Nestle India Strategies

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					Strategic Management: Report I,II &
                  III
 Study of Food processing industry –
           Nestle India Ltd.

                          Section C, Group 8
                       Dasharadi Keerthi Krishna 13130
                   Karthick Prakash Balakrishnan 13139
                                 Lalthanzoa Sailo 13142
                              Mittul Kirtan Desai 13146
                              Prateek Rahul Arya 13156
                                Siddhartha Singh 13165
                       Table of Contents
Title                                    Slide No
Report I                                 5
Food Processing Sector                   6
Processed Food Market                    12
Regulation and Control                   14
Roles of Ministry of Food Processing     17
Industry
Present Status and future prospects of   22
food processing Industry
Main Products                            30
Competitive Landscape                    31
Success Factors                          35
Background of Nestle                     37
Product Categories                       43
Sales                                 48
Financial Performance                 49
Merger                                50
Acquisition                           53
Ventures                              55
Competitors                           58
Market Share                          60
Target Customers                      61
Where are we looking at?              62
Report II                             63
Ratio Analysis                        65
Nestle Strategy                       92
What Nestle has done over the years   96
Heinz Strategy                        99
HUL Strategy               100
Top Ramen Strategies       103
Cadbury Strategies         105
Britannia Strategies       107
Kwality Dairy Strategies   108
SWOT Analysis              109
Growth                     114
Report III                 118
Porter’s Five Forces       119
Degree of Rivalry          120
Barriers to New Entry      122
Supplier Power             125
Buyer’s Power              126
Threat of Substitutes      127
Rivalry                    128
Barrier’s to entry                    134
Bargaining power of supplier’s        136
Bargaining power of customer’s        137
Analysis of Nestlé's strategies       138
Mergers and Acquisitions              146
Analysis of Competitor’s strategies   155
GlaxoSmithKline                       156
Cadbury India                         163
Britannia India                       170
REPORT I
       Food Processing Sector – An
              Introduction
• Food processing involves any type of value
  addition to the agricultural produce starting, the
  post harvest level.
• The processed food industry provides safe
  convenience foods to consumers, and promotes
  diversification and commercialisation of
  agriculture by providing effective linkages
  between the farmer and consumers in both
  domestic as well as international markets
              Types of Processing
• Primary Processing: cleaning, grading, powdering
  and refining of agricultural produce, e.g., grinding
  wheat into flour.
• Secondary Processing: basic value addition, e.g.,
  tomato-puree, ground coffee, cleaning and
  processing of meat products.
• Tertiary Processing: high value addition products like
  jams, sauces, biscuits and other bakery products that
  is ready for consumption at the point of sale.
     Food Processing Sector in India
• India ranks first, globally, in the production of milk
  and pulses and second in the production of tea,
  fruits and vegetables.
• Despite being a major food producer, India's share in
  world food trade is less than 2 per cent.
• At present, just 6% of the food-items produced in the
  country India are processed in contrast to the
  developed nations where 60% to 80% of the food
  items are processed. While the sector grew at an
  impressive 14.7% in 2008-09 despite the global
  slowdown.
• In recent years, however, the market for branded
  processed food products has expanded. As per a
  study conducted by McKinsey and the Confederation
  of Indian Industry The total food market turnover is
  over Rs. 2,500 billion (US$ 69.billion). Of this, value-
  added food market comprises Rs. 800 billion (US$
  22.2 billion).
• Growing at about 14%, the processed food industry
  has started attracting increased investment to cater
  to both, the domestic and export demand. The food
  processing industry contributes around 10% to
  India’s manufacturing GDP and 13% of the country’s
  export.
• The industry employs over 16 million workers
  directly and has a wide scope covering activities such
  as agriculture, horticulture, plantation, animal
  husbandry and fisheries. It also includes other
  industries that use agriculture inputs for
  manufacturing of edible products.
• The country’s highest authority - The Prime Minister
  expects the National Food Processing Policy to the
  necessary boost to the sector.
• Packaging of food products has become important to
  ensure safety and hygiene.
• In India, most foods are consumed in the fresh form
  and a small quantity is processed for value addition.
        Processed Food Market


•   Packaged food products
•   Dairy, fruits and vegetables
•   Grains
•   Meat and poultry
•   Fisheries
•   Consumer foods including packaged foods,
    beverages and packaged drinking water
                     Beverages
• Alcoholic Beverages        • Soft Drinks
   –   Beer                      –   Carbonated beverages
   –   Wine                      –   Fruit/vegetable juices
   –   Spirits
                                 –   Bottled water
   –   Flavoured beverages
                                 –   Functional Drinks
                                 –   Ready-to-drink concentrates
• Hot Drinks
                                 –   Ready-to-drink teas
   – Coffee
   – Tea
   – Other drinks
        • Chocolate based
            Regulation & Control
•As per extant policy FDI up to 100% is permitted under the
automatic route in the food infrastructure (Food Park, Cold
Chain/warehousing).
• In so far as food retail is concerned the FDI policy does not
permit FDI into Retail sector except Single Brand Product
Retailing. This policy is uniform for all retailing
activity.
 Regulation & Control - continued
• FDI policy for manufacture of items reserved for the SSI
sector is uniform for all items so reserved and a separate
dispensation for items in the food-processing
sector is not contemplated.
• The policy for distillation of alcohol has been
announced vide Press Note 4 (2006) according to which
FDI up to 100% is permitted on the automatic route for
distillation & brewing of alcohol subject to licensing by
the appropriate authority.
 Regulation & Control - continued
Policy Support
•Formulation and implementation of policies for food
processing industries within overall national priorities
and objectives.
•Facilitating the creation of a conducive policy
environment for healthy growth of the food-processing
sector.
•Promoting rationalization of tariffs and duties relating
to food processing sector.
 Roles of Ministry Of Food Processing
              Industry
The strategic role and functions of the Ministry fall under
three categories -

1) Policy support developmental & promotional
2) Technical & advisory
3) Regulatory.
 Roles of Ministry Of Food Processing
              Industry - continued
•It is concerned with the formulation & implementation of
policies and plans for all the industries under its domain
within the overall national priorities and objectives. Its
main focus areas include -- development of infrastructure,
technological up gradation, development of backward
linkages, enforcement of quality standards and expanding
domestic as well as export markets for processed food
products.
 Roles of Ministry Of Food Processing
              Industry - continued
•The Ministry acts as a catalyst and facilitator for attracting
domestic & foreign investments towards developing large
integrated processing capacities, by creating conducive
policy environment, including rationalization of taxes &
duties. It processes applications for foreign collaborations,
Export Oriented Units (EOUs) etc. and assists/guides
prospective entrepreneur in his endeavour.
   Roles of Ministry Of Food Processing
                Industry - continued
Developmental
•Assistance under various plan schemes.
•Widening the R&D base in food processing by involvement of
various R&D institutes and support to various R&D activities
relating to development of product, process and packaging
with special emphasis on traditional technologies.
•Human resource development both for entrepreneurs as
well as workers engaged in the food processing industry by up
gradation of their skills.
   Roles of Ministry Of Food Processing
                Industry - continued
Promotional
Assistance for organization of workshops, seminars,
exhibitions and fairs etc.
Assistance for studies / surveys etc.
Publications and films.
Regulatory
Implementation of Fruit Products Order (FPO)

(Source:
http://mofpi.nic.in/ContentPage.aspx?CategoryId=116)
 Present Status and Future Prospects of
   Indian Food Processing Industries
•No industrial license is required for almost all of the food
& agro processing industries except for some items
• Items reserved for S.S.I. include pickles & chutneys,
bread and confectionery
• Up to a maximum of 24% foreign equity is allowed in SSI
sector and Use of foreign brand names is now freely
permitted.
•With an estimated population of over 1.1 billion, rising
disposable incomes, exposure to western lifestyle,
increase in the population of working women and
prevalence of nuclear double income families,
especially in urban areas

• India is rapidly becoming a key market for processed,
ready-to-cook and ready-to-eat food

•Economic growth has altered the structure of the
labour force in urban areas characterized by increased
female participation with important consequences for
the family diet.
•The consumption of readymade meals, or foods that
cut the long preparation time of traditional dishes, have
increased and are likely to be a more common feature
of the diet for families where there is a high female
participation rate.

•This is expected to increase demand for processed
food products, giving a boost to the domestic food-
processing industry, and providing opportunities for
increased imports of processed foods and food
ingredients.
• The food processing sector is highly fragmented
  industry, it widely comprises of the following sub-
  segments: fruits and vegetables, milk and milk
  products, beer and alcoholic beverages, meat and
  poultry, marine products, grain processing, packaged
  or convenience food and packaged drinks.
• This segment accounts for more than 70% of the
  output in terms of volume and 50% in terms of value.
  Though the organized sector seems comparatively
  small, it is growing at a much faster pace.
• The food processing sector holds 9 % share in the total
  manufacturing sector
•Primary food processing (packaged fruit and vegetables, milk,
milled flour and rice, tea, spices, etc.) constitutes around 60% of
processed foods.

