizeable investment in brand development.

Capacity to pass on costs - Nestlé's size and marketing power enable it to pass on a significant proportion of the rising costs resulting from increasing coffee and cocoa prices to retailers and consumers. Moreover, the economies of scale and synergies available to the company increase its capacity to make internal cost savings to offset the remainder of the increases.

Weaknesses

Reliance on mass market - the mass-market positioning of Nestlé's core hot drinks brand, Nescafé, presents significant difficulties in terms of tapping into the growing demand for premium coffee products.

Limited presence in tea - Nestlé has developed only a minimal presence in tea, a sector which is benefiting notably from the rise in consumer health-consciousness and would therefore seem to fit with the company's efforts to reposition itself as a health-orientated manufacturer.

Increasing bias towards low-margin products - the relatively strong growth registered by emerging markets, where the company is largely represented by lower margin brands, is negatively impacting Nestlé's beverages' operating margin. Meanwhile, higher margin Western European markets are being hit by challenging trading conditions.

Bias towards caffeine-based products - Nestlé's hot drinks portfolio is biased towards products containing caffeine, a substance which has gained a negative image amongst many health-conscious