Assignment 1 Industry

FINAL PROJECT “BSP” 1
Preface
This project is a part of learning process. We have to look up the different principles of
Business Strategy and Policy, which we have studied in the class.
During this project we have to spend a lot of time in front of computer at home and at
university. The main problem is to collect data for prospective employees and due to
confidentiality issues we didn’t success in getting the some information from Nestle.
Acknowledgement”
All praise and gratitude due to ALLAH THE ALMIGHTY who created man in His own
image and enjoyed upon him to travel on the earth and enter into a profound and
analytical study of Universe for spiritual appreciation of ALLAH’S unity and His
attribute as well as for harnessing the material manifestation of the world to the
mankind’s profitable utilization. In the first place, therefore we express our utmost thanks
to ALLAH. At the next stage we offer our gratitude to our Apostle and prospector
Prophet Muhammad (P.B.U.H) for his golden saying “Gain knowledge be in China”.
We are also thankful to our resource person Mr. Aly Raza who guides us a lot about
Business Strategy and Policy and about how to deal with alignment of business strategy
and tactics uses in Business.

Executive Summary
Nestlé is the world's leading Nutrition, Health and Wellness Company. Their mission of
"Good Food, Good Life" is to provide consumers with the best tasting, most nutritious
choices in a wide range of food and beverage categories and eating occasions. Nestle
juices is Pakistan s number one and fastest growing company. Nestle always tried its
level best to differentiate itself from other local companies and always tried to win the
competition in juice industry by adopting the modern trends and technologies in both
operational fields as well as in marketing of their products.
In this detailed project of BSP we covered all most all the topics related to the nestle
juices. Our project is divided into three stages that are A1, A2 and A3. In the start of our
report we have given an overview of the company which includes introduction of nestle
international and nestle Pakistan and a brief introduction of nestle juices. In A1 we have
discussed the SWOT analyses, PEST analyses, Porter five forces, McGahan framework
model, strategic groups and EFE analyses. In A2 we have discussed the value chain
analyses, resource base view, and financial ratio analyses. IFE analyses, CPM matrix,
generic strategies, industry life cycle and recommendations. In A3 we have discussed all
the strategies which are link with nestle juices, Analyze the business portfolio of the
company, Organizational Structure, Strategy Map for the organization, strategic changes,
Core competencies and Identify 2 or 3 major problems and then present
recommendations for it.

Nestle International
Nestlé is the world's leading Nutrition, Health and Wellness Company. Their mission of
"Good Food, Good Life" is to provide consumers with the best tasting, most nutritious
choices in a wide range of food and beverage categories and eating occasions.
The Company was founded in 1866 by Henri Nestlé in Vevey, Switzerland, where our
headquarters are still located today. We employ around 280 000 people and have
factories or operations in almost every country in the world. Nestlé sales for 2009 were
CHF 108 bn.
Nestlé’s objectives are to be recognized as the world leader in Nutrition, Health and
Wellness, trusted by all its stakeholders, and to be the reference for financial
performance.
They believe that leadership is not just about size; it is also about behavior. Trust, too, is
about behavior; and they recognize that trust is earned only over a long period of time by
consistently delivering on their promises. These objectives and behaviors are
encapsulated in the simple phrase, “Good Food, Good Life”, a phrase that sums up their
corporate ambition.
Nestlé has a Board of Directors, led by their Chairman Peter Brabeck-Letmathe, who was
the former Nestlé CEO. There are 12 members of the Board of Directors. The day to day
management of the Nestlé business is taken care of by our Executive Board members.
The Nestlé Group is managed by geographies (Zones Europe, Americas and
Asia/Oceania/Africa) for most of the food business, with the exceptions of Nestlé Waters,
Nestlé Nutrition, Nestlé Purina Petcare, Nespresso and Nestlé Professional which are
managed on a global basis - these they call the Globally Managed Businesses. They also
have joint ventures such as Cereal Partners Worldwide and Beverage Partners
Worldwide.
Nestle Pakistan
Nestlé has been serving Pakistani consumers since 1988, when their parent company, the
Switzerland-based Nestlé SA, first acquired a share in Milkpak Ltd.
Today they are fully integrated in Pakistani life, and are recognized as producers of safe,
nutritious and tasty food, and leaders in developing and uplifting the communities in
which we operate.
They at Nestlé Pakistan ensure that their products are made available to consumers
wherever in the country they might be. Convenience is at the heart of the Nestlé
philosophy, and their aim is to bring products to people's doorsteps.
They want Nestlé products to be within reach for every single Pakistani. Yet nutritional
value and quality remain the most essential ingredients in all their brands. Over the years,
food products have evolved from mere commodities to a statement of lifestyle. As
consumers get more health and quality conscious, consumer empowerment surges.
They continue to play their part in facilitating this revolution by launching value-added
products such as cerelac, nestle Raita, nesvita and nido and many other dairy and non
dairy products. Consumers can avail many of their products with branded active benefits
that no competitor product offers. Nestlé brands are designed to suit your lifestyle and
your needs. You can take advantage of the best nutrition in a way that is suitable for your
tastes and lifestyle.
For instance, you can purchase nestle Juices in several different sizes depending on your
needs: a personal-sized 200 ml for on-the-go consumption, or a litre pack for your fridge.
All their key brands are equipped with the Nutritional Compass that ensures all the
nutritional information about the product is accessible thanks to their user-friendly
nutritional labeling and guidelines.
They are proud to be among the only companies in Pakistan to venture outside the
commercial mode of communication, offering programmers catering to better child
nutrition and good parenting.
Their widespread global network presents opportunities to learn from innovative
techniques used in faraway countries. Pakistan has contributed in a big way towards this
by introducing Nestlé nestle pure life to the world. Pakistan’s favorite water is now
available all around the world!
Nestle juices
Frost was the first brand introduced by nestles in 1986. It has the largest market share and
was positioned as a cold drink. In 1996 nestle introduced the orange juice. Due to its
success many new flavors were introduce in the market such as mango, red grapes,
pineapple, clear apple, chaunca, gauva etc. The main competitors of nestle juices in
Pakistan are Shezan, Haleeb, Faraz, Olpers, Country, Malee etc. They focus on enhancing
nutrition and they provide 100% pure juices. This is the main difference which they have
from other companies.
The company uses many sources to attract customers and to gain market share like tv, bill
boards, news papers etc. Nestle Company establishes the distribution channels in each
famous city of Pakistan like Islamabad, Karachi, Lahore, Gujranwala, Faisalabad etc.
They also acquired the suitable distributors in each city. They hire maximum two or
three distributors in a city due to prevent from their own competition.
They provide the margin to the retailers is equal to the interest of band like 7% to 8%.
They also pay to use the shelf to store the nestle juices to the retailer for sale to the final
consumers.
Question # 1
How Global is Pakistan economy
The impact of terrorism is so badly affecting Pak Economy. It resulted in decrease of
Foreign Investments, stock exchange is suffering.
Pakistan economic growth faced a serious set back in fiscal year 2009 because of the
depressed consumer credit market, slow progress of public sector programmers, inflation,
reduction in subsidies, security threat, instability in the state and energy crisis.
Additionally, no attention was given to the agriculture sector. The exports declined by six
percent and imports by 10 percent. The only thing that became a silver lining was the
increment in remittances by 22%. Apart from ignorance, agriculture sector has shown
credible results because of good weather. Major crops, wheat, rice and maize recorded
impressive growth i.e. 7.7% against the target of 4.5%. Live stock and poultry also add to
GDP as there was no viral disease this year.
Shortages of energy and power don’t let the boom entered into the industrial sector. In
addition the sanction applied by IMF on different sectors creating a hurdle. This resulted
in unemployment and services sector decline. Because of security crisis the graph of
investment does not take any surge. The beginning of declining in core inflation is a
hopeful factor but the domestic inflation is on peak. There is a marginal improvement in
health and educational sectors but the poverty in country rise Pakistan has the highest
population growth. The largest population represents a large potential market for goods
and services yet the condition are deplorable.