•It has a highly fragmented structure

•It includes thousands of rice-mills and hullers, flour mills, pulse
mills and oil-seed mills, several thousands of bakeries,
traditional food units and fruits, vegetable and spice processing
units in the unorganised sector.
                      Main Products
Some of the most promising sub-sectors in the Indian food industry, as
  identified by the Ministry of Food Processing:-
• Confectionery manufacture
• Fishing and aquaculture
• Grain-milling and grain-based products
• Meat and poultry processing
• Alcoholic beverages
• Milk processing
• Tomato paste
• Fast-food
• Ready-to-eat breakfast cereals
• Food additives, flavours etc.
• Fruit and vegetable products
• Animal products, meat and dairy
• Wine and beer
• Packaging machinery
          Competitive Landscape
•The food processing sector in India is multi-segmented.
•Some multinational companies and a few local players enjoy
nation-wide recognition in specific product segments.
•The unorganised sector dominates each of the above
segments, although market leadership may be vested with large
organised manufacturers.
•The government’s policy of reserving the food-processing
sector for small-scale units, effective until 1991 discouraged
large-scale domestic and foreign direct investment.
•However, following economic liberalisation in 1991, the food-
processing industry was opened, resulting in increased
investment in this sector, both domestic and foreign
•Over the last few years, several large companies, both Indian and foreign, have
invested in the food-processing business in India, resulting in significant growth in this
sector.

•Low entry barriers and apparently attractive economics of industry continuously
attract new entrants.

•Some Indian food-processing companies have increased market share by decreasing
product prices.

•Besides some product categories that enjoy country-wide consumption, high variance
in products profile, tastes and preferences has led to creation of regional niche markets
in some product categories which have been successfully addressed by regional players
and have led to a flourishing unorganised segment in the industry.

•Large number of players and largely undifferentiated nature of most products leads to
price competition, often losses, because of which staying power gives competitive
advantage.
              Success Factors
•Effective distribution network and supply chain

•Product range that is customised to suit local
market requirements

•Superior processing technology

•Brand building and marketing

•Constant re-invention of brands
•Early entry in ready-to-eat food market

•Targeting specific consumer base
         Background of Nestle
• Subsidiary of Nestle S.A, Switzerland
• Relationship with India dates back to 1912
  when it began trading as The Nestle Anglo-
  Swiss Condensed Milk Company in the Indian
  Market
• Incorporated in 1959
• Nestle S.A Switzerland holds 62 percent stake
  in the company
                    Progress
• 1962 - company’s first unit was started at Moga
  (Punjab) for manufacturing milk products, infant
  milk food, culinary products and beverages
• 1967 - second factory at Choladi, Tamil Nadu to
  produce beverages (tea)
• 1968 - went public to part finance its projects
• 1991 - entered into a joint venture floated by the
  parent company in collaboration with the BM
  Khaitan group to set up facilities to manufacture
  a range of soya based products
• 1995 - launched the world famous Kit Kat
• 2000 – entered the liquid milk market
• Between 1989 to 2006, Nestle India has
  opened 5 more plants across the country
• Nestle has been deeply involved in the
  development of its farmers’ community
• Starting its collection of milk from just 180
  farmers, it has expanded its operations to over
  85,000 farmers
            Present Scenario
• Nestle India currently has approx. 4983
  employees
• Head office is located at Gurgaon, Haryana
  with bran offices in Delhi, Kolkata, Mumbai
  and Chennai
• Factories are located in Punjab, Haryana,
  Uttarakhand, Tamil Nadu, Karnataka and
  Maharashtra
• Nestle was ranked as one of the Most
  Admired Company
• Net Sales for Third Quarter increased by 25.7%
  over 2009
• Net profit of Rs. 2185.60 for Quarter 3 as
  compared to Rs. 1827.60 of last year
• Total Income has increased from Rs. 13110.30
  to Rs. 16468.00 of last year
• Net Domestic Sales increased by 27.8%
• Due to appreciation of Indian Rupee, export
  sales have been negatively impacted
• Nestle India is one of the major food and
  beverages company who has pledged
  commitment of responsible marketing to
  children
                             Key Employees
                      Name                           Designation
Antonio Helio Waszyk               Chairman and Managing director
Pradip Baijal                      Non Executive Director
Ravinder Narain                    Non Executive Director
Rakesh Mohan                       Non Executive Director
Christian Schmid                   Director (Technical)
Name                               Designation
Shobinder Duggal                   Director
Michael W O Garrett                Non Executive Director
Richard Sykes                      Alternate Director
Swati A Piramal                    Non Executive Director
            Product Categories
•   Milk Products
•   Prepared Dishes and Cooking Aids
•   Chocolates and Confectionery
•   Beverages
                      Milk Products
•   Every Day Whitener
•   Every Day Ghee
•   Milk
•   Slim Milk
•   Nesvita Proheart milk
•   Fresh n Natural Dahi
•   Fresh n Natural Slim Dahi
•   Jeera Raita
•   Nesvita Dahi
•   Milkmaid Fruit Yoghurt
•   Milkmaid NIDO
•   Dahi
 Prepared Dishes and Cooking Aids
• Maggi
   –   Noodles
   –   Atta Noodles
   –   Cuppa Mania
   –   Healthy Soups
   –   Masala-ae-Magic
   –   Sauces
   –   Pichkoo
   –   Pizza Mazza
   –   Magic Cubes
   –   Vegetable Multigrain noodles
   –   Bhuna Masala
   –   Coconut Milk Powder
   –   Pazzta
   –   Sanjeevani Cup Soup
      Chocolates and Confectionery
•   Kit Kat
•   Kit Kat Chunky
•   Munch
•   Munch Pop Choc
•   Milkybar
•   Milkybar Choo
•   Bar One
•   Milk Chocolate
•   Polo
•   Eclairs
•   Milkybar Eclairs
•   Milkybar Crispy Wafer
                   Beverages
• NESCAFE
  –   Classic
  –   Sunrise Premium
  –   Sunrise Special
  –   Cappuccino
  –   3 in 1
• NESTEA
  – Iced Tea
  – Iced Tea with Green Tea
  – Instant hot tea mixes
                                   Sales
As on June 2008
Product Group                        % of Total Sales
Milk Products and Nutrition                             43
Beverages                                               20
Chocolates and Confectionary                            21
Prepared dishes and Cooking Aids                        16
                 Financial Performance
                                                            Values in INR Cr
                  Dec '05              Dec '06              Dec '07              Dec '08              Dec '09
                  12 mths              12 mths              12 mths              12 mths              12 mths
Sales Turnover              2,476.90             2,816.06             3,504.35             4,335.11             5,149.99
Gross Profit                 523.47               547.64               721.71               877.84              1,029.64
Interest                       0.21                 0.44                 0.85                12.66                   1.4
PBDT                          525.9               546.81               703.35               865.18              1,028.24
Depreciation                  56.84                66.28                74.74                92.36               111.27
PBT                          469.06               480.53               628.61               772.82               916.97
Tax                          159.49               165.43                214.8               238.74               261.97
Net Profit                   309.57                315.1               413.81               534.08                  655
Earnings Per
Share                         32.11                32.68                42.92                55.39                67.93
Equity                        96.42                96.42                96.42                96.42                96.42
Reserves                     257.72               292.47               322.01               376.94               484.85
Face Value                       10                   10                   10                   10                   10
Book Value (Rs)               36.73                40.33                 43.4                49.09                60.29
                Merger:
 Coca-Cola’s joint venture with Nestle.

