Situational Analysis

The case is situated in India. India is a country having widely diverse cultural
and culinary habits. Earlier people had a misconception towards their perception of
noodles as a Chinese food item. Given this situation, there was a lot to
communicate to the Indian market. With the changing business environment, the
food processing industry in India was seeing growth opportunity in the noodles
category and therefore many well established companies were taking a step
forward in this less explored market.
Maggi, a food brand owned by Nestl India best known for its instant noodles,
ketchups, sauces, seasonings, pasta and soups, introduced a new food category to
the Indian market when it launched Maggi 2-Minute Noodles in 1982. From then on,
Maggi continued to develop and improve its product range geared towards the
consumers wellbeing as well as their taste preferences. Maggi markets itself as
purveyor of quick and nutritious snacks. The advertising and marketing
efforts/showcases of Maggi With tag lines such as Fast to Cook, Good to Eat and
Tasty and Healthy, is retrofitted to give consumers the emotional satisfaction that
they can associate with the brand.
There are many forces which were showing the effect on Indian processed
food industry which can be divided into two, Macro environment and
Microenvironment respectively.

Macro environment of Maggi

A PESTLE analysis is used as a strategic tool to measure industry dynamics
through recognition of the core political, economic, social, technological, legal and
environmental forces/changes having influence on the industry (Henry, 2007, p.23).
Table two below presents a PESTLE analysis for the industry Nestl are present
within and this information is then used to form a critical discussion for the future
strategic options available to the firm.
PESTLE analysis
Political Economic
1. Changing regulation 1. Awareness and knowledge of
surrounding food standards and changing inflation, economic
marketing actions. growth rates and income levels.
2. Government stability in new 2. Changing consumer budgets,
emerging economies question rise of the cost conscious
of risk as part of the consumer.
internationalization process 3. Rising price of raw material
(Kumar et al, 2013, p.205). goods in relation to the need to
3. Changing global regulations source from sustainable
standardized practice yet suppliers (Kumar et al, 2013,
adaptation to different political p.205).
forces (De Mooij, 2013, p.61).
Social Technological
 1. Changing consumer attitudes 1. Rise of social media,
move towards healthier consumers interacting with
products in line with firms and being able to do so
government initiatives across a range of platforms.
(Newman et al, 2014, p.15) 2. Innovation fueled by
supporting balanced diets and technological developments.
the dangers of sugar. 3. E-commerce as a platform for
2. Changing lifestyle return back development (Lin et al, 2014,
to home cooking and the p.3).
promotion of family time in a
world of convenience.
3. The need to adapt to different
cultural settings i.e. language,
religious beliefs and family
settings.
4. Understanding of consumer
behavior is crucial to ensuring a
personal approach to
marketing.
5. Consumers viewing the firm as
an agency for power in the
wider external environment
(Eisenhardt et al, 2010: 1263).
Legal Environmental
1. Changing nature of regulation. 1. Increased attention directed
2. Need to adhere to global towards corporate social
regulations and changes across responsibility (Servaes and
different international markets Tamayo, 2013, p. 1045).
(Schaffer et al, 2014, p. 12). 2. Environmental concerns from
consumers including concerns
over packaging/recycling
(Dubois, 2012, p. 36).

The PESTLE analysis above identifies a number of forces, which have an

influence on industry dynamics. Of these forces, perhaps the most prominent are
social forces, which relate to differences in consumer behavior. As an international
firm, Nestl have to be able to ensure a level of adaptation, which is appropriate to
different markets driven by different cultures and consumer preferences.

