Nestlé’s Struggles with Changing Times

Nestlé is a massive company that has been around since 1905. They have amassed over 2,000 brands during this time such as Stouffer’s and Kit Kat. They even have a stake in L’Oréal, as they make some of their hair coloring. However, lately they are starting to struggle. The times have changed, and people are starting to move away from Nestlé products in favor of upstart brands. The trend has shifted this way due to the mindset of healthy living, which is being adopted by more people each day. Nestlé’s reputation proceeds them, and in this case it will not be helping them gain more customers. The Nestlé crunch bar is a famous candy bar, and is one of the products Nestlé is known for. With a candy bar being what many people think of when they think of Nestlé, I don’t believe that will be very advantageous for them when trying to make a switch to healthy living options. These new upstarts that are beginning to encroach on the market share have little to no reputation, and this can be considered a good thing when pitted against Nestlé and similar companies. They have no previous products that are viewed as negative by the public, and therefore can attract people who are looking for an alternative to products they used to buy. The brick and mortar grocery stores will no longer play the massive roll they did in a brand being successful. This again works against long standing companies like Nestlé while it works in favor for the new upstart companies. While Nestlé has begun to make adjustments in how they market to people and changing some of the products they create, it still isn’t enough for investors.

Investors have been speaking up lately to Nestlé, and they are upset with the returns they are getting. One specific investor who has become very important in the last year is a man by the name of Daniel S. Loeb. He is known for founding the hedge fund Third Point, and being an activist investor. An activist investor is defined as an individual or group that purchases large numbers of a public company’s shares and/or tries to obtain seats on the company’s board with the goal of effecting a major change in the company. “His preferred strategy is to buy into troubled companies, replace inefficient management, and return the companies to profitability.” Mr. Loeb has amassed $3.5 billion in shares, and has begun putting pressure on Nestlé to make changes. Changes have already been made due to this pressure. Nestlé sold its US candy business to the Italian based company Ferrero. Some other suggestions that have been made include selling the L’Oréal stake, which he stated “it is simply unclear how owning a minority stake in a beauty business makes Nestlé a stronger nutrition, health, and wellness company.” Mr. Loeb wants Nestlé to “clarify its health strategy” and progress further on its 20 million Swiss franc buyback program.

How would you try to change Nestlé’s operations? What tools could they use to analyze their problem further? What categories do Mr. Loeb’s actions fall under in process reengineering and why?

Sources:

https://www.nytimes.com/2017/06/26/business/nestle-activist-investor.html

https://nypost.com/2018/01/22/third-points-loeb-calling-for-more-changes-at-nestle/

https://en.wikipedia.org/wiki/Daniel_S._Loeb (for basic information)

9 thoughts on “Nestlé’s Struggles with Changing Times

  • February 1, 2018 at 4:16 pm
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    The growing trend of people becoming more health conscious is impacting a lot of different business and how they market their products to consumers. For companies whose products are specialized as desert face significant challenges. One of the best strategies these companies will have to enact is how they are going to adjust their products to the changing consumer landscape. This could be done in a variety of ways but starts with reevaluating the ingredients the go into their products and try to gear them more towards the shifting demand of consumers.

  • February 1, 2018 at 8:47 am
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    Nestle is in an interesting position given the newer emphasis on healthier living. Sometimes a company can do everything right, but fall short of their goals due to circumstances. Nestle could not have predicted 20 years ago that people would start to look down upon candy bars. From a marketing perspective, there is probably not all that much they could do to convince these healthy eaters to eat candy bars.

    It could be in Nestle’s best interest to look into other products that would sell better in the current environment. Maybe a lower sugar and healthier candy bar would entice enough people to increase sales. Nestle has also sold many of its candy businesses which may or may not have been a good idea. In every industry, there are styles and fads. Fads come and go often, while styles tend to stick around longer. Nestle seems to have taken a large bet on the idea that healthy eating is a fad, not a style. If people start eating a lot of candy again, then they have made a poor decision.