Impact on textile industry:
Pakistan textile industry is facing an uncertain environment. Following few factors like
increase in input cost of minimum wage by 50 percent, increasing interest rates, non-
guaranteed energy supplies, lack of R and D and reduction in cotton production, put a
negative impact on the industry’s competitiveness internationally, because of the entire
situations the companies are downsizing. Production units are being shut down.
Around 5000000 of the workers lost their jobs. After surviving load shedding now
industries have face gas load shedding this also increase their cost so that’s why our
industry didn’t progress and gets into loss. When light is gone in industry it take almost
30 minutes to start work again and that’s the big problem your time also waste and your
cost also increasing.
Link with Article Competing with Giants
In Our textile industry, they mostly focus to home market needs and here pressure to
globalization is low so this industry seems to be Defender in positioning its product
ranges.
Question # 2
Past 5 year trends in Beverage Industry
Cold Beverage Market
Pakistan’s large cold beverage market is approximately 2 million tons and offers a huge
opportunity. Though the market is dominated by colas, strong growth has been witnessed
within the juices, nectars and still drinks (JNSD) category, which can be further divided
into two segments.
The still drinks segment is large but fragmented. Over the years it has commoditized
resulting in low brand equity, high dependence on trade push, huge trade margins and
low profitability.
On the other hand the juices and nectars segment is fast growing and offers immense
potential to increase share of throat. It is brand driven and offers premium pricing and
high profitability.
Product coverage
• 100% juice
• Fruit-flavored drinks (no juice content)
• Juice drinks (up to 24% juice)
• Nectars (25-99% juice)
Consumer demand for ‘diet’ products has increased. New products from international
companies which are major share holders in carbonates have been well received and
imported products in the juices category have also attracted a lot of consumer attention.
On the other hand, bottled water consumption has increased with the deteriorating water
supply in urban areas and increasing health consciousness.
PepsiCo Inc remains the market leader with new product launches. Company has
introduced new diet product that has been well received and supported by good
marketing activities. This new launch will help PepsiCo Inc to increase its share in the
market and prove to be tough competition for Diet Coke.
Juices manufacturers have taken their lead from Nestle by offering 100% concentrate
products across the country.
Bottling companies are facing stiff competition from local unregistered companies that
sell at cheap prices in lower class, urban areas.
Distribution has reached the rural areas, especially in terms of juices, because companies
are searching for new areas where they can increase their market shares.
Division of Beverage Industry
Pow de r Drink,
5.47%
Syrup, 10.60%
Juices, 22.62% Cola Drinks,

