Nestlé's Global Strategy: Think Global, Act Local

Origins and Growth of the Nestlé Empire

The era of the Nestlé food empire began as an honest attempt to reduce infant mortality. With a view to providing a cost-effective, nutritious infant formula for women who were unable to breastfeed their babies, Henri Nestlé — who had recently purchased a company that made rum and nut oils — stumbled onto a lucrative opportunity in the 1860s. The Nestlé empire spread across Europe with the introduction of Farine Lactée Nestlé, an innovative mixture of cow's milk, wheat flour, and sugar. Its growth continued with the marketing of condensed milk, milk chocolate, and powdered soup companies. Nestlé persistently benefited from its ability to adapt to the times: a shortage of milk during World War I compelled Nestlé to expand well beyond its milk and chocolate business and become the conglomerate it is today. The post-war difficulties in the European market drove Nestlé to grow worldwide, including into the U.S. market. Nestlé, the largest food company in the world, eventually became so large that it did not know exactly how many products it made.

Nestlé has a 134-year-old tradition and employs 230,000 people working in 509 factories across numerous countries around the world. Approximately 98% of Nestlé's sales occur outside Switzerland, and it currently operates 489 factories in seventy-five countries. The regional business networks of Nestlé span Europe, Africa, North and South America, Asia, and Oceania. Its product range reads like a grocery list, exceeding 96 main brands in food and personal care products, about 13 of which are in dairy. Although the Nestlé name appears on approximately 8,500 food, beverage, and pharmaceutical brands, different packaging sizes bring the estimated total number of the company's products to around 22,000. While in America the company is often associated with its Nestlé Crunch bars and NesQuik powder flavoring, it operates across 10 different trade categories: baby foods and cereals, milk and dairy products, breakfast cereals, desserts, snacks and ice creams, chocolate and other confectioneries, prepared foods, beverages, pet care, and pharmaceuticals. Nestlé is also considered the global leader in mineral water and coffee sales. The company's headquarters are in Vevey, Switzerland, from which it operates globally.

Nestlé has a clear vision, mission, and corporate value statement with regard to corporate management. The business goal of Nestlé is to produce and market its products in such a way as to generate value that can be sustained over the long term for shareholders, employees, consumers, and business partners. The company's management culture emphasizes a positive intention toward work, a practical and realistic approach to conducting business, an open-minded worldview, a minimal number of systems and written guidelines, a personal style of management, an atmosphere of mutual trust, the elimination of hollow rhetoric and hypocritical remarks, and a strong emphasis on real experience and the setting of good examples.

Corporate Vision, Mission, and Business Principles

A very significant issue at Nestlé concerns homogeneity — the required level of consistency in Nestlé's norms, policies, rules of conduct, and approaches. The extent to which these differ depends on the country, subsidiary, region, branch, or product group. Nestlé tries to limit the uniformity of its policies to a required minimum. This minimum is then analytically enforced unless there are compelling reasons in a given market that justify divergence from the policy.

The strategy of Nestlé has always adhered to the well-known principle of thinking globally and acting locally. For example, Nestlé sells products worldwide but offers different flavors in different regions. According to consumer preferences, there exist 180 different taste variations. No truly global consumer exists — consumption is regional, and food is a very local matter. More often, Nestlé operates under a global brand name associated with local tastes, and it is sometimes also convenient to develop a strong local brand. In devising new products, Nestlé studies the market and gathers information on consumers. Nestlé depends largely on budgets and reports along with information accumulated through visits to local operations.

Global Strategy: Think Globally, Act Locally

Nestlé does not desire to become either a purely multinational company or merely a portfolio manager. It prefers to concentrate on those activities in which it possesses special knowledge and expertise. Nestlé is a global company, not a corporate conglomerate. It emphasizes acquisitions and diversification as logical ways to grow its business, but only within the scope of a carefully devised corporate marketing policy.

One approach to enhancing growth in other industries would be increasing centralization to reduce costs and release resources for marketing. This is an approach Nestlé takes in products where tastes differ little across borders — its pet food business, for example, is the second largest in the world with brands like Friskies. However, Nestlé's chief executive Brabeck believes that many of the group's large competitors have failed to match Nestlé's performance because they attempted to apply the same centralized approach to human foodstuffs, where tastes differ considerably from country to country. U.S. groups in particular have tended to view Europe as a homogeneous market, yet consumer tastes vary significantly between countries. The emotional link to the local consumer is extremely important in the food business. As a result, the food industry remains fragmented, which is why Nestlé strives to stay close to local consumers. This does not mean the food industry is static. Consumer expectations are rising gradually — Brabeck describes this trend using the acronym CHEF: convenience, health, excitement, and freshness. By achieving these objectives, Nestlé expects to deliver sustainable, profitable, and long-term growth.

The concentration of Nestlé is on products. The ultimate validation for a company is its ability to deliver products that are appealing by virtue of their quality, convenience, variety, and price — products that can withstand the fierce competition exerted by their rivals. Food companies in most parts of the world are struggling for survival as cash-rich consumers increasingly abandon the kitchen for fast-food restaurants and snacks eaten on the go. However, according to Brabeck, there is scope for continued profitable growth in an industry where Nestlé holds a modest 1.8% of the global market. Growth is driven by population pressures, with demographics showing a per annum food consumption growth rate of between 2.5% and 2.8%. More powerful still is the globalizing economy, which in the past decade added 800 million consumers to the existing base of industrial food product buyers. A further 1.7 billion are anticipated in the next decade, with approximately 500 million entering the per capita income band of between US$2,000 and US$6,000 per year — a band in which consumption grows considerably faster than income. To this end, Nestlé targets real internal sales growth of 4% per annum, with actual performance closer to 3.3% to 3.6%.