• This global joint venture extended to India for
  ready-to-drink tea — Beverage Partners
  Worldwide.
• Coca-Cola India will start selling ready-to-drink
  iced tea under the Nestea brand soon.
• Nestea’s extension to the ready-to-drink out-
  of-home segment could drive the brand’s at-
  home sales as well.
                    Contd..
• As part of the 19-year-old global agreement
  between the two giants, the rights to
  manufacture, distribute and market the Nestea
  brand in powdered and vending machine formats
  are with Nestle, while the rights to make,
  distribute and market Nestea in glass and PET
  bottles and cartons are with Coca-Cola.
• The same brand, in different formats, will be sold
  and marketed by two separate companies in
  India.
  Competitor merges: Pepsico India’s
     joint venture with TataTea.
• The venture is on the verge of being kicked off.
• To produce non-carbonated, health and
  wellness beverages, particularly with focus on
  low-cost beverages.
• This venture, however, will not compete with
  Nestea as PepsiCo has a global alliance with
  Unilever to sell Lipton ice tea.
                Acquisition:
              Speciality Foods
• Nestlé India Board Approves Proposal To
  acquire Healthcare Nutrition Business of
  Speciality Foods
• Acquisition of the Healthcare Nutrition
  Business is aligned with and will further
  reinforce the leadership position of Nestlé
  India Ltd in Nutrition, Health and Wellness.
                   Contd..
• Speciality Foods India Pvt. Ltd is the other
  subsidiary of Nestlé S.A. in India.
• The product portfolio under the Healthcare
  Nutrition Business is meant to satisfy the
  needs of consumers with special nutritional
  requirements.
• The Healthcare Nutrition Business had
  revenue of Rs. 28.8 crore for the year ended
  March 31, 2009.
                     Ventures:
• Over the last three years, Nestle India spent over Rs
  650 crore on capital investment and will have invested
  more than Rs 450 crore in 2010 alone.
• The funds will further be invested for expanding
  facilities at Bicholim and Ponda in Goa, Moga in
  Punjab, Nanjangud in Karnataka, Samalkha in Haryana
  and in new greenfield facilities.
• Will continue to invest in brands and distribution
  capabilities while accelerating investment in capacities
  to provide consumers a wide product range, from
  popularly positioned products for low income
  consumers to premium offerings
     Nestle India Ltd to make domestic acquisition
                       investments
• The company is keen on introducing new product
  categories in the Indian market.
• Nestle India Ltd is also keen on investments in
  acquisitions in India as part of plans to boost the global
  Swiss food giant’s growth in emerging markets.
• it would be undertaking a $1.4 billion investment in
  Brazil, Russia and India from 2010 through to 2012.
• Its chief target is to ensure that India’s contribution to
  global sales, currently at record lows, increases
  considerably.
 Nestlé to establish an R&D Centre in
                India.
• The facility will be built in Manesar and will be
  operational in 2012.
• The investment of around US $ 51.5 million
  will help to further strengthen Nestlé's R&D
  capabilities in emerging markets.
• The new centre will focus on Popularly
  Positioned Products, especially for India, but
  also worldwide.
                         Competitors
• Amul India Ltd.
    – It basically competes with Nestle in the category of Milk and Milk
      Products and also Chocolates and Confectioneries
• Britannia Industries Ltd.
    – It basically competes in the Milk and Milk Product Category
• Kwality Dairy
    – It competes in the Milk and Milk Product Category
• Cadbury
    – It is a major competitor for Chocolates and Confectioneries
• HUL - Brooke bond and Lipton Tea
    – It competes in Beverages, especially Tea
• Tata Tea
    – It competes in Beverages through Tea
              Competitors (contd…)
• Godrej Tea
   – It competes in Beverages through Tea
• Smith and Jones
   – They are their competitors in the noodle segment
• Nissin Foods
   – They are the major competitors in noodle segment through Top
      Ramen Noodles
• ITC
   – They compete with their Sunfeast Pasta and its confectioneries like
      mint-o and candyman
• Heinz
   – It competes through its Tomato Sauces
             Market share
                       Market Cap.



                                   GlaxoSmith Con
                                        10%

         Nestle
          26%


                                                           Britannia
                                                             17%




Kohinoor Foods
     4%
                                                       Kwality Dairy
                                                           5%
  LT Foods
     4%
       Heritage
        Foods
         5%                                     Rei Agro
                  Lakshmi                         13%
                   Energy
  Usher Agro
                     6%     KRBL
     2%
                             8%
             Target Customers
• Nestle India generally targets higher income of
  people
• Its Milk and Milk Products have a price which is
  slightly higher than its competitors
• Even its beverages like Nescafe brand of coffee
  and Nestea brand of tea have a premium price
• However the chocolates and confectioneries are
  priced at a lower price to target the general
  population
• Even its Maggi brand of products have a lower
  price to target the general population
         What are we looking at?
• This helps us understand the Food Processing Industry
  in India
• It also helps us understand Nestle India expansion
  plans to diversify its product range to attract wider
  range of customers
• It also helps us to know the future growth prospects of
  the company
• It also helps us to know how Nestle India is placed
  amongst its competitors and their strategies for the
  various modes of competition
• Next we will be focusing on the SWOT analysis of the
  company
REPORT II
Financial Information and Ratio
             Analysis
                Ratio analysis
The following ratios are considered by us for the
   analysis,
• Profitability Ratios :
 Net profit margin:
   It measures profitability after considering all the
   expenses ( Net income/ Net sales)
 Return on capital employed:
   It gives the profit earned from the investments of
   shareholders
 ( Profit for the year/ Equity SH funds)
            Ratio analysis contd..
• Liquidity and Solvency ratios:
  It specifies the firms ability to repay the debts
 Current ratio:
  Current Assets/ Current Liabilities
 Quick ratio:
  Current Assets – ( Inventories + Prepayments)
                      Current Liabilities
 Debt Equity ratio:
  Long term Debt + Value of Leases
       Average Shareholders Equity
          Ratio analysis contd..
• Management Efficiency ratio:
 Inventory turnover ratio:
  It measures the management and selling of
  inventories
  ( Net Sales / Inventory )
 Debtors turnover ratio:
  It measures the velocity of debt collection of a
  firm
  ( Total Sales/ Debtors)
         Ratio analysis contd..
Investments turnover ratio:
 It measures the return earned on the capital
 invested
                Sales
 Net worth + Long-Term Liabilities
Asset turnover ratio:
 It measures the operating performance of the
 firm ( Net Sales / Average Total Assets)
Key Financial Ratios for the year 2005               Nestle India        GSK              Kwality Dairy         Rei Agro       Britannia
------------------- in Rs. Cr. -------------------   Dec '05             Dec '05          Mar '06               Mar '06        Mar '06
Investment Valuation Ratios
Face Value                                                          10              10                    10              10             10
Dividend Per Share                                                  25               8           --                        2             15
Profitability Ratios
Net Profit Margin(%)                                            12.39          10.86                   2.72           6.88            8.48
Return On Capital Employed(%)                                  127.18           34.9                  25.16         13.11           34.49
Liquidity And Solvency Ratios
Current Ratio                                                    0.66           1.89                   1.27           1.08            1.07
Quick Ratio                                                      0.28           1.25                   1.67           2.76            0.47
Debt Equity Ratio                                                0.04          --                      0.63           2.77            0.02
Management Efficiency Ratios
Inventory Turnover Ratio                                         9.87           9.34                      9.2         1.61            9.34
Debtors Turnover Ratio                                          87.32          39.35                   7.39           4.99          53.85
Investments Turnover Ratio                                      12.02           9.34                   9.48           1.61          11.79
Asset Turnover Ratio                                             2.76               2.2                6.13           3.51            5.43


Earnings Per Share                                              32.11          25.48                   1.48         16.59           61.29
Book Value                                                      36.73       112.97                     9.04         73.63          229.84
Source : Asian CERC
      Analysis for the year 2005
• The dividend paid is higher in comparison to
  its competitors which is a good sign for the
  investors
• The profitability ratios shows that the net
  profit margin and the ROCE is higher for
  Nestle India and it shows that Nestle India
  sold its products at a better profit margin and
  made a good return on their investments
 Analysis for the year 2005 contd..
• The liquidity and solvency ratios show that
  Nestle India has got less assets compared to
  the liabilities owned by the company in
  comparison with its competitors
• The inventory turnover ratio is slightly higher
  compared to its immediate competitor which
  shows a better management of the
  inventories
 Analysis for the year 2005 contd..
• Overall the efficiency of the management is
  better compared to its competitors which
  builds the trust among the investors when
  they analyze the data of the company and its
  competitors
• The EPS and the Book value also shows a good
  rank among its competitors making it a good
  prospect for the investment
Key Financial Ratios for the year 2006               Nestle India GSK                 Kwality Dairy Rei Agro Britannia
------------------- in Rs. Cr. -------------------   Dec '06           Dec '06        Mar '07           Mar '07     Mar '07
Investment Valuation Ratios
Face Value                                                       10              10               10          10          10
Dividend Per Share                                              25.5             10        --                 1.5         15
Profitability Ratios
Net Profit Margin(%)                                           11.09       10.91                 2.49        8.39       4.86
Return On Capital Employed(%)                              120.01          35.54                21.66       10.49      19.22
Liquidity And Solvency Ratios
Current Ratio                                                   0.67        1.27                 1.06        0.72       1.17
Quick Ratio                                                     0.31        0.64                 1.31        4.48       0.52
Debt Equity Ratio                                               0.04      --                     0.73        3.15       0.01
Management Efficiency Ratios
Inventory Turnover Ratio                                       10.28       10.08                 8.36        1.17      10.31
Debtors Turnover Ratio                                         65.35       43.65                  7.2        3.13      88.94
Investments Turnover Ratio                                     12.01       10.08                 8.61        1.17      12.88
Asset Turnover Ratio                                            2.81           2.5               8.71        3.22       5.63