56.60%
Squashes,
4.71%
The chart shows the overall division of beverage industry in Pakistan. Colas are holding
the major share of the pie followed by juices and syrups.
Source: Preference for Various Drinks & Juices in the summer (Gallup
Pakistan)
PEST Analysis
Political
There is significant political pressure on the beverage industry in Pakistan. This pressure
Mostly arises from a high tariff of taxes, as 17%1 sales tax. Part of relief measures in
budget 2010-2010 which is:
Withdrawal of restriction on adjustment of FED paid on beverage concentrate is aimed at
attracting new investment in beverage industry and reducing the prices of aerated waters
in the country.2 This is an opportunity in beverage industry for investment point of view.
Economic
The economic crisis hit Pakistan hard, and the consumer purchasing power dropped
significantly. GDP (Purchasing power parity) goes down from 411.9 Billion $ to 392.5
Billion $.3 Soft drinks volume growth slowed down due to increasing poverty, up to
24%4 population is below poverty line, and rising unit prices of various raw materials
used in beverage industry have also put downward pressure on volume growth.
Increasing costs of raw materials is very crucial factor for this beverage industry of
Pakistan. Recently, there has been a crisis in the production of sugar and other crops in
Pakistan, with prices sky rocketing. Such economic factors have a resounding impact on
1
http://www.fbr.gov.pk/budget%202010-2011/SalientFeatures/SALIENT%20FEATURES%20%28STFE
%29.pdf
In section of Revenue Measure
2
http://www.fbr.gov.pk/budget%202010-2011/SalientFeatures/SALIENT%20FEATURES%20%28STFE
%29.pdf
In section of Relief Measures
3
http://www.indexmundi.com/g/g.aspx?c=pk&v=65
4
http://www.indexmundi.com/g/g.aspx?v=69&c=pk&l=en
related industries, and although most companies in this industry have switched from
sugar to high-fructose corn syrup, some were affected by the agro-based crisis.
Social
According to one survey, more than two third (78%) of all Pakistanis prefer to serve cold
beverages.5 The new emerging trend is that people are now becoming more concerned
about their health, they are moving away from colas to natural drinks, and due to this
beverage companies are moving towards pure juices, nectars and energy drinks in order
to satisfy the needs of customer.
Department store chains are aggressively opening up branches in different areas of the
country. This gives consumers a choice, but creates a competitive environment for drinks
manufacturers. With rising poverty and reduced disposable income, people prefer to shop
at government-owned discount stores and big department stores that give discounts on
bulk purchases. A major social trend in Pakistan has been a shift from presenting guests
with drinks such as lassi, red sherbet, and fruit juices, towards cold drinks. This trend has
spurned more from impressive distribution networks and less from increased advertising,
yet the result is positively in favor of beverage companies.
Technology
Technology plays a vital role in some areas of the industry especially during production
and packaging. Tetra pack is used for packaging of beverages into packs which contains
5
Gillani Poll/ Gallup Pakistan 2009
7 layers. This industry is not heavily dependant on technological advancements like the
consumer electronics industry, or the software industry. Because beverage products are
less-tech based in nature, technology in this industry is therefore limited to function as a
catalyst to improve production capacities, speed of product manufacturing cycles and
inventory management etc.
Forecast what will happen to the industry in the upcoming 5 year
Juice segment of industry is growing and with it the numbers of competitors are also
growing. Everyone is trying to get the lead from others and achieve maximum share of
market now, so that it can be better off when market matures and growth becomes slow.
For this reason, competitors are using aggressive strategies and product development is
taking place at a good pace.
Entry barriers are not high in this industry and any competitor can leave the industry
without much hassle. Most of the packaged juice competitors are focusing on quality and
uniqueness of their products (in terms of variants) and there is no price war going on. But
once a new flavor or product is introduced, all others do the same in order to safeguard
their market share. Thus by floating a similar product in the market, firms are reducing
significant product differences. Many large firms like Nestle, Haleeb, Mitchells, Nurpur,
and Shezan etc have diversified businesses in dairy and other food products.
As a whole, rivalry among existing firms is strong. This will become even fierce in future
when industry growth rate will slow down and number of competitors will increase.
Question # 3
Porter Analysis
Threat of New Entrants
Threat of New entrants is high because of following reasons:
In recent years, beverage industry has seen a tremendous growth in most of its segments
in Pakistan. Introduction of energy drinks; new variants of soft drinks and juices are few
notable examples. Despite the emergence of so many brands, this industry still has a huge
potential and hence there is a serious threat from regional, national and multinational
firms to enter this market. Numerous innovative options are available for potential
entrants to differentiate their offerings and focus on that untapped segment of the market.
Entry barriers are also low which increases this threat of new competitors. Many regional
brands are available in the market, which clearly proves this statement. Capital
requirements in establishing such a business are also flexible. Someone with low funds
can operate on the regional level and firms that can afford to compete on national level
can also do so.
Firms like Nestle, Shezan, Qarshi, Coke and Pepsi have decades of experience in
respective areas and are well established. It is very difficult for a new comer to challenge
their strong positions but these brands have few offerings which draws potential entrants
to come up with variants of existing products or completely new products and be able to
make profits in this entry.