The tool used in conducting an external analysis of the macro environment

was PESTLE. A simplified model of it PEST is used in the discussion below.
1. Political and Legal: Nestle is a global company and in the food and beverage
industry one of the most important factors to consider is globalization.
According to Jose Lopez, Nestles Vice President of operations explained the
impact of globalization on Nestle to has been very different from first
expected initially we thought it meant developing countries opening up their
markets but on hindsight it turned out that rather than being globalized we
had to understand how to react to global markets (Bell 2009, 10). Another
factor to consider is the impact regulations has had on Nestle. The global
food and beverage industry is one of the most highly regulated industries in
the world. Nestle for example has had to face multiple tiers of regulations
when have inevitably affected their products (Nestle 2008). It was the
governments liberal policy which allowed new companies to enter the Indian
market which further contributed to the changing trends. The liberalization
and the economic changes lead to a rise the income of Indian middle class
families. These economic changes also changed the expenditure pattern and
paved the way for the processed food industry for grabbing the opportunity.
Nestle adhere to the laws and regulations that involve in its activities and the
environment. The government may set quotas on the quantity of the
products that it can supply and set the amount of taxes that the company
must pay in order to conduct the business. To achieve a balance between
them, Nestle participates in legislative and regulatory discussions between
international organizations, government representatives, industry, scientific
community and consumer associations.
2. Economic: Food is a basic human need and is therefore a necessity for
survival. In economic terms this means that the basic demand for food will
always be high. Although food eating patterns might change and vary from
place to place. Nestle has adjusted to these variations in preference and
sensitivity to price in different places that it operated. One of Nestles
example is opening up factories in different places that caters to the local
market from its packaging, to pricing, to taste. Majority of these new factories
are located in developing countries. The factors are related to economic
cycles and other economic factors (inflation, productivity, value of currency).
Purchasing power of consumer plays vital role in the final purchase of the
product. There was a strong economic growth in rising middle class. The
annual household income was also increasing so various established
companies launched their brands to capitalize on fundamental shifts in socio
economic patterns of the Indian society. Customer purchasing power is
majorly affected by a range of economic factors such as income levels,
inflation, taxes, unemployment, exchange rates and mortgage rates. The
disposable income and living standard of a country may bring big business
opportunities for Nestle or the other way round.

3. Socio-Cultural: Culture, religion and average age of population tends to

dictate or are at the very least have an influence on food consumption
 patterns. Currently there is a growing interest from the public for addictive
free products that are made from natural ingredients. Nestle is aware of this
and can be seen in a few of their products one example is Maggi soups in
Germany, China and Indonesia have different flavours and textures to meet
local taste (Nestle 2012). India is diverse country having unique food habits,
living standards and languages. The consumption habits of an Indian middle
class have increased following the rise in their household incomes. The
increasing number of working women, professionals living away from their
family, increasing organization, consumerism and the availability of cheap
credit due to these changes snack food items popularity has increased and
items like noodles and pizza became a popular meal item. Firstly, Kelloggs
was not accepted by the Indian consumer therefore it was being said that it
requires persistence and willingness to adopt products to suit their culinary
and cultural preferences.

Right from eighties there was a social and cultural sift & the Chinese
noodles were accepted because of economies fancy there was a need of food
which provides good quality and convenience. Indian mothers found it
nutritious as they were able to add vegetables and so on. But Indian
consumers preferred Masala, therefore they try to develop the taste maker to
make it more palatable to Indian taste but there major competitors was the
homemade food items which were considered more healthy and hygienic.
Therefore various taglines were advertised to communicate a proper
massage to the consumers about its convenience nutritious values. The two
of its famous tagline were fast to cook and good to eat, for the changing roles
of Indian women and just two minutes for the children who were using it as
snacks. They also tried to make balance between urban and rural customers
to increase its relevance and retain its leaderships. They started many
schemes for rural market which included high prices for all large crops, the
national rural employment guarantee program and farm loan waiver and
lastly they tried to target each member of the family. Before Nestle start its
operation in any country, it mainly focus on studying the society's cultural
value, preferences and behaviors. This is because Nestle hopes its products
can be accepted by the local with warm welcome and be competitive among
other companies that operating at the same level.

4. Technological: Technologies are the vital part of Nestle R&D. Investment

in technology will definitely help the company to reduce production cost and
improve product quality. For example, Nestle have developed technologies
that allow them to use natural vegetable oils instead of partially
hydrogenated fats in Maggi bouillon cubes and seasonings. With the help of
technology improvement, Nestle can create healthier products across their
product range and thus improve health and quality of life in a country. It
consists of forces which affect new technology creating new product and
 market opportunities. It has tremendous impact on the life style, our
consumption pattern and economic wellbeing. During early 2000 Maggie
faced intense competition and therefore their R&D department was focusing
on products therefore the innovated. Maggie Atta (whole-wheat flavor) which
positioned itself as healthier food. The company focuses in giving increased
natural fiber, or reinforcing them with nutrients such as calcium & proteins to
better manage health and wellness, they tried to add more calcium and
protein to their product. They also targeted east and south segments by
launching rice noodles as it was the main food in those reasons. In this way
they could forward variants such as, Shahi Pulao, Lemon Masala & Chili Chaw.
Different variants of Sauces & soups were also launched in the market. In
2008 Nestle came up with Maggie Cuppa Mania, which was ready to eat after
adding some hot water. It was targeting the working men and women who
had less time to prepare noodles. In this way Nestle had always tried to be
innovative in providing something new to the market and always taking the
advantage of being the fast mover.