Earnings Per Share                                             32.68       30.18                 2.05       19.92      45.06
Book Value                                                     40.33     129.05                 11.09       93.98     257.35
Source : Asian CERC
       Analysis for the year 2006
• The dividends paid is higher compared to the
  last year and it is still the highest compared to
  its competitors
• The profitability of the company is little lesser
  compared to the year 2005, but remains the
  no 1 position among its competitors
• The liquidity and solvency ratios does not
  show a good improvement which makes the
  company still highly volatile on solvency
 Analysis for the year 2006 contd..
• Though other management efficiency ratios
  show an improvement , the debtors turnover
  ratio is much lower compared to the previous
  year in Nestle India
• Whereas Britannia shows a good
  improvement in the same
• The company should have concentrated more
  on debt collections in 2006
 Analysis for the year 2006 contd..
• The EPS have increased for all the companies
  this year with Nestle India on higher end
  except Britannia whose EPS have decreased
  drastically this year
• The book value of Nestle India increased by
  10% whereas all its competitors have shown a
  better improvement this year
Key Financial Ratios for the year 2007               Nestle India GSK                 Kwality Dairy Rei Agro Britannia
------------------- in Rs. Cr. -------------------   Dec '07           Dec '07        Mar '08           Mar '08     Mar '08
Investment Valuation Ratios
Face Value                                                       10              10               10          10          10
Dividend Per Share                                               33              12        --                 1.5         18
Profitability Ratios
Net Profit Margin(%)                                           11.73       12.14                 1.38        5.88       7.31
Return On Capital Employed(%)                              150.33           38.6                20.74       10.57      26.37
Liquidity And Solvency Ratios
Current Ratio                                                   0.66        1.39                 1.15        0.64       1.22
Quick Ratio                                                     0.23        0.65                 1.36        4.49       0.68
Debt Equity Ratio                                               0.01      --                     1.38        4.39       0.14
Management Efficiency Ratios
Inventory Turnover Ratio                                        8.79        8.26                12.94         1.1       9.98
Debtors Turnover Ratio                                         64.09       47.18                 7.53        4.32      69.07
Investments Turnover Ratio                                     10.02        8.26                12.94         1.1       9.98
Asset Turnover Ratio                                            3.11        2.86                 16.9        3.91       5.73


Earnings Per Share                                             42.92       38.68                 2.54       22.32      79.95
Book Value                                                      43.4     153.69                 13.63     111.46      316.37
Source : Asian CERC
      Analysis for the year 2007
• The dividends paid per share has shown a
  significant 33% increase this year compared to
  its competitors, which remains as a good sign
  for the investors
• The profitability ratios also shows a good
  increase in comparison with previous year but
  the net profit margin of GSK is better
  compared to Nestle India in 2007
 Analysis for the year 2007 contd..
• The liquidity and solvency ratios still remain in
  the same stage making the company highly
  vulnerable to solvency
• The management efficiency ratios shows a
  decrease in this year for Nestle India , GSK and
  Britannia , the major competitors in the
  market which implies a back log in the
  industry itself
 Analysis for the year 2007 contd..
• The EPS and Book Value of the Nestle India
  has increased but the increase in Britannia is
  much higher compared to Nestle India
Key Financial Ratios for the year 2008               Nestle India GSK               Kwality Dairy Rei Agro Britannia
------------------- in Rs. Cr. -------------------   Dec '08           Dec '08 Mar '09              Mar '09       Mar '09
Investment Valuation Ratios
Face Value                                                       10            10             10              1         10
Dividend Per Share                                              42.5           15              1          0.1           40
Profitability Ratios
Net Profit Margin(%)                                           12.24     11.56                1.6        2.54          5.75
Return On Capital Employed(%)                              163.97        37.76             21.14        12.18        25.29
Liquidity And Solvency Ratios
Current Ratio                                                   0.66      2.62              0.97         0.65          1.27
Quick Ratio                                                     0.29      1.74                1.8        3.64          0.65
Debt Equity Ratio                                         --              --                2.83         5.36          0.03
Management Efficiency Ratios
Inventory Turnover Ratio                                       11.39      7.05             17.74         1.06        14.54
Debtors Turnover Ratio                                         87.37     44.87              5.27         4.82        64.88
Investments Turnover Ratio                                     11.39      7.05             17.74         1.06        14.54
Asset Turnover Ratio                                             3.2      3.35             27.26         5.61          6.14


Earnings Per Share                                             55.39     44.78              5.16         2.11        75.51
Book Value                                                     49.09 180.92                17.62        19.45       345.14
Source : Asian CERC
      Analysis for the year 2008
• The dividend paid per share has shown a
  significant growth in terms of % for Nestle
  India compared to the previous year
• But Britannia has grown more than 100% in
  terms of dividends paid compared to the year
  2007
• It is potential threat to Nestle India India as
  the investors might look in Britannia as a
  better prospect
 Analysis for the year 2008 contd..
• The liquidity and solvency ratios of Nestle
  India India continues to remain the same ,
  where as GSK has shown a better growth in its
  current assets holding in the last two years
• The management efficiency ratios are better
  this year for Nestle India India where as
  almost all the competitors shown a little
  improvement compared to the previous year
 Analysis for the year 2008 contd..
• Making Nestle India well operated and
  maintained company among its competitors
• The EPS has shown a good increase in Nestle
  India and Kwality Dairy where as others shown
  a little improvement this year
• The Book value of Nestle India shows a steady
  increase of 10 % every year where as its main
  competitors like GSK and Britannia grows at a
  much higher rate
Key Financial Ratios for the year 2009               Nestle India GSK                Kwality Dairy Rei Agro Britannia
------------------- in Rs. Cr. -------------------   Dec '09           Dec '09 Mar '10               Mar '10       Mar '10
Investment Valuation Ratios
Face Value                                                       10            10               1              1         10
Dividend Per Share                                              48.5           18              0.1         0.3           25
Profitability Ratios
Net Profit Margin(%)                                           12.67     11.56                 1.7        4.24          3.38
Return On Capital Employed(%)                              160.29        39.64              18.93        10.84        24.67
Liquidity And Solvency Ratios
Current Ratio                                                    0.6      1.63                4.28       20.03          0.94
Quick Ratio                                                     0.24      1.36                3.64        7.25          0.43
Debt Equity Ratio                                         --              --                  4.61        5.24          1.08
Management Efficiency Ratios
Inventory Turnover Ratio                                       11.61           8.7          22.14         1.14        15.06
Debtors Turnover Ratio                                         93.68           53             5.04        5.18        76.35
Investments Turnover Ratio                                     11.61           8.7            21.7        1.14        15.06
Asset Turnover Ratio                                            3.24      4.02              32.73         8.56          6.27


