This paper examines the strategic challenges facing Nestlé Philippines in the mid-1990s as Vice-President Mascenon sought to protect Nescafé's dominant instant coffee market share amid GATT-driven deregulation, rising foreign competition, and evolving consumer tastes. The analysis reviews Nestlé's historical growth, its pricing and branding advantages, the competitive threats posed by Indocafe, Supermix, Kraft, and specialty coffee shops, and the opportunities available through acquisitions, corporate social responsibility, product diversification, and stakeholder relationship-building. The paper concludes that Nestlé's best path forward involves reinforcing the cultural identity of the Nescafé brand while pursuing strategic options aligned with the habits and preferences of a new generation of Filipino consumers.
Nestlé Philippines had capitalized on the instant coffee boom in the Philippines, and by 1996 the company saw its market share climb from 52% to 66%. Instant coffee consumption had more than doubled in the country. While this was good news for Mascenon, Vice-President of Nestlé's Instant Drinks Department, the problem he now faced was clear: how to maintain market share in the face of rising and stiff competition — created by a number of variables — without cutting into profits by lowering prices in order to stay competitive with off-brands and other multinationals entering the Philippines on the back of relaxed tariffs.
Nestlé had grown from a baby formula company in the 19th century to a producer of a wide range of food products in the 20th century, largely as a result of wartime acquisitions. By the end of the 20th century it was bringing in more than $6 billion in profits from factories and products sold around the world. The 1990s had been a period of expansion into emerging markets.
Supermarkets had not yet come to the Philippines. Mascenon knew they soon would, as legislation was in the works to permit greater foreign investment in the country. Nestlé's market share was high because of its individual packets of Nescafé being sold in small shops. Even though the product was viewed as a premium and its prices were high at the small shops — which were frequented by poorer people — this is still where it did its most business. Nestlé's brand was its biggest asset: coffee was actually called "Nescafé" by Filipinos. The drink was therefore known by a brand name rather than by what it actually was — instant coffee.
Nestlé had been able to secure such a high percentage of the market in the Philippines because of the rapid decrease in the cost of coffee beans in the global market, including within the Philippines itself. This, coupled with the reduced cost of foil packaging, helped Nestlé pass savings on to consumers, which in turn helped the company sell more product. Meanwhile, in the 1990s, sugar prices rose and the price of soft drinks increased. Consumers turned to the comparatively less expensive Nescafé.
Nescafé's domestic competition included Great Taste, Blend 45, and Café Filipino. New entrants into the market also appeared and on average priced their products 10% below the price of Nescafé. The company's market share had dropped from 75% in the mid-1960s to 55% in the mid-1980s. When coffee bean prices fell, Nestlé passed the savings on to consumers and its Nescafé brand began to sell more — along with its Carnation non-dairy creamers, which were becoming popular in the Philippines.
Mascenon believed that Nestlé should not compete on price. He viewed the brand's selling point as its quality, brand identity, and reputation, and he was opposed to the idea of price wars. Moreover, Nestlé was the largest buyer of coffee beans in the Philippines and had strong working relationships with growers. Nestlé spent 5% of sales promoting Nescafé, including through standalone shelves in stores and various promotions that typically included adding bonus coffee to packages to attract consumers. In short, Nestlé controlled much of the market, from growing to selling. All of that was set to change with approaching government deregulation, as the General Agreement on Tariffs and Trade (GATT) opened the door to the Philippines market to foreign investors.
Indocafe and Supermix were major players looking to export to and invest in Asia, including the Philippines. Novelty and specialty shops were being established — places where whole beans were ground on the spot for an upscale coffee experience. The Supermix concept offered a package deal of coffee, sugar, and creamer in one sale. Nescafé offered a similar option, but it was not yet well established in this segment. Supermix represented a genuine threat.
Nestlé's position as the dominant buyer of Philippine coffee beans would also be threatened by incoming foreign investment. Kraft, Maxwell House, and Procter & Gamble (Folgers coffee) were all looking to grow in the Philippines. Filipinos were also becoming increasingly enamored of imported brands — another threat to Nescafé. Because many Filipinos worked as contract workers abroad for parts of the year, they came into contact with foreign products and developed a desire for those products at home.
Nestlé's strength was its long history with Filipinos: they recognized Nescafé as the coffee drink. Its weakness was the lack of a genuinely novel, premium experience. The threats were clear — an incoming wave of foreign investors and shifting consumer preferences. However, opportunities were also present, including the potential to grow new relationships with stakeholders and to acquire new firms that could extend the brand's reach.
Nestlé's plan to retain market share in the face of this competition was to change the way it packaged Nescafé, offering it in a variety of shapes, package formats, and sizes. It also introduced a new roast in an attempt to project a more premium image. Yet Mascenon felt that more needed to be done to prepare for the changing market conditions. Several questions required answers: What would Nestlé do if competitors lowered prices? What would Nestlé do if more foreign brands entered the market? What type of bean should Nestlé use in the future? What needed to be done to support its Nescafé production facilities, already strained to capacity?
"Acquisitions, repositioning, and targeted marketing strategies"
"CSR, community ties, and generational consumer outreach"
In short, Nescafé's options are plentiful, and the threats posed by GATT and the incoming wave of foreign investors do not necessarily mean the end of Nestlé's run in the Philippines. What they do mean is that Nestlé must re-apply the lessons that allowed it to reach the top in the first place. It would have to fortify its position by identifying those qualities that made it appealing to Filipinos for so long. It would also have to understand the current Filipino mindset and determine what it could do to appeal to the next generation.
Nestlé could look into strategic acquisitions and consider temporarily maintaining market share by reducing margins for a short period. It could offer promotions to make itself more appealing to buyers even as new and more expensive premium products entered the market. It could invest in cultivating relationships with important stakeholders in the Philippine government. All of this is the price of doing business, and it is something Nestlé would have to do in order to keep its market share. Falling short of these opportunities would cost the company dearly in the long run.
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