Bargaining Power of Supplier
The main supplier for this industry is the supplier of Fruits. Other suppliers include
packaging material supplier, supplier of flavors and concentrates used in juices and
suppliers of plant and machinery.
As there is no significant cost of switching suppliers, the bargaining power of supplier
will be low. Suppliers are less concentrated than buyers which also reduce their
bargaining power. These and some other important factors are listed below:
There is a threat of forward integration from financially sound farmers or middlemen that
trade in agricultural products. This is an advantage that can strengthen supplier’s
bargaining power.
Most of the suppliers lack differentiation and they can be easily substituted with other
suppliers. This decreases bargaining power of supplier.
Agricultural yield can fluctuate and hence cost of production could be increased when
crop production declines. Due to these uncertainties, purchasing cost has a lot of
influence over total cost of production.
Bargaining Power of Customers
Due to the underlying reasons, bargaining power of customers will be more in this line of
business.
Beverage products have multiple uses; it can be used as a thirst quencher and also as a
health care drink.

There is a threat of backward integration. For example, technological advancements have
introduced water filters that can do reverse osmosis (RO) and purification of tap water at
home, reducing the market for bottled water. There are machines available from which
customers can prepare their own carbonated drinks for themselves. This is another way of
backward integration but on a limited scale. Juicer machines are also available and can be
used to get fresh juices without moving out of home.
When it comes to health and hygiene, customers are usually less price sensitive.
Threat of Substitutes
Substitute’s includes carbonated drinks, energy drinks, tea, coffee etc. Threat of these
substitutes is high in Pakistan. Among various products of beverage industry, carbonated
soft drinks and tea/ coffee are the most used products. Consumption of ready to drink
juices is far less than these substitutes.
Rivalry among Existing Firms
A prime source of competition in any industry is among the existing incumbents.
In this section, we are considering all the manufacturers of ready to drink packaged juices
as our competitors.
Nestle by far is in lead from rest of the competitors in the juice and nectar segment of the
beverage industry. Its market share is around 60% and there is a huge difference in terms
of resources and scope of business between Nestle and someone like Al Hilal industries.
So we can say that competitors are not evenly balanced.
Question # 5
Key success factor for beverage industry will be the knowledge of your customers takes
it as knowing your consumers. All planning starts after getting a brief know how of
consumers tastes and characteristics. Market research is a solid way to start for getting
insight of consumers.
Clear and cleaver advertising of drinks can also be a Key success factor for in beverage
industry success.
By keeping manufacturing cost low can also be an important KSF in beverage industry.
Beside that, developing a strong network for having access to maximum retail outlets will
consider to be an important KSF, because availability leads to consumer loyalty.
Following are the key success factors in this beverage industry (Juices).
1. Strong distribution
2. Quality of product
3. Customer Loyalty
4. Financially strong background
5. Brand awareness
6. Market Share
From social factor of Pest analysis, we extract Brand awareness and customer loyalty,
because new emerging trend is that people now more concerned about their health. For
this firms are now into efforts of creating awareness about their products and creating an
image of healthy products for getting more loyalty in customers.
Question# 4
The central idea of Mc Gahan’s model or framework is to develop strategies according to
the industry changing scenario. There will be some threats from industry which a firm
can face. Threats like new technology used by competitor into their product development.
According to this Mc Gahan’s Frame Work, Industry face two types of threats, one from
industry core activities and other from industry core assets.
Core
Activities
(Distribution
and
Promotion)
Threatened Not Threatened
Core Assets Threatened Radical Creative change
(Machinery,Brand) change
Not Intermediating  Progressive
Threatened change change
According to beverage industry, as there is not as much threat for any company to start its
venture and become operating highly, this lies under progressive change trajectory.
These core activities and assets are not as much threatened like no unique machinery is
required for juices or drinks and activities like distribution and promotion goes side by
side. This industry is not dependent upon technology advancement that’s why it will not
be considered as threat for companies who are operating in this industry.
Question # 6
Strategic groups
Key companies in the beverage industry are:
• Nestle
• Shezan
• Haleeb
• Country
• Fraz
• Al-Halal (FRESHER)
• Clover Pakistan (tang)
• Rehmat group (tiger)
• Naurus
• Brix
STRATEGIC GROUP
Question # 7
EFE Matrix
Opportunities WEIGHT RATING WEIGHT

SCORE
Support foreign investors 0.14 4 0.56
Health conscious 0.12 3 0.36
Global hub 0.10 2 0.2
Market growth 0.15 4 0.6
Limited option for real fruit juices 0.16 3 0.48
Threats
Government regulations 0.10 1 0.1
Entry barriers 0.05 3 0.25
Labor cost 0.08 2 0.16
Inflation rate 0.10 2 0.2
Poor (1( below avg(2) above avg (3) superior

(4)
total 1.00 2.91
Comments
It is above average which shows that in this industry, there is still a gap is vacant like
consumers now are preferring healthy drinks rather than belly washers, so by adding
variants plus bringing products near to original fruit is preferable and recommended.
Question # 1
Value chain of nestle juices