Earnings Per Share                                             67.94     55.35                0.99        4.92        48.77
Book Value                                                     60.29     215.2                2.61       26.98       165.86
Source : Asian CERC
      Analysis for the year 2009
• The threat raised by Britannia in 2008 by
  paying a good dividend is faded of this year
• As it reduced it dividend payout by almost
  40% compared to the previous year
• And Nestle India still remains to grow at each
  year providing a good dividend to its share
  holders
 Analysis for the year 2009 contd..
• The profitability ratios shows Nestle India was
  better profitable in this year compared to its
  competitors
• Britannia has come down in its profit margin
  ratio compared to 2008, which implies the
  companies sales or profit per good during the
  year is not met with the previous year
 Analysis for the year 2009 contd..
• The liquidity and solvency ratios have further
  come down for Nestle India stating that either
  the companies liabilities have increased or its
  current assets have decreased during the year
• REI Agro and Kwality Dairy ‘s liquidity has
  drastically increased this year compared to
  2008, making them totally insolvent, but the
  reason for such increment has to be analyzed
 Analysis for the year 2009 contd..
• The management efficiency ratio is again led
  by Nestle India among its competitors and the
  debtors turnover ratio has seen a good 93% in
  the last five years showing the efficiency of
  the management in its debt collection
• The EPS and Book Value of Nestle India
  increased when its competitors have shown a
  decline in their Book Value
  Report based on the 5 year analysis
• The analysis clearly shows that Nestle India is
  highly profitable and pays good dividend with
  better EPS compared to its competitors
• But the companies Current Assets seems to be
  lower than its Liabilities which is threat to the
  company as it is highly solvent compared to its
  competitors
Strategy Analysis
                 Nestle Strategy
• Nestle has primarily focused on the health of its customers
• It generally provides products which contain nutritional
  value for their customers
• Since early 2000 Nestle was trying to become a ‘health and
  wellness’ company
• Their Milk and Milk Products primarily focus on the health
  of the customers eg Nestle Nido, Slim and Fit Dahi, etc
• Moreover they have also introduced health conscious
  products in the Maggi segment like Maggi Vegetable Atta
  noodles, Dal Atta noodles, Rice noodles, healthy soups,
  pazzta which is made from suji
               Strategy(contd…)
• Nestle focuses a lot on the brand of Maggi
• It normally releases its products which come under the
  category of ‘Prepared Dishes and Cooking Aids’ under
  the brand of Maggi
• This is known as ‘Umbrella Branding’ – introducing new
  variants under a successful brand
• The advantages of umbrella branding include
   – High acceptance level
   – Low advertising and promotional budget
   – Giving strength to the established brand name and
     increasing the overall brand equity
              Maggi Strategy
• Targeted the kids initially
• Came out with the ‘Test bhi Health bhi’ campaign
• Not only noodles but various other products are
  launched under the brand of Maggi
• Then they had an advertising campaign to
  promote Maggi as an afternoon snack for
  everyone
• Recently they have started a ‘Mein aur meri
  Maggi campaign’ in which people get to share
  their Maggi experiences
                  Strategy(contd…)
• They promoted their tea and especially coffee through vending
  machines
• The vending machines of Nescafe are found in various shops
  throughout India
• They also sold their chocolates and confectionaries in areas like
  railway platforms, college canteens and other major events
• They also set up ‘Café Nescafe’ and ‘Coffee Corners’ across various
  cities
• Such shops sell primarily Nescafe Coffee and along with it they sell
  the iced tea and also the chocolates and confectionaries of Nestle
  India
• They have promoted their Maggi sauces by following the strategy of
  ‘It’s different’
 What Nestle has done over the years
• 2005
   –   Launch of Maggi health soups
   –   Maggi Tomato Pudina Sauce
   –   Maggi Tomato Chatpat sauce
   –   Re-launch of Nescafe Sunrise
   –   Launch of Nescafe 3-in-1
   –   Coffee corners at various places
• 2006
   –   Channel and Category Sales Development(CCSD) department
   –   National Key Accounts Management Organization department
   –   In store initiative Nestle Nutriworld
   –   Launch of Maggi Atta noodles
   –   Maggi Dal Atta noodles
   –   Launch of Nestle KitKat lite and its Goldpack
   –   Nestle Funbar at rs 2 in selected regions
    What Nestle has done over the years
•   2007
     –   Introduction of Nestle Nido, Milkmaid, and Cerevita
     –   Introduction of Nestle Fresh and Slim Dahi, Milkmaid fruit yoghurt and Nesvita
     –   Nestle Cerelac Stage 4
     –   Maggi Rice Noodles
     –   ‘It’s different’ campaign for sauces was renewed
     –   Nestle Munch Pop Chocs launch with ‘Nikalo Uchhalo Khalo’ campaign
     –   KitKat mini at rs 2
     –   Nescafe Mild launch
•   2008
     –   Milk with Omega 3 Nestle Nesvita Pro-Heart
     –   Nestle Nan 3 for older infants
     –   Introduction of Maggi Cuppa Mania
     –   Introduction of Maggi Bhuna Masala
     –   Introduction of Maggi Pichkoo
     –   Nestle KitKat and BarOne mini at rs 3
     –   Nestle KitKat Chunky at rs 15
     –   Continued initiatives in out of home segment
 What Nestle has done over the years
• 2009
  – Me aur meri Maggi campaign
  – Maggi Nutri-licious Pazzta introduction
  – Maggi Rasile Chow Introduction
  – Maggi Masala ee Magic Introduction
  – Launch of Nestle Kit Kat at rs 5
  – Nestle Munch Guru at rs 10 and chotu munch at rs 2
  – Introduction of Nestle Milky Bar Choko choo and
    crispy
  – Focus on nutrition of nutrients
                Heinz Strategy
• Heinz primarily focuses on its marketing strategy
• It promotes its ketchup as a thick ketchup
• It’s advertisements also focus on the thickness of
  the ketchup
• It’s tag line is ‘Redder. Thicker. Tastier’
• It has also launched a squeeze bottle where you
  can squeeze out the ketchup easily
• Small sachets of Heinz ketchup are also available
  at various food joints, coffee shops and in airlines
                HUL Strategy
• HUL has various brands of tea
• First is the Taj Mahal tea which HUL promotes as
  a premium brand of tea
• They say that it is not a tea but a sensory
  experience
• Then next is the Taaza brand of tea
• They target women in this brand
• They promote this brand through the latent and
  inner talent of the women
          HUL Strategy(contd…)
• Next is Lipton brand of tea
• Lipton is tea for everyone and is promoted
  accordingly
• Red Label is another brand of tea for HUL
• They promote Red Label as a family tea
• They focus on a traditional house wife who is
  trying to get the family together over a cup of tea
  and this tea is red label
• Major advertising is done to promote these teas
         HUL Strategy(contd…)
• HUL has Bru as the brand of the coffee
• They promote the coffee as a drink which will
  bring joy and happiness to you
• They promote it as ‘Bru se hoti hai khushiya
  shuru’
• Heavy marketing is done to promote Bru
  brand of coffee
         Top Ramen-Strategies
• The brand had positioned itself as Smoodles. This
  created a lot of anxiety among consumers. This
  was the reason for the initial success of Top
  Ramen but they could not hold their consumers
  for long.
• Top Ramen was always perceived as a premium
  brand compared to the affordable Maggi. They
  have lowered their prices. But in the process,
  they have lost the consumer base.
• Top Ramen lost out when Maggi repositioned
  itself in the health platform(atta noodles and rice
  noodles).
• Top Ramen had its share of innovations. This
  brand is credited with innovating a new category
  of cup-noodles in Indian market.
• Unlike instant noodles where the brands are
  targeting kids, Cup-Noodles is targeting adults.
• Top Ramen is also credited with the launch of
  curry-noodles in India.
            Cadbury-Strategies
• They have advertisements which appeal
  emotionally to the consumers.
• The packaging of Cadbury chocolates is much
  more colorful and attractive than Nestle
  chocolates.
• They are trying to substitute sweets with
  chocolates in India.
• They package their chocolates for various special
  occasions and festivals(Diwali, Rakhi, etc.)
• They tap the sentiments of people-In India,
  people start off any task by having something
  sweet.
• Chocolates are not only meant for children. It
  is a way to celebrate.
          Britannia-Strategies
• The word 'flavoured' was dropped from the
  milk range, as research had shown that in
  India, the word 'flavoured,' connoted
  'artificial' to consumers. This was to create
  goodwill among consumers. But seeing the
  success of flavoured milk in Indian market,
  they have launched flavoured milk-TigerZor
  Choco Milk. The company is trying to create a
  new niche of micronutrient fortified drinks.
         Kwality Dairy-Strategy
• The company follows a strategy for the
  procurement of milk on a daily basis and is
  investing in setting up village level milk
  collection centres. This helps in reduction of
  wastage. The setting up and operational costs
  in villages is low. This also helps the local milk
  men in villages. They get better prices for their
  milk.
SWOT Analysis
                                   Strengths

•   Parent support - Nestle India has a strong support from its parent company, which
    is the world’s largest processed food and beverage company, with a presence in
    almost every country.

•   It has a vastly diversified product portfolio.

•   Brand strength - In India, Nestle has some very strong brands like Nescafe, Maggi
    and Cerelac. These brands are almost generic to their product categories.

•   Product innovation - The company has been continuously introducing new
    products for its Indian patrons on a frequent basis, thus expanding its product
    offerings

•   Wide distribution channel

•   Effective advertising strategies
                  Weakness

• A major portion of export comprises of Coffee
• Supply chain - The company has a complex supply
  chain.
• The food industry requires high standards of
  hygiene, quality of edible inputs and personnel.
• The fragmented nature of the Indian market
  place complicates things.
• The immense diversification portfolio of the firm
  makes it impossible to run every division
  smoothly
                            Opportunities

•   Expansion - The company has the potential to expand to smaller towns and other
    geographies. Existing markets are not fully tapped.

•   Product offerings - The company has the option to expand its product folio by
    introducing more brands which its parents are famed for like breakfast cereals,
    Smarties Chocolates etc.

•   Due to the high intensity of the health conscious awareness in the society, more
    health based products may be required.

•   Global hub - Since manufacturing of some products is cheaper in India than in
    other South East Asian countries, Nestle India could become an export hub.

•   In India, consumers are mostly price conscious than health conscious. Nestle may
    have an opportunity to have extensive strategies implemented to gain the market
    in such countries.
                              Threat

• Competition –strong presence of regional competitors

• Indian Government has reduced the import duty of food segments
  thus intensifying the battle.

• Changing consumer trends.

• Sectoral woes - Rising prices of raw materials and fuels, and inturn,
  increasing packaging and manufacturing costs.