Microenvironment of Nestle

The analysis of the microenvironment can be divided into two, External and
Internal. The five forces model is used for the external microenvironment of Nestle.
These five forces will examine the food and beverage industrys competitiveness
and attractiveness (Recklies 2001). These five forces include the threat of new
entrants, threat of substitutes, buyer and supplier power and rivalry among
competitors.

Threats of New Entrants (Low- Moderate): As lucrative as the food and

beverage industry might be there are several barriers that make the treat of new
entrants low-moderate. These include the high startup capital required, supply-side
economies of scale, unequal access to distribution channels and the demand-side
benefits of scale. However it has to be noted that several firms still enter this
industry and because of Nestles high market share, they have become a constant
target.

Power of Buyers (High): The power of buyers in the food and beverage
industry is high. This is because typical buyers are large retailers like Wal-Mart,
Carrefour etc. these retailers are financially strong and prefer to have long term
agreements with market players. Furthermore majority of buyers are integrated
backwards, while several retailers offer their own branded food and beverages.

Power of Suppliers (Low): The power of supplies in this industry is low

because of the sheer number of available suppliers and markets to purchase from. It
is important to point out that the raw materials in question here are fruits, meat,
fish, grains and cereals just to name a few which can easily be purchased in open
markets as well. Furthermore, some firms have integrated backwards and produce
their own raw material handicapping the suppliers further (Bradley et al. 2005).

Threat of Substitute (High): Given the lack of switching cost between

alternative for the consumer and the availability of cheaper alternatives to
packaged food this has caused the threat of substitutes to be high (Bradley et al.
2005; Hager n. d. ).. The industry has experienced a surge in private label products
and organic food which has caused consumers to experiment with new products.

Rivalry amongst Existing Competitors (High): The food and beverage industry
is vast creating more opportunities for market players. According to Porter (2008),
the intensity of rivalry is highest when competitors are many, industry growth is
slow and exit barriers are high causing the overall competitiveness of this industry
to be high as well. Furthermore coupled by the variation in consumer preference
and ability of competitors like Kraft, Groupe Danone and Unilever offering equally
good if not better alternatives has lead to high competition among market players.

A simple descriptive analysis is employed for the internal microenvironment.

Suppliers: Suppliers are the one who delivered the resources needed by the
company to produce the products or services to the consumers. Any problems that
incurred in supplier can greatly affect the company sales and damage customer
relationship. We can divide the suppliers of Nestle into two groups that are labor
suppliers and material suppliers. Labor suppliers are in charge of the supply of
labor required by the company to optimize their production level. Labor strikes and
labor relations are the most important factor to maintain labor satisfaction for
company to improve their efficiency. For material suppliers, they deal with the
materials needed by the company to place the finished goods on rack. The quality
of the material is everything that the company focuses on as Nestle is in the food
and beverages industry. By maintaining the quality and quantity of these two
supplies, Nestle is able to produce high quantity product to uphold their sales
volume and customer satisfaction in the long run.
Marketing intermediaries: It helps the company to promote, sell and
distribute its product to the final buyers. The physical distribution firms design the
delivery chain for the company products to reach their final destination. The firms
also in charge with the products' safety without getting any damage while storing
them temporarily. Marketing service agencies of the company helps to target and
promote its products to the right market. It acts as a communication channel
between the customers and the company by explaining the features of the product
and providing feedback with the help of survey for the company to improve the
quality of the product. Banks and insurance companies are financial intermediaries
that help to provide monetary resources and protection to the product and company
against risk that may be occurred during the operation of the company. Nestle
works together with all marketing intermediaries to ensure their valuable customers
have a clear image of their products features.
Distribution Channel: Nestle are subject intensive distribution where a firm
tries to place their products into outlets as many as possible to meet the needs of
consumers whenever. Nestle has developed distribution channels which to make
sure the provision of products that the consumers able to purchase it whenever and
wherever. Hence, Nestle attempts to provide as many outlets as possible and
expand it. Nestle uses two types of channel intermediaries that are wholesaler and
retailer and it is convenient for Nestle because both channels have a lot of
advantages in high number of ordering, short period of time to shipment, and have
a large number of customers. Retailer and wholesaler are considered as an
intermediaries between a producer and consumer where the products from the
producer to the consumer through the retailer or wholesaler. Nestle as the producer
and distribute their products to wholesaler or directly to retailer then retailer sells
the goods and products to consumer.
Customer: Nestle sells its goods to reseller markets that provide the goods to
final user at a reasonable profit. Nestle also deals with customer markets which
consists of individuals and households that buy a wide range of its products. Nestle
works hard on making the product available whenever the customer needs them to
maintain customer satisfaction.