This is the detailed Porter’s Five Forces Model of Nestle which is one the top-notch company operating in consumer goods industry. It has strong brand & long history therefore, consumer commonly use its products.
Nestle is a Switzerland based multinational food and drink company. It is one of the world’s best food companies and was ranked 33rd in Fortune Global 500 in 2016. Nestle was found in 1866 by Henri Nestle. The main products of Nestle are medical food, baby food, cereals, mineral water, coffee, dairy products, frozen food, pet food, and snacks. Nestle operates in 194 countries with its 447 production facilities that employ 339,000 employees. Nestle also holds majority shares of L’Oreal, the world’s largest cosmetic company. Over its life, Nestle has made a number of acquisitions that have helped it grow and diversify its product portfolio. Some of them are Cross & Blackwell, Gerber, and Libby’s. Nestle is well known for its continuous growth through innovation and research that has helped it become the market leader and understand what the consumers want.
Following is a detailed Porter Five Forces Model Analysis of Nestle:
Competitive Rivalry – High
Nestle operates in the consumer food industry that faces intense competition. The competitors of Nestle are Kraft Foods, P&G and Group Danone. In certain products, such as breakfast cereal, there are particular competitors of those products such as Kellogg’s. Although Nestle is one of the largest players in the industry with more than 150 years of experience, it is still facing competition from these brands. They hold a certain market share. All of these firms spend large amounts on marketing and advertisement, especially during product launches. The competition is not just for price, but for product variety, creativity, promotional offers, and so on. All the players in the industry have to strive to retain their market share. Thus, competitive rivalry for Nestle is high.
Threat of New Entrants – Low
The consumer food industry is diverse making it tough for a new entrant. There are a number of entry barriers. The existing players hold large market shares. They are well experienced and understand the consumer needs. They have developed customer loyalty over time (Othman, 2014). Every year a number of new entrants enter the industry in an attempt to grab market share even at the local level. A few succeed. The existing companies have developed strong distribution networks and economies of scale that allow that to produce and deliver at low costs. This all makes the threat of new entrants low for Nestle.
Bargaining Power of Suppliers – Low
Nestle holds the largest market share in the industry. As a result, it requires supplies in massive quantities. This makes it an ideal buyer for the suppliers. Therefore, any supplier that once starts supplying to Nestle never interferes with it or attempts to bargain or influence the prices. Nestle, in return, holds its supplier in esteem and takes care of them (Tavsar, 2013). Nestle prefers long-term relations with its suppliers to ensure the quality of the raw products. The switching cost for Nestle, if it wishes to change a supplier, is moderate as it will have to enter into new contracts and work to ensure quality form that new supplier.
Bargaining Power of Buyers – High
Due to a high level of competition, the bargaining power of the buyers is high. They can easily switch from one brand to another, Nestle or any other brands attempts to influence the market or raise the prices. The switching cost is low for the consumers. There are a number of companies that sell similar products. Nestle recognizes this power of the buyers and strives to ensure that the consumers of Nestle remain satisfied. These aspects have helped Nestle develop brand loyalty from many of its buyers.
Threat of Substitutes – High
Many of Nestle products such as bottled water and pasteurized milk have substitutes that are also readily available. Many of the products have homemade substitutes such as baby food. There are also allegations against some of the products of Nestle as not being healthy for consumption. This has led to the increase in the sale of substitutes amongst health conscious people. Nestle strives to highlight the healthy aspects of its products so as to tackle the substitutes. Thus, the threat of substitutes is high for Nestle.
References
Othman, S., 2014. Porter’s Five Forces Model and Porter’s Value Chain of Nestle. [Online] Available at: https://www.slideshare.net/SubriennaOthman/5-forces-porter-and-value-chain [Accessed 29 Aug 2017].
Tavsar, M., 2013. Nestle Analysis. [Online] Available at: https://www.slideshare.net/mehmetavsar/nestle-29302747 [Accessed 29 Aug 2017].