• Competitive pricing eg. Top Ramen

• Competitors like Cadbury, HUL etc. are well established. It’s a tough
  market with a tougher competition for gaining market share.
                     Growth
• Introduced value-added product variants in
  competitive categories like Prepared Dishes and
  Confectionary
• Nestle has successfully implemented Low-Unit
  Packs (LUP) and Low Price Points strategy by
  launching products SKUs in small packs
• Nestle has developed a long-term relationship
  with farmers and milk suppliers to combat volatile
  prices of raw materials
• Availability of Nescafe enhanced through an
  expansion of the vending machine network
• Consumption opportunities for chocolates and
  confectionery were identified and developed in
  areas like railway platforms, college canteens and
  major events
• Nestle set up ‘Café Nescafe’ and ‘Coffee Corners’
  across metros and mini-metros
• Reduction in the finished goods inventory pipeline
  to improve freshness of stocks and reduce working
  capital
• Culture of Innovation and Renovation and
  benchmarking of consumers’ tastes and products
  by the unique ‘Experimental Kitchen’ and ‘Sensory
  Laboratory’ at the Head Office
• Nestle India is in the process of implementing the
  GLOBE project through the implementation of SAP,
  which will enable the company to maintain its
  competitive advantage
REPORT III
           Porter's Five Forces
     A MODEL FOR INDUSTRY ANALYSIS

•  Success of any company depends not only on its competencies
and competitive strategies but also on the structure of industry in
which the company operates.
• Michael Porter provided a framework that models an industry as
being influenced by five forces.
                          DEGREE OF RIVALRY

    The intensity of rivalry is influenced by the following industry characteristics:
•   A larger number of firms increases rivalry because more firms must compete for
    the same customers and resources. The rivalry intensifies if the firms have similar
    market share, leading to a struggle for market leadership.
•   Slow market growth causes firms to fight for market share. In a growing market,
    firms are able to improve revenues simply because of the expanding market.
•   High fixed costs result in an economy of scale effect that increases rivalry. When
    total costs are mostly fixed costs, the firm must produce near capacity to attain the
    lowest unit costs. Since the firm must sell this large quantity of product, high levels
    of production lead to a fight for market share and results in increased rivalry.
•   High storage costs or highly perishable products cause a producer to sell goods as
    soon as possible. If other producers are attempting to unload at the same time,
    competition for customers intensifies.
•   Low switching costs increases rivalry. When a customer can freely switch from one
    product to another there is a greater struggle to capture customers
• Low switching costs increases rivalry. When a customer can freely switch from one
  product to another there is a greater struggle to capture customers.
• Low levels of product differentiation is associated with higher levels of rivalry.
  Brand identification, on the other hand, tends to constrain rivalry.
• Strategic stakes are high when a firm is losing market position or has potential for
  great gains. This intensifies rivalry.
• High exit barriers place a high cost on abandoning the product. The firm must
  compete. High exit barriers cause a firm to remain in an industry, even when the
  venture is not profitable. A common exit barrier is asset specificity. When the plant
  and equipment required for manufacturing a product is highly specialized, these
  assets cannot easily be sold to other buyers in another industry.
• Industry Shakeout. A growing market and the potential for high profits induces
  new firms to enter a market and incumbent firms to increase production. A point is
  reached where the industry becomes crowded with competitors, and demand
  cannot support the new entrants and the resulting increased supply. The industry
  may become crowded if its growth rate slows and the market becomes saturated,
  creating a situation of excess capacity with too many goods chasing too few buyers.
  A shakeout ensues, with intense competition, price wars, and company failures.
                     BARRIERS TO NEW ENTRY

• It is not only incumbent rivals that pose a threat to firms in an industry; the
  possibility that new firms may enter the industry also affects competition.
• industries possess characteristics that protect the high profit levels of firms in the
  market and inhibit additional rivals from entering the market. These are barriers to
  entry.
• Falling prices, or the expectation that future prices will fall, deters rivals from
  entering a market.
• Firms also may be reluctant to enter markets that are extremely uncertain,
  especially if entering involves expensive start-up costs.
• firms individually (collective action would be illegal collusion) keep prices artificially
  low as a strategy to prevent potential entrants from entering the market, such
  entry-deterring pricing establishes a barrier.
• Government creates barriers. Although the principal role of the government in a
  market is to preserve competition through anti-trust actions, government also
  restricts competition through the granting of monopolies and through regulation.
• Patents and proprietary knowledge serve to restrict entry into an industry.
• Asset specificity inhibits entry into an industry. Asset specificity is the extent to
  which the firm's assets can be utilized to produce a different product. When an
  industry requires highly specialized technology or plants and equipment, potential
  entrants are reluctant to commit to acquiring specialized assets that cannot be sold
  or converted into other uses if the venture fails.
• Organizational (Internal) Economies of Scale. The most cost efficient level of
  production is termed Minimum Efficient Scale (MES). This is the point at which unit
  costs for production are at minimum. The existence of such an economy of scale
  creates a barrier to entry. The greater the difference between industry MES and
  entry unit costs, the greater the barrier to entry.
Easy to Enter if there is:
         •    Common technology
         •   Little brand franchise
         •   Access to distribution channels
         •   Low scale threshold
Difficult to Enter if there is:
         •  Patented or proprietary know-how
         • Difficulty in brand switching
         • Restricted distribution channels
         • High scale threshold
Easy to Exit if there are:
         • Salable assets
         • Low exit costs
         • Independent businesses
Difficult to Exit if there are:
         • Specialized assets
         • High exit costs
         • Interrelated businesses
                         SUPPLIER POWER

Suppliers are Powerful if:
     •   Credible forward integration threat by suppliers
     •   Suppliers concentrated
     •   Significant cost to switch suppliers
     •   Customers Powerful

Suppliers are Weak if:
     •   Many competitive suppliers - product is standardized
     •   Purchase commodity products
     •   Credible backward integration threat by purchasers
     •   Concentrated purchasers
     •   Customers Weak
                           BUYER POWER
Buyers are Powerful if:
       • Buyers are concentrated - there are a few buyers with significant market
         share
       • Buyers purchase a significant proportion of output - distribution of
         purchases or if the product is standardized
       • Buyers possess a credible backward integration threat - can threaten to buy
         producing firm
Buyers are Weak if:
       • Producers threaten forward integration - producer can take over own
         distribution/retailing
       • Significant buyer switching costs - products not standardized and buyer
         cannot easily switch to another product
       • Buyers are fragmented (many, different) - no buyer has any particular
         influence on product or price
       • Producers supply critical portions of buyers' input - distribution of
         purchases
                 THREAT OF SUBSTITUTES

• A threat of substitutes exists when a product's demand is affected by
  the price change of a substitute product.
• A close substitute product constrains the ability of firms in an
  industry to raise prices, as more substitutes become available, the
  demand becomes more elastic since customers have more
  alternatives.
• Generally substitutes are the products out side the industry, which
  will satisfy the need of customers.
• Milk & milk products have less substitutes.
• Prepared dishes & and cooking aids segment has more substitutes,
  such as ready-to-serve products, etc.
• Beverages segment has very high threat of substitutes. In the leisure
  timings a customer may like have coffee, or tea, or fruit juice, or coke,
  or just water, etc.
• Chocolates segments has relatively less substitutes
                                   RIVALRY
• Milk & milk products segment is dominated mostly by unorganized players.
   Organized sector occupies only 13 -15% of the market.
The major competitors for the milk products are
• In rural areas, organized and unorganized local vendors.
• In urban and semi urban areas, the organized local players like Vijaya, Heritage,
   Nandini, Mother dairy etc.
• In urban areas, the major competitors are Amul, Kwality Dairy, Mother Dairy etc.
• And the market is growing at 15% growth rate.
• Brand identity is very less in this segment.
• Fixed costs are low in unorganised sector but moderately high for organized sector.
• Switching costs are very low for the customers.
• All these factors show the degree rivalry is very high in milk &milk products
   segment.
• Prepared dishes & cooking aids segment is growing at 20% growth rate. And is
  dominated by organized players (85%). There are very few players in the segment.
• But the players are competing through product differentiation and brand identity.
• For the past two decades maggi played a monopoly role. But last year three
  players came into the market.
• The switching over costs are very less for the consumer.
• All these factors make the segment competitive. i.e. the degree of rivalry is very
  high.
• Prepared dishes & Cooking aids