  • February 1, 2018 at 7:22 am
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    Layne,

    I agree with your assessment of Nestle. Today’s changing times call for healthier foods with a stress on exercise and a well-balanced diet. As a kid, I remember being told the importance of a healthy diet. This topic is learned in schools and because of this, children grow up eating healthier which causes damage to “candy” companies due to the dwindling market. I do agree with this sentiment, but in my personal opinion I don’t think there will ever be a time when candies and sweets will be totally overcome by the stress on eating right. But times are changing and Nestle must adapt to the new environment. Maybe a focus on healthier foods and beverage which will be beneficial. Nestle does in fact have a nutrition website which I had never known before. They own a myriad products that resemble a Vitamin Shoppe. A marketing focus on healthier foods would be beneficial. Nestle has been a staple in the food and beverage industry, I believe that in order for them to be sustainable they must extract themselves from markets where they do not belong. L’Oréal is a questionable venture. I did not know that Purina was a subsidiary of Nestle. When you hear “Purina”, you think about a healthy dog and cat food. Overall, I think a new focus on advertising and marketing would help them.

  • February 1, 2018 at 1:12 am
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    Layne,

    Like many of the others said, I was unaware about many of these facts about Nestle and that so much has been going on to change the company and its greater vision and purpose. I like how you brought in the piece about Mr. Loeb and how he has worked his way into trying to make changes around the company. This is a key part and obviously will impact the operations and processes of Nestle. Without knowing too many details, I would have to agree with Mr. Loeb, his greater vision, and the steps he is trying to take to reach that goal. For a company who is currently struggling, I definitely think it will help having someone come in from the outside to try to get things back on track.

    I have seen this work first hand. The company I interned for profits off of memberships but they were struggling to find new members. One of the members at the time was a very successful businesswoman and was talking to an executive one day about this problem. She then offered to come by a couple meetings to try to offer input and by the end she was hired full time to continue the work she started. Sometimes it can be important and beneficial to have a voice, especially an experienced one, come in from the outside to try to help.

  • January 31, 2018 at 9:21 pm
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    Layne,

    Before reading your post, I have always thought of Nestlé as a chocolate company not as the world’s largest food and beverage company. I have always thought of Nestlé as the company that makes chocolate chips. As you pointed out, Nestlé has a problem in today’s society where every one is health conscious and interesting in healthy living. Nestlé needs to create a strategy in which the company reaches consumers with the message that Nestlé is more than just a candy company.

    It appears that Nestlé or at least its investors have realized that its reputation has lead to smaller returns and margins of profitability. Nestlé has taken the first step in solving any problem by identifying and defining the problem. However, Nestlé is most likely going to need to analyze the problem, analyze solutions, and implement these solutions to return to profitability. The active investor, Daniel Loeb, appears to have begun the process of reengineering Nestlé in order to restore the company’s profitability. I think that more changes within the company are necessary besides selling its US candy business in order for Nestlé to catch up with the times and define its health strategy. I agree with Loeb that Nestlé having a minor stake in L’Oreal does not help the company in its mission to becoming a healthier company in the eyes of consumers. If Nestlé sells its stake in L’Oreal, the consumers can envision Nestlé as strictly a food and beverage company. In my opinion, Nestlé is going to need to change its operations in order to stay true to its vision of making “our products tastier and healthier choices that help consumers care for themselves and their families” (Nestlé’s vision: https://www.nestle.com/randd/ourvision). Maybe Nestlé should focus some of their resources and innovation on reducing the “processed” ingredients in their products to create a new product or reinvent products that are plant based with natural ingredients as it seems to be what consumers are looking for.

    • January 31, 2018 at 10:04 pm
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      Erin,

      I like the idea of Nestle reducing their “processed ingredients” and revamping their image to be more healthy. While it is true that there is currently a large health food trend, that does not mean all of the sudden people no longer have a sweet tooth. In fact, according to Statistia, there has been a steady increase in chocolate sales in the US since 2013 (https://www.statista.com/statistics/262473/chocolate-sales-of-the-united-states/). This means that the market is not going anywhere anytime soon. This is why I agree that they should start researching and developing products that are more natural and good for you, while still satisfying people’s cravings for chocolate.