Overview of Value Chain
For nestle juices, they are using pulp and concentrates which are imported and local as
well. Some of juices contains flavors which are 95%6 imported. For juices Nestle has
vendors from across the country like US and China are two big vendors from where
Nestle purchase raw material. Nestle actually approved a list of vendors for getting
overall best price.
Nestle juices are manufactured in Shiekhupura factory. Juice production planning has
been made (18 months planning forecast), plans are made for creating stock buffer.
6
Asad Ahmed Nestle
18 months Weekly
planning 4 weeks
up to one
forecast rolling plans
day plan
For three zones there is separate service team.
Primary activities
Inbound logistics
USA and China are two sources from where nestle gets major raw material for its juices.
Some of the raw material is also bought from the local markets of Pakistan. Mango,
Apple, Pineapple, Guava, Peach, Orange which are used in nestle juice production.
Nestle import machinery from China, Japan, America and Germany.
Operations
Fruit juices production is a uniform process basically preparation process of juices
involves the following steps
1. Getting raw material in form of pulp and concentrates
2. Storage in containers
3. Mixing different Ingredients
4. Juice preparations
5. Cooling and storage
6. Filling in packs.
Mixing and addition of syrup become done. Then it is heated up to 90 degrees for killing
harmful substance and organisms. From passing through pasteurization process, juice
passed through last stage of filtration. Now the juice is packed in different packing and all
machinery of tetra pack helps in packaging of FruitaVitals.
Out bound logistics

Nestle emphasized on big cities for its sales and distribution. Cities included Lahore,
Karachi, Islamabad, Faisalabad, Gujrawala etc. On agreed profit margins distributors are
hired and they involved in collecting juices from offices and distribute to different areas
of cities.
Services
Company establishes the customer centers in each office in the city. They also have a toll
free number for its customers where customer can call and can take help of any kind.
They give online customer service as well which included various options like for what
reason you are contacting service center, these all dealings done through its website 7. For
Nestle juices customers are Restaurants, Retail, Hotel Chains and offices. This is separate
business under main business. Apart from traditional retailing, Nestle have sales force for
different processes as above discussed. In Afghanistan Nestle has separate sales team
which is catering through Pakistan.
On each pack of Nestle juices a statement is mentioned which is Good to Know and
Good to Talk, where a contact number is mentioned which is under access of its
consumers. Beside that their customer includes Hotel chains, Restaurants, offices and
Retail as well.
Marketing and Sales
7
http://www.nestle.pk/index/contact-us.aspx
Lots of sales offers and schemes are introduced. Company prefer to advertisement on TV
channels like Geo network, Ptv network, etc. Newspapers are also used as a promotion
purposes.
Nestle Management top most priorities are:
• Building Strong customer relationship
• Need identification of customers
• Vision for market leader
• 100% fit juices for consumers.
Nestle is promoting its juices (Fruita Vitals) from ATL, TVC’S mainly. Beside that
through sponsoring concerts it’s involved in promoting and recently it sponsor style
awards.
Supportive activities
Two Factories
The below given is the factory from where Nestle Fruitavitals prepared and packed.
1. Sheikhupura Factory 29 Kilometers on Lahore Sheikhupura road Sheikhupura

Technology
Nestle uses state of the art technology which help in manufacturing Nestle Fruita vitals
which are rich in nutrition factors. Tetra has created a monopoly as equipment for
packaging and processing of juices. Nestle order concentrates, pulp and flavors; they are
not in to extracting field of juices.
Nestle created a value which differentiate itself by making Nectar, pure juices etc by
adding new variants. Actually Nestle is enjoying first mover advantage. Nestle Fruita
Vitals are available in Tetra brick and Tetra slim packages.
50,000 Ton Juice Nestle produce annually.
Question # 2
Resource base view
Nestle have access of Imported raw material which consist of Pulp+ Concentrates+
Flavors) from US and China. Beside access of imported raw material for juices, they have
effective planning procedure for juice production which helps in accurate production for
Fruita Vitals. Accuracy in prediction of Juice production and demand give a value for
overall Nestle Fruita Vitals supply chain. Brand with Nestle is also giving them support
for creating a image of differentiated product plus valuable and healthy product.
They have an outstanding customer services and an excellent product development
capabilities which helps in adding different variants. Nestle created a value which
differentiate itself by making Nectar, pure juices etc by adding new variants
Major raw material of nestle juices is imported from Germany and France. Nestle import
machinery from China, Japan, America and Germany. Nestlé operates through 8 regional
offices in all over the Pakistan. Nestle establish their sale and distribution offices in
different big cities of Pakistan which include Lahore, Karachi, Islamabad, Faisalabad,
Gujrawala etc.
Two factories of Nestle: Sheikhupura Factory 29th Kilometers on Lahore Sheikhupura
road and Kabirwala Factory Khanewal Road, Distt Sheikhupura.
Company establishes the customer centers in each office in the city. They have a toll free
number for its customers where customer can call and can take help of any kind.
They have Strong customer relationship. They maintain market leadership by maintaining
quality. Nestle provide juices which are fit for human body. They use different TV
advertisement channels and different newspapers for advertisement.
Nestle image and its brand strength is a big asset for nestle. Nestle has one of the most
advance and up to date research and development department. The company is
continually innovating new things and introducing new products and flavors. Nestle
Human Resource department is very strong.