    • The instant noodles market in India is of Rs 1,300 Cr., growing at a consistent 20
      per cent for the last few years.
    • For two decades Nestlé's Maggi played a monopoly role with more than 85 %
      market share. Players such as Indo-Nissin Top Ramen, Capital Foods Ching
      Secret and Smith & Jones and CG Foods Wai-Wai tried to make a dent but failed
      to take up more than 10-15 per cent of the Rs 1,300-crore market.
•Three new entrants have thrown their hats into the ring over the last one year:
         Hindustan Unilever (HUL), GlaxoSmithKline (GSK) and ITC with Knorr Soupy
         Noodles, Horlicks Foodles and Sunfeast Yippee! respectively.
•The new entrants claim market shares of 3-7 per cent in their first few months of
         launch in south India.
• Nestle Maggi’s overall market share, meanwhile, has dipped from 90 per cent in 2009
         to 85-86 per cent in 2010.
• "The category penetration is low as well, 25 per cent of the population only. There is
         scope for these players to grow simultaneously.“
•ITC launched Sunfeast Yippee! instant noodles in December 2010, and differentiated
         it on product attributes.     HUL has extended its Knorr franchise to combine
         noodles with soup that is often seen as healthy.
•GSK is betting on its legacy of health to launch the multigrain Horlicks Foodles,
         pegged as a healthier alternative to maida noodles (the most popular Maggi
         variant).
•Nestle has reacted without delay with the launch of Maggi multigrain noodles. It also
         tied consumer anecdotes with a bevy of new flavours such as Curry and
         Capsicum.
• BEVERAGES segment is growing at 27%growth rate.
• 77% of the market is organized.
• Few players are there in the organized sector. HUL & Nestle are the two major
  players in the instant coffee sector.
• Switching over cost is less for the consumers as there are so many substitutes are
  available for them.
• There is no much scope for product differentiation.
• Brand identity is high.
• So, the degree of competition is very high.
Beverages:
• The Rs 300-crore instant coffee sector will witness a lot of action as lead players
  HUL and Nestle India are fine tuning their marketing operations to gain a
  competitive edge in this sector.
• FMCG major Hindustan Unilever Ltd (HUL) has pipped Nestle India to gain volume
  leadership in the branded instant coffee sector in India.
• In the September quarter of FY 2011, HUL has garnered a 51.1 % market share
  while Nestle India's share stood at 48%, according to data from market research
  firm Nielsen.
• Interestingly, in the June quarter, Nestlé's Nescafe had led the market with a 51.9%
  market share, while HUL's Bru was second, with a 47.9% market share.
• But the net profit of HUL came down by 2%, as it spent much on advertising
  campaigns.
• Chocolates & confectionary segment is growing at 14-15% growth rate.
• It has very few players in the sector.
• High levels of product differentiation are possible.
• Brand identity is very high.
• So, the degree of rivalry is very high.
•Chocolates & confectionary:
•The size of Indian chocolate market size was estimated at approx. 30,000 tonnes in
the year 2008.
• Moulded chocolates like dairy milk, amul, nestle premium, truffle and nestle milky
bar constitute 37% of the total market (in terms of volume).
• The count segment comprising of brands such as five star, kitkat, perk, and picnic is
the next largest segment, accounting for 30% of the total market.
•Panned chocolates occupy 10% of the total market.
•Indian chocolate industry is dominated by two companies; Cadbury and Nestle, both
multinationals.
•The leader is Cadbury with the biggest share of 70%. Until the middle of 90s, Cadbury
had a monopoly among the chocolate manufacturers, and then Nestle made an entry
by introducing its famous brands like Kit Kat and Lions, and in the process ending
Cadburys monopoly.
• Competition in this segment is going to increase as big international heavyweights
like Hershey’s and Mars are entering the Indian market in near future.
                             Barriers to entry:
Government Regulations:
•The Government of India has declared food processing a priority by introducing a
number of progressive measures to set up and modernize food processing units,
create infrastructure, support research and development and human resource
development.
• The National Policy aims to increase the level of food processing from 2% to 10% in
2010 and to 25% in 2025
• The level of institutional credit to be provided by banks and financial institutions has
been increased from US$ 17.41 billion during 2003-04 to about US$ 23.76 billion in
2005-06
• Full repatriation of profits and capital is allowed
• Automatic approvals for foreign investment up to 100%, except in few cases, and
also technology transfer
• The government has decided to give a boost to research and development in this
sector with its decision to set up the National Institute for Food Technology and
Management in collaboration with Cornell University of the US.
• Zero import duty on capital goods and raw material for 100 per cent export-oriented
units. Custom duty on packaging machines reduced. Central excise duty on meat,
poultry and fish reduced to 8%
•Income tax rebate allowed (100% of profits for 5 years and 25% of profits for the next
5 years) for new industries in fruits and vegetables besides institutional and credit
support.
• The government would also set up abattoirs and dairies and will give a grant of US$
3.1 million per ab-attoir and US$ 2.08 million per dairy.
•Government policies except Prevention of Food Adulteration Act, 1954. are favouring
the new entries into the industry.
•If new firms enter into the industry in anticipation of the demand,
•It will increase the competition. As the industry is growing the profitability of the
firms may be increased. But the market share of the firms may not be increased.
• And if the demand is not reached, or so many players enter into the market, On long
run it leads to price war and makes the industry un attractive.
                Bargaining power of suppliers
•For the food processing industry the inputs are food products like fruits & vegetables,
grains & cereals, milk, sugar &sugar substitutes, etc.
•There are no substitutes for the inputs.
•In general the suppliers in this industry are not organized.
•But due to environmental factors the productivity of the agricultural products has
come down leading to the food inflation. This may increase the bargaining power of
the suppliers.
•But to avoid this situation, generally the firms go for vertical integration.
• Nestle adopted milk districted model. It helps in cost reduction and ensures the
quality of the products. And it also accounts to the corporate social responsibility.
•Nestle even can go for contract farming.
           Bargaining power of customers.

•Changing life styles and increasing income levels, increased hygiene
consciousness of Indians are resulting in the growing demand for the
processed food products.
•Consumers are not organized, and are not concentrated.
•The firms are highly vertically integrated (especially forward
integration), by having access to retail outlets.
•But here the buying behavior and the price sensitivity of the consumers
plays a role.
•The switching over costs for the customer is very less.
•And the availability of substitutes are very high.
•So we conclude the bargaining power of consumer is moderate to high.
Analysis of Nestlé's strategies
          Venture with Coca Cola
• Nestle is doing a joint venture with Coca Cola to
  produce bottled iced tea - Nestea
• This is done to broaden the product portfolio
• Nestle will be competing with bottled drinks through
  this venture
• It will be competing in the category of functional
  beverages
• Functional beverages are drinks which are those which
  are based upon health and wellness of people
• Nestle is trying to increase its value by increasing its
  hold on the health related sector and also reducing
  cost by tying up with Coca Cola
     Mein Aur Maggi Campaign
• Launched in 2009 with the 25th birthday of
  Maggi
• In this you associate with Maggi
• It was done to promote brand awareness
  among people
• It was done to emotionally connect with
  people and increase value
     Introduction of Maggi Pazzta
• Maggi introduced Pazzta in the year 2009
• This was done to compete with Sunfeast Pasta already
  available in the market
• This Pazzta was made from suji and was healthy
• Nestle followed its principle of getting healthy products
  while making the Pazzta
• It was done to diversify the product portfolio
• It was priced at Rs. 12 and Rs. 15 which was similar to
  Sunfeast Pasta price
• However they promoted it as a healthy food snack
 Maggi Rasile Chow and Masala ee Magic

• Nestle launched Rasile Chow and Masala ee Magic in
  the rural and semi-urban markets
• They had initially launched Rs. 5 Maggi earlier in 2005
• This was done while taking into consideration the
  concern of malnutrition in the urban areas
• The products were launched in small satchets with Rs.
  4 for Rasile Chow and Rs. 2 for Masala ee Magic
• This was done taking into consideration the
  affordability of the people
• Value increase was done through this
      Launch of Nestle Proheart
• Nestle launched Nestle Proheart with omega 3
  in the year 2008
• It is a healthy milk which is supposed to
  control the cholesterol level
• It was launched for health conscious
  customers
• It was launched at a higher price
• It was done to increase the product portfolio
  and increase value amongst its customers
     Nestle and Infant Nutrition
• Nestle has always focused majorly on the
  infant nutrition
• It has been the market leader having a market
  share of 85% in the world
• It has products like Cerelac, Nestum, Lactogen
  for the infant nutrition
• It has also introduced Nestle Nan for older
  infants
• It has launched Nestle Development Nutrition
  Plan to meet the right physical needs of the
  infants
• Nestle is also planning to launch Neslac in
  India
• It is done to strengthen lead in the infant food
  market
• It is done to increase its margin and create
  value amongst the customers
    Strategy – Mergers and
          Acquisitions
Nestlé India Board Approves Proposal To acquire Healthcare
           Nutrition Business of Speciality Foods:

 This will add value to Nestle products by adding nutrition,
                     health and wellness.
• Over the last three years, Nestle India spent
  huge sums on capital investment.
• The funds will further be invested for
  expanding facilities and also setting up new
  Greenfield facilities.
• Nestle India Ltd to make domestic acquisition
  investments
• This helps to reduce cost through economies
  of scale and also diversify its portfolio.
• Nestlé to establish an R&D Centre in India. The
  facility will be built in Manesar and will be
  operational in 2012
• This will further strengthen Nestlé's R&D
  capabilities in emerging markets and hence
  increase the value of the products.
• Nestle has primarily focused on the health of its
  customers:
• By introducing milk and milk products like Nestle
  Nido, Slim and Fit Dahi etc, they target the
  consumers who are highly particular about their
  diet.
• Adding such value in products was greeted very
  well by consumers.
• The launch of their campaign ‘Test bhi Health bhi’
  also goes in sync with their strategy.
• In today’s world, people take health very
  seriously.
• Hence people prefer healthy products. Increasing
  nutritional value is of prime importance and
  Nestle has done just that.
• Maggi Vegetable Atta noodles, Dal Atta noodles,
  Rice noodles, healthy soups, pazzta which is
  made from suji etc are products which were
  Nestlé's innovations and have become household
  names now.
• Nestle successfully implements ‘Umbrella Branding’: Maggi
  is a highly successful brand.
• Nestle has launched many products under the banner of
  Maggi.
• Association with a highly trusted brand increases the value
  that the products promise to deliver.
• Noodles, atta noodles, cuppa mania, healthy soups,
  ketchups, pichkoo ketchups, pizza mazza, magic cubes,
  multi grain noodles, bhuna masala, pasta, coconut milk
  powder, sanjeevani cup soups are the set of products under
  the banner of Maggi.
• This strategy also saves considerable amount of
  advertisement and promotional costs.
• They place their vending machines and outlets at
  the places where there was maximum need for
  them
• They opened their outlets in college campuses,
  company premises, railway stations, airports etc
  where people need their products on the go.
• This increases the value of the products because
  the value of the Nestle products largely depends
  upon the timing of their need and the fulfillment.
• Through innovation, Nestle has consistently
  increased the value of its products:
• Maggi had introduced Maggi Hot and Sweet
  tomato chilli sauce which became a huge hit.
• The “Its Different” campaign was also very
  successful.
• Nestle has successfully implemented Low-Unit
  Packs
• Launching low unit packs expands the reach of
  the product. Be it the small packs of Maggi or
  the Chotu Munch.
• This helps them to increase sales in rural
  market where people prefer such packs.
Analysis of competitor’s
       strategies
                       GlaxoSmithKline

• GlaxoSmithKline Consumer Healthcare Ltd. (GSKCH) is an Indian associate
  of GlaxoSmithKline plc, UK. GSKCH is one of the largest players in the
  health food drinks industry in India

• The company with its manufacturing plants located in Nabha,
  Rajahmundry and Sonepat, has a total workforce of over 2700 people,
  each driven by a spirit of enterprise. Its, flagship product, Horlicks, is
  highly respected brand which is over 100 years old in India.