  • January 31, 2018 at 7:05 pm
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    Layne,
    It is so interesting to hear a different perspective from a world-known brand. I’m an international student from Argentina and we don’t have Crunch candy bars back home. Instead, I’ve always related Nestle to bottled water or formula milk for babies. As you pointed out, people are shifting towards healthier habits and Nestle is falling behind. Maybe the company did a cause and effect diagram to address the problem, lack of a range of healthier products. Or as Joe suggested, they could have also made a Pareto chart made out of all the feedback from each of their ranges. Whatever they did to reassess their strategy and their productivity, they found a way into the healthy food market. A few days ago, the company announced that they were buying a supplement making company called Atrium Innovations. Their range of products include a line of organic oils, supplements, powders and multivitamins. This might take Nestle a step closer to their healthier consumers.

    https://www.washingtonpost.com/news/wonk/wp/2018/01/17/why-nestle-sold-its-u-s-candy-business-and-bought-a-vitamin-company/?utm_term=.ad563c26e626

  • January 30, 2018 at 9:03 pm
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    Layne, I completely agree with your analysis of Nestlé’s current situation. I definitely think of them as an unhealthy candy company, and changing that type of reputation in today’s health-crazed society is a difficult challenge. First, I think it would help for them to take a step back, look at their company, and understand the basics. They currently utilize a make-to-stock strategy that mass produces candy bars like Crunch. It’s a continuous-flow process that pumps out the same, unhealthy product. I know it would probably be a long shot, but Nestlé could consider selling the rights to their popular candy bars and buy the rights to healthier bars. Protein and its consumption is very popular at the moment, so Nestlé could definitely take advantage of this opportunity. I don’t think they should stray too far away from food and quick snacks, however, because that is how a lot of people recognize their brand. In terms of Mr. Loeb and his involvement in Nestlé’s future, it is clear that he wants to utilize process reengineering to make some drastic changes that could benefit the company in the long run. Typical to reengineering, large short-term losses are expected, whether it be cash outflows or layoffs. That is exactly what would happen with the loss of the Crunch bar and the factory workers who mass-produce the product. However, if Nestlé can lose their unhealthy stigma, large, long-term gains are realizable in the future, especially if they can acquire healthier brands like Quest Nutrition. This is the type of reengineering that Loeb is hoping to employ sooner rather than later.

  • January 30, 2018 at 8:33 pm
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    Hi Layne,

    I had not previously known about many of the things you discussed relating to Nestle. I am, as you said, one of the many who only knows Nestle for their Crunch bar that I always used to get on Halloween. I knew that they were larger than just the Crunch bar, but I did not realize what an established conglomerate they really are (see brands here: https://www.nestle.com/brands). In fact, Nestle is the single largest food and beverage company in the world, beating out Heinz and Pepsico (https://www.forbes.com/sites/maggiemcgrath/2017/05/24/worlds-largest-food-and-beverage-companies-2017-nestle-pepsi-and-coca-cola-dominate-the-landscape/#5367abab3a69).

    From what I can tell, the loss of the candy business stems from a general trend towards healthy eating which, as expected, would hurt a company with a large foundation in junk foods. It seemed like a sensible move by Nestle to sell the branch. It will help them with their long-term growth and get them out of a shrinking business (https://www.nytimes.com/2017/06/15/business/dealbook/nestle-looks-to-sell-us-candy-business-as-americans-eat-fewer-sweets.html). It seems like the activist investor is simply pushing Nestle to get with the times.

    Given their vast portfolio of products, the first think I would like to know is which products or brand in particular are being “encroached on” by startup companies. I think the best course of action for them would be to create a Pareto Chart comprised of feedback within each of their different brands. They should see where they are getting the most complaints and where they are losing the most customers. Based on this, they can make decisions regarding the brands with the most negative feedback. Depending on variables such as cost, % of total revenue, and growth potential, Nestle can then decide how they could proceed with re-engineering the processes within the department based on where demand lies. Nestle may even end up scrapping a department together if they don’t see it making a comeback. Regardless of how they choose to proceed after the analysis, I see this as a good first step to prevent them from further losses of business.

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