Fast Moving Consumer Goods (Food Processing)

INTRODUCTION TO INDUSTRY:

Products that are non-durable, have a quick turnover and relatively low cost are known as fast moving consumer goods (FMCG). Fast moving consumer goods (FMCG) companies deliver products to customers at a high level of innovation. Sustainability is the most important factor to this industry as it is highly competitive. FMGCs account for more than half of all consumer spending, but they tend to be low-involvement purchases. FMGCs are reliable source of revenue with high volume of sales that offsets the low profit margins on individual sales as well.

FMCG stocks generally promise low-growth but are safe with predictable margins, stable returns, and regular dividends. Pakistan is estimated to have the fastest growing retail sales growth at 8.2%/year through years 2016 till 2021.

WAY OF VALUE CREATION FOR CUSTOMERS:

• Perfected mass-market brand building and product innovation.
• Built relationships with grocers and other mass retailers that provide advantaged access to consumers.
• Entered developing markets early and actively cultivated their categories as consumers became wealthier.
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• Designed their operating models for consistent execution and cost reduction. Most have increased centralization in order to continue pushing costs down.
• Used M&A to consolidate markets and create a basis for organic growth post acquisition.

INTRODUCTION TO NESTLE PAKISTAN LIMITED:

Nestle Pakistan Limited is a Pakistan- based food and beverages company. The Company is engaged in manufacturing, processing and sale of food products. Nestle has been serving Pakistan since 1988.

Nestlé Pakistan is headquartered in Lahore, with four production facilities across the country. Factories in Sheikhupura and Kabirwala are multi-product, whereas the ones in Islamabad and Karachi are water factories.

For the last several years, Nestlé Pakistan has been consistently placed among the top companies of the Pakistan Stock Exchange.

PURPOSE:

Nestlé’s purpose is enhancing quality of life and contributing to a healthier future. It want to help shape a better and healthier world.

FINANCIAL PERFORMANCE:

The Company recorded a revenue of PKR 116 billion (2018: PKR 121 billion), a decline of 3.9% mainly due to softness in consumer demand consequent to price increases across the portfolio.

NESTLE PRODUCTS:

• House of Nestlé Milkpak (Milk Pak, Cream, Breakfast Cream, Whipping Cream, Yoghurt)
• Nestlé Dairy Culinary Solutions & Chilled Dairy (Sweet ‘N’ Tasty Yogurt, Mint & Cumin Raita, Fruit Yogurt, Nestlé Creations for Toppings, Nesvita)
• Tea Creaming (Nestlé Everyday)
• Dairy Nutrition Solutions (Nestlé Nido Fortigrow, Bunyad, Milo)
• Nestlé Beverages (Fruita Vitals, Nesfruta)
• Nescafé (3in1, Classic, Gold Signature Jar)
• Nestlé Breakfast Cereals (Koko Krunch, Milo Cereal, Corn Flakes)
• Nutrition (Cerelac, Lactogrow, Nangrow)
• Nestlé Professional (Branded Food & Beverages)

START UP:

The start-up of nestle Pakistan takes place in 1988 under a joint venture with Milk Pak Limited. There were low sales and company gives insight towards its marketing efforts. The organization had zero profit.

GROWTH:

The growth phase of Nestle initiates when there were higher sales in nestle cereals. There was profit lower than sales.

MUTURITY:

The company is now on its maturity stage as it is serving the country for more than 40 years. The rivalry of competitors took place as Engro Foods and Haleeb foods. Its products category as House of Milk Pak, Tea Creaming, Dairy Nutrition Solutions, Fruita Vitals and Nutrition are in maturity as their sales declines by 3.9%. Nestle is repositioning itself by investing in E-Commerce which help it to emerge in new markets that saves it from declining phase.

SWOT ANALYSIS:

STRENGTHS:

• Strong Brand Image
• Products that have higher quality.
• Higher Market share in nestle beverages with about 60% of market share.
• Strong Supply Chain Network:

Nestle achieved great milestones in physical logistics by implementing and scaling up project ‘SLIM’ (Smart Loading through Integrated Mechanization) initiative at their distributions centers in factories that helped them in improving efficiency by 65% and reducing variable distribution cost by PKR 35 million.

• Effective plan for Environment & Sustainability:

1. Greenhouse gas emissions/Energy conserving proficiency
2. Water operational efficiency
3. Reduction of waste at source
4. Acting on climate change by planting trees
5. Introduction of consumer engagement services.

• Meaningful information to consumers for making informed dietary and lifestyle choices is a key priority for Nestle. The Nutritional Compass on all Nestles’ packs guides consumers on their way to Nutrition, Health and Wellness (NHW).

WEAKNESSES:

• Target market: Target market of Nestle products is upper middle and high class because lower middle and poor class cannot afford to buy due to higher prices.
• In aggressive marketing strategies for Milk Pak as compared to its competitor Olper’s Milk.
• Higher Production Cost:

Nestle is dependent on Tetra Pak for packaging of its entire dairy products. It is the only option for them as Tetra pack has monopoly in packaging sector. This cause higher production costs.

• Higher Distribution cost:

The company has always reported higher distribution cost. The distribution cost is high as compared to the competition in the local market.

• Perceived Brand Image:

Common men generally perceive Nestle as a premium brand and have perception that all Nestle products would be highly expensive.

OPPORTUNITIES:

• Improving Intangible capabilities:

Intangible capabilities like leadership qualities, tacit knowledge and skills, teamwork, organization cultures, business processes, partnership can help Nestle in building competitive edge over its competitors.

• E-Commerce is another emerging channel for Nestlé Pakistan. Building upon the drive for innovation, Nestlé locked business development plans with biggest E-Retailer Daraz.
• Improvement in marketing Strategies.
• Eliminating retailers:

Company can open separate stores for eliminating retailers. Rather than paying sales representatives to promote products to resellers, company can promote products on their own websites, take orders and send goods directly to the final customer.

• Introduction of new Dairy products:

It has potential to attract many customers in dairy products. Nestle can emerge into ice-cream market by developing new products.

THREATS:

• Poor quality water and its scarcity:

Beverage, make over 25% of the total Nestlé’s sales and water is used in all of their production. Bottled water products alone generate 8% of the total company’s revenue. Water is scarce and is becoming even scarce due to the factors such as climate change or growing populations.

• Increased competition in the beverage and food industries.
• Differentiated products:

Consumers are indifferent to buying Engro products or Nestle. It is a threat to Nestle that consumers can easily shift to Engro products in case of any unfavorable condition.

• Increase in Inflation that decreases consumer spending in extra items as beverages.