• The company also manufactures and markets Boost, Viva, Maltova,
  Biscuits and in addition promotes and distributes a number of products in
  diverse categories, including prominent brands such as Eno, Crocin, and
  Iodex.
• GSKCH has a strong marketing and distributing network in India
  compromising over 1800 wholesalers and direct coverage of over 4,00,000
  retail outlets. The business is based on scientific innovation.
• The company has dedicated consumer healthcare R&D centres and takes
  research as seriously as marketing excellence, offering cutting-edge
  capability in both.
• The company's product portfolio is grouped under three heads; viz
  nutritional, vending and over the counter (OTC) products. The segment
  offers a number of health food drinks, catering to different needs of
  consumers.
• Available in four flavours, viz; vanilla, toffee, elaichi and chocolate, its
  flagship malted food brand, Horlicks, is present in India for more than last
  100 years.
• Over the years, the company has introduced different variants of Horlicks
  drink. Leveraging upon its popularity, the company has extended the
  Horlicks brand to biscuits.
                  GSKCH strategy

 GSKCH is diversifying from malt based food drinks to other
segments and also align with parent’s goal of driving growth in
emerging markets.

Its parent’s strategy is focused on emerging markets, which are
growing faster than developed markets. It is investing in Bric (Brazil,
Russia, India and China) and satellite markets, launching its global
portfolio in these markets and fine tuning its strategy to suit these
markets—offering products at various price points and improving
availability.

The alignment of strategy between GSKCH and its parent is good as
it enables the company to have a more diversified portfolio
•      The company tackles the challenge at three levels
    Investing in new science on the original Horlicks and
    keeping the promise relevant.

•      Expanding the brand’s footprint into new health drink
    extensions where they tap consumer segments who may
    not be using the category (Junior Horlicks, Women’s
    Horlicks, Mother’s Horlicks, Asha, Horlicks Lite etc)

•     Expanding the brand to new categories like cereal bars
    (Horlicks NutriBar), ChillDoodh,biscuits and now instant
    noodles.
                    Nestle MILO
• Could not compete against Boost& horlicks
• Nestle India has discontinued the production of its energy
  drink Milo because of dropping sales.
• According to company sources sales have not picked up
  despite heavy discounting and aggressive sales push. "We
  have tried Milo for a long period with limited success in the
  crowded and competitive market and have decided to exit
  this particular product from our current portfolio,"
  according to a company spokesperson.
• The product has been losing its market share to
  competition from Boost& horlicks, a GlaxoSmithKline
  brand.
    Strengths of GSK products-horlicks
Depth of brand awareness

• Ease of recognition & recall
• Strength & clarity of category membership


Product reliability, durability, and serviceability

•  The product is trustworthy, never failed in terms of taste, quality
  and followed consistent taste throughout the country since
  inception
• The product is has a longer shelf life if stored properly in air-tight
  containers
Style and design

i. The new Horlicks formulation is accompanied by
    contemporary packaging in hues of bright blue and
    orange.
ii. Junior Horlicks comes with a cute elephant design and is
    something every child would like to play with.
iii. Women’s’ Horlicks comes in a curvy bottle with
    attractive red colour.


Price
• par with the other health drinks.
                Cadbury India
• Began its operations in 1948
• From 1965, Cadbury India has also pioneered the
  development of cocoa cultivation in India
• Currently it operates in four categories
   Chocolate confectionery
   Milk food drinks
   Candy
   Gums
             Cadbury’s strategy
• Cadbury India being in the matured phase keeps its
  products attractive and continues to grow by
  innovation and new launches
• Cadbury India used the media to improve its sales and
  franchise base for Dairy Milk chocolates
• They focused on celebrating joyful moments with
  Cadbury’s chocolates
• Which is mainly a move to replace sweets with its
  chocolates
• The media campaign was so powerful that they
  covered all the modes of media like radio, television,
  internet and even outdoor campaigns
      Cadbury’s strategy contd…
• Cadbury’s also made a tie up with Reliance
  Webworld
• When students access Rworld to check their
  results, a Dairy Milk chocolate would appear if
  they passed their examinations
• This strategy of Cadbury increased its
  customer base and franchises
      Cadbury’s strategy contd…
• Cadbury Dairy milk is the highest selling
  chocolate in India, and their second best seller
  is 5 Star
• 5 star sales declined due to Nestle Bar-One
  which was much more good in taste and was
  priced at the same range
• So Cadbury came up with 5 Star Crunchy
  making the nougat-caramel chocolate a
  crunchy one
      Cadbury’s strategy contd…
• And again Cadbury used media to campaign
  promoting the change which they made in the 5
  Star chocolate
• Cadbury 5 Star regained its market as a result of
  the change brought in by the company
• Cadbury’s picnic was another chocolate bar with
  peanuts, biscuit and puffed rice
• It received a major threat from nestle munch
  which was priced at Rs.5 and much was
  successful mainly because of its pricing
      Cadbury’s strategy contd…
• Eventually picnic lost its share in the market in
  that sector and to counter attack the Munch,
  Cadbury launched Perk which was also priced
  at the same range and provided a similar taste
• But Perk couldn’t take over the market share
  occupied by Munch, currently there are many
  flavors available in perk, yet it couldn’t
  overtake the market share held by Nestlé's
  Munch
     Cadbury’s strategy contd…
• Nestle also launched “Munch Pop choc”, a move
  to increase its customer base
• Cadbury countered the same by launching
  Cadbury Bytes, which is much different from the
  Pop-Choc of the nestle
• And it brought down the sales of the Pop-choc as
  it provided a different taste
• Thus Cadbury India has been following the
  product development strategy by launching
  various types of products in the same industry
                     BRITANNIA
• Britannia was started in 1892 in Calcutta with an initial
  investment of Rs.295
• In 1910, it mechanized its operations with the advent of
  electricity
• In 1921, it used imported gas ovens (first in India)
• In 1978, it went public by issuing of shares
• In 2002, Britannia launched joint venture with Fonterra, the
  world’s second largest dairy company
• In 2006, it acquired 51% stake in Daily Bread ( a Bangalore-
  based bakery foods retailer)
• In 2007, formed a joint venture with the Khimji Ramdas
  Group and acquired two companies (one in Dubai and the
  other in Oman)
           Products of Britannia
•   Dairy whitener
•   Ghee
•   Actimind
•   Tiger Zor Choco Milk
•   Cheese
•   Butter
•   Milk
•   Dahi
                  Britannia’s Strategy
• Fresh marketing strategies, Brand exercises, diversified portfolio and
  healthy lifestyle positioning led to Britannia’s sales doubling in five years
• Innovation in their product line led to growth of company
• Acquiring new capabilities and new technologies built has led to Britannia
  enter the market with dairy products
• Building stronger product portfolio by adopting an intensive healthy life
  positioning
• Line extension of its brands – for example, introducing smaller Rs. 5 packs
  for one-time consumption and expanding the distribution network
• Creation of personal packs with just 3-4 biscuits for people ‘on the go’ –
  leading to wider consumer base
        Britannia’s Strategy contd…
• Limited edition packs for festive seasons has led to increase in creating
  value and appeal amongst its customers
• Energy integration through new energy efficient ovens has led to
  minimizing of cost
• Has put up system and processes in place which facilitates decision making
  to improve operational efficiency and effectiveness
• Workflow systems are deployed across key business processes to integrate
  sales and replenishment
• Concentration on three priorities – accelerating top-line growth,
  increasing cost effectiveness and building capability – of people and
  infrastructure
• Launched ActiMind – first of its kind milk-based health drink
         Britannia’s Strategy contd…
• Britannia the only company in India to remove transfats from its biscuits –
  eating healthy
• Flavored milk drinks and Tiger Zor has been launched in unique and easy
  to carry and use bottles
• Britannia competes with nestle in its dairy products
• The main success of Britannia is providing milk biscuits as a replacement
  for milk products
• Targeting the age group of 4 to 16, its biscuits has proved to be a
  replacement of dairy products and chocolates

				
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