Question # 3
Current Ratio
The current ratio of Nestlé in 2006 was 0.89 which improved slightly to 0.94 in 2007 and
then grew to 1.07 in 2008. This ratio has improved from 2006 to 2008 because current
assets grew more rapidly than current liabilities. The current ratio fell from 1.07 in 2008
to 0.85 in 2009 as the increase in current liabilities was more than by the increase in
current liabilities.
Year 2006 2007 2008 2009

Current Ratio 0.89 0.94 1.07 0.85
Quick Ratio
In quick ratio, inventory is excluded from calculation which is generally the least liquid
current asset. Quick ratio fell drastically from 0.45 in 2008 to 0.26 in 2009. This is
because current assets of the company showed a high increase in 2009 more than 20%;
the increase was mostly credited to inventory and stock in trade, which reduced liquidity
of the current assets. Furthermore, the current liabilities is also increases this will give the
bad impact on the Quick ratio.
Year 2006 2007 2008 2009

Quick Ratio 0.46 0.47 0.45 0.26
Inventory Turnover Ratio
The inventory turnover rose from 35 days in 2008 to 42 days in 2009, however, if we
compare it with the industrial average this is well below the industry average of 53
days. Its means still the company turnover ratio is good.

Year 2006 2007 2008 2009

Inventory Turnover(Days) 36.55 36.08 34.68 41.67
Average Collection Period
Average collection period of Nestlé has improved significantly over the three years from
39.04 days in 2006 to 21.05 days in 2008 which is positive sign for the company. This
means that they have reduced the credit period and collection process is improved.
Total Asset Turnover
The total asset turnover of Nestlé is 2.21 times for the year 2009 which is better than the
figures of 2008 and 2007 at 2.05 and 1.78 respectively. This means that Nestlé’s sales
volume increased more than total assets in that year.
Firm invested a reasonable amount in fixed assets during the last year which increased
the amount of total assets and hence growth in asset turnover was limited in spite of 17%
increase in sales in the last year.
Year 2006 2007 2008 2009

Total Assets Turnover 1.7 1.78 2.05 2.21
Debt Ratios
These ratios depict the debt position of a company. Debt position indicates the amount of
other people’s money being used to generate profits. The more debt a firm uses in
relation to its total assets, the greater its financial leverage.
Debt Ratio
Debt Ratio of Nestlé was 80.42% in 2006 which reduced to 74.06% in 2007. This was
because the firm increased its investment in fixed assets, and total assets rose by around
25% whereas total liabilities increased just a little. There was a minor improvement in
2008 when debt ratio was calculated to be 73.69%.
Year 2006 2007 2008 2009

Debt to Equity Ratio 80.42% 74.06% 73.69% N/A
Times Interest Earned Ratio
This ratio measures the firm’s ability to make interest payments. For Nestlé, this ratio
was 5.48 in 2006 which improved to 5.36 in 2007 as increase in profit before interest and
taxes was larger than increase in interest expense (finance cost). In 2009, due to
prominent decrease in discount rate during the year 2009 this will reduce interest
expense, times interest ratio further moved up to 10.47.
Year 2006 2007 2008 2009

Time Interest Earned 5.48 5.36 5 10.47
Profitability Ratios
There are many measures of profitability. These measures enable us to evaluate the firm’s
profits with respect to a given level of sales, a certain level of assets, or the owner’s
investment.
Profit Margin
The profit margin rose from 4.54% in FY08 to 7.30% in FY09. However, still this is
below the industry average of 7.65%. The 7.3% shows that company is generating less
than 8% in profit for every Rupee.

Year 2006 2007 2008 2009

Profit Margins 6.19% 6.39% 4.54% 7.3%
Earnings per Share (EPS)
The EPA depend on the Net Income, the EPS is the key factor who attract the Investor.
EPS rose from 30.06 in 2006 to 39.81 in 2007 due to increase in profit after tax. As
mentioned above, profit after tax fell in 2008 so EPS fell to 34.24.
But in 2009 the tremendous increase in the Net Income the EPS rose from 34.24 to 66.27.
Number of outstanding shares of Nestlé remained same for these four years.
Year 2006 2007 2008 2009

EPS 30.06 39.81 34.24 66.27
Return on Total Assets (ROA)
The return on assets (ROA) have upward trend thereby sustaining the profitability of
company. ROA almost doubled from 9.3% in 2008 to 16.17% in 2009 attributed to a
92.5% increase in Profit after tax by an 11.4% rise in total assets between 2008 and 2009.
The company still below the industry average ROA stood at 21.46%. Its means the
company is not utilizing its resources and assets efficiently.
Year 2006 2007 2008 2009

ROA 10.55% 11.39% 9.31% 16.17%
Return on Common Equity (ROE)
ROE for Nestlé was 53.86% in 2006 which fell to 43.90% in 2007 because of increase in
common stock equity. In 2008, it further declined to 35.38% because earnings available
for common stockholder (profit after tax) fell and common stock equity rose this year as
well. Then ROE increase from 35.38% in 2008 to 67.88% in 2009 as the total equity fell
from Rs 4.888 billion in 2008 to Rs 4.426 billion in 2009. ROE for the industry is
80.18%. Its shows that overall Nestle ROE is below average of Industry.
Year 2006 2007 2008 2009

ROE 53.86 43.9 35.38 67.88
Market Ratios
Price/Earnings Ratio:
P/E ratio of Nestlé jumped from 34.93 in 2006 to 45.47 in 2007 and in the next year, it
fell drastically to 30.13. This fluctuation is due to the changes in market price of shares
and EPS. In the year 2007, profit after tax increased, while the number of outstanding
shares remained same, hence EPS increased. But the increase in market price per share
was more than that of EPS, so P/E ratio improved. Then in 2009 P/E ratio again decrease
from 38.96 in 2008 to 18.8 2009 this is because of the decrease in the Price per share due
to the economic and political instability.
Year 2006 2007 2008 2009

Price/Earning Ratio 34.76 45.22 38.96 18.8
Du Pont Analysis:
ROE=Net income/sales *Sales/Assets*Assets/Total equity
2008
ROE=Profit Margin*Total Asset turnover*Equity Multiplier
ROE=4.54*2.05*3.8
ROE=35.38
2009
ROE=7.30*2.21*4.19
ROE=67.88
year 2006 2007 2008 2009

ROE 53.86 43.9 35.38 67.88
The Due Pont identity tells us that the ROE is affected by the three things:
1. Operating efficiency (as measured by profit margin)
2. Asset use efficiency (as measured by the total asset turnover)
3. Financial leverage (as measured by the equity multiplier)
Weakness in either operating efficiency or assets efficiency gives the bad impact on the
ROE. The higher ROE its means the company is low leverage company. However
increasing in debt also company pay more interest rate on debt which will reduce the
company profit margins, which acts to reduce the ROE. In 2009 the company is paying
low interest as compare to the 2008. Due to pay less interest rate the profit margin
increases from the year 2008 4% to 2009 7%. The increase in profit margin show that the
company operating efficiency increasing. The company is using its assets efficiently and
maximum utilization. ROE depends on the decrease in the interest rate if company pays
less interest then profit margin increase, which acts ROE increase. And the other factors
like Assets use efficiency and financial leverage also affect the ROE if all these factors
are performing well then obviously the ROE will be higher. (Annexure at end)
Question # 4
IFE Matrix
Strengths WEIGHT RATING WEIGHT
SCORE
Company image and brand strength 0.15 4 0.6
Quality conscious 0.05 3 0.15
Research and development 0.10 3 0.3
Good marketing skills and services 0.15 3 0.45
Market share 0.10 4 0.4
Weaknesses
Storage abilities 0.15 2 0.3
High internal costs 0.05 2 0.1
Complex supply chain 0.15 2 0.3
Transportation problems 0.10 1 0.10
Major weakness (1) minor weakness (2)
miner strength (3) major strength (4)

Total 1.00 2.70
This score means that Nestle is good in managing its strengths and handling weaker
areas. Nestlé’s brand image and high market share leads to an above average score in
IFE. Through this analysis strategies for weaker area like transportation problems will be
done for securing better results.
Question # 5
Strategic Group Map for Beverage Industry Overall

Strategic Group Map for Beverage Industry (Juices)
Explanation about Competitors in Beverage industry (Juices)

This strategic group is according to two dimensions which are product availability and
price. Nestle and fresher are higher in price and in product availability too. Country is as
same as nestle and fresher in product availability dimension but low in price dimension.
Haleeb is lower in product availability as it is only available in selected stores with not
complete ranges. Fraz, Naurus and best are lacking in availability and their price is also
low.
Nestlé’s competitors in same product category are Shezan, Haleeb and Al Hilal Fresher.
Shezan is available in juices like regular juices, Allpure juices, Shezan Twist and newly
launched 300ml Shezan juice in bottle. Shezan is using intense distribution so its
availability is no big deal even in a small shop at roadside. Shezan is main competitor of
Nestle.
Haleeb juice section is not performing up to the mark. Although they are into variety of
products like tropico, good day juices but sales were continuously in declining mode.
They changed good day juice packaging but still they are not in front line. Basic problem
for them is the distribution; they are not well in this distribution phase.
Fresher is a product pure juice by Al Hilal. It is available in to different flavors like
guava; orange, strawberry, latest launch is of peach.
Competitive Profile Matrix

From social factor of Pest analysis, we extract Brand awareness and customer loyalty,
because new emerging trend is that people now more concerned about their health. For
this firms are now into efforts of creating awareness about their products and creating an
image of healthy products for getting more loyalty in customers.
In CPM matrix, Nestle received score of 3.65. This is a high figure which shows the
ability of Nestle to influence in competitive advantage of its unique juices flavors. As
Nestle is charging premium prices so its focus is on a selected segment which decrease its
loyalty of customers because other customers who are unable of purchase its juices will
automatically not involved in Nestle juices and loyalty decreases.
Question # 6
Shezan is using low cost strategy. It has largest manufacturing unit of food processing in
Pakistan. Shezan is targeting a broad segment. Shezan has its own fruit farms which
decreases the raw material cost which impact hugely on over all cost of juice
manufacturing.
Fresher from Al-Hilal is using Differentiation strategy. It has differentiated its products
by using stylish bottles with an informational material about the fruit’s origin. It
maintained its fruity taste and promoting as it is not juice it is a fruit inside bottle. Fresher
target upper and middle income groups and positioned as premium product with real fruit
inside.
Haleeb is using differentiation strategy like it competing with 100% pure juice8 segment
(Good Day juices). Tropico is the other brand which haleeb is selling as nectar. Haleeb
tried to differentiate its product but so far it failed in most of the activities like awareness
factor is missing. Consumers are not aware of its products as haleeb is lacking in
promoting its juices. Recently haleeb changes its packing of good day juices but still
awareness factor is missing.
Question # 7
8
http://haleebfoods.com/haleeb/products.php?id=3
Nestle vision for its juices is Nestle to be the “Beverage Wellness Champion” offering
consumers healthy and refreshing pleasures of life through a variety of premium juices
and nectars9.
Nestle in terms of juices, is using Combination of differentiation and focus strategy. Its
brand image and 100% Nectar (Fruita Vitals) gives it a competitive advantage over its
competitors. Research and development which is a big strength gives Nestle a competitor
advantage against its competitors because its Research and development is so strong and
helped him in knowing competitor moves. Nestlé’s main objective is to provide quality
juices.
Loyal customer of Nestle juices will stay with the company which will be a hurdle for
competitor in providing the specialized needs of customers.
High customer loyalty with Nestle juices helps in discouraging new entrants. Consumers
find quality in Nestlé’s juices which restricts them to switch to other brand. Nestle
understand well about the needs of its customers as it is into combination of
differentiation and focus generic strategy, which also make a hurdle for new entrant.
Nestle is less threaten from substitute as compared to competitors due to high customer
loyalty. New entrants will also face difficulty to compete with Nestle juices because
Nestle got half of the market share.
By using combination of differentiation and focus generic strategy, it helps in reducing
the buyer power as buyer will not able to get such quality product (Juices) from any other
competitor. Buyer has less choice because such type of Nestle quality juice is not
providing by any other competitor.
9
http://www.nestle.pk/brands/juices-vision.aspx
On the other hand, supplier power will be higher as most of the supplier lack
differentiation and those less number of suppliers who provide differentiated raw
materials etc gain bargaining power.
Question # 8
Consumers in beverage (Juices) industry, demand for diet products which are healthy for
them. Trends from cola and other carbonated drinks are shifting towards juices and
nectars. New companies are into introduction stage of industry life cycle and struggling
for awareness of their products.
Nestle is in Growth stage of industry life cycle. In previous few years Nestle juices
experienced strong growth. Nestle is market leader with 60%10 share in juices and nectar
segment. Nestle is strong in research and development section and its innovative flavors
with premium quality is an evidence for its success. Nestle is growing in all of its product
segments. Considering its juices, it’s now changed all juices name to Fruita Vitals which
is a step towards healthy drinks. One of its latest ads worked as to promote its juices as a
drink which is beneficial for health. These all are the evidence for its on growth stage of
industry life cycle.
At growth stage nestle is using very well stated strategies as it is continuously promoting
its product (juices) as a heath drink which makes its product a different product from
competition and its give Nestle a edge over those local juice companies which are not
registered and entering into this segment. As its differentiation and focus strategy helps in
10
http://www.nestle.pk/brands/juices-history.aspx
catering the desired needs of its target market and consumers buy its product as they
know the brand worth.
Nestle is using appropriate strategies under growth stage of Fruita Vitals, recently it
changed its just juice perception to a full fledge drink for heath. This was a great move as
lots of new entrants are entering into the market for having a distinctive advantage that
move made by Nestle maintained its position in the mind of consumers etc.
Strategic Direction of Nestle
Mission Statement
“Good Food Good Life”
Our Mission is to provide consumers with the best tasting, most nutritious choices in a
wide range of food and beverage categories and eating occasions, from morning to night,
while maximizing stakeholder’s value.11
Related to Juices, Mission is NESTLÉ to be the “Beverage Wellness Champion” offering
consumers healthy and refreshing pleasures of life through a variety of premium juices
and nectars”
Vision Statement
The Nestlé global vision is to be the leading health, wellness, and Nutrition Company in
the world.12
With regards to beverages Nestle Vision is “NESTLÉ to be the “Beverage Wellness
Champion” offering consumers healthy and refreshing pleasures of life through a variety
of premium juices and nectars” 13
Financial Objectives and Strategic Objectives
Financial Objective
11
http://www.nestle.com/AboutUs/Pages/AboutUs.aspx
12
http://nestle.pk/index/strategies.aspx
13
http://nestle.pk/brands/juices-vision.aspx
According to Managing Director (Ian James Donald), we want to become 100 Billion Pak
Rupee firm by Year 2014.
14
Strategic Objective
Nestle strategic objective revolves around consumer satisfaction. NHW (Nutrition,
Health and Wealth) is a main objective on which Nestle is working. As MD of Nestle
directs that consumers are at the heart of Nestle, anything you do, think of the end
consumers.
Commitment to excellence, good food & good life are words that best describe Nestlé.
We at Nestlé Pakistan are a team of people committed to adding value to the lives of the
Pakistani people by helping them live a life full of wellness & vitality.
Nestlé with its operational excellence, best management practices and total commitment
to quality has our consumer at the heart of everything we do.
Our aim is to make our consumers well aware of what they eat and how to take care of
their nutritional needs.
Nestlé is on accelerated growth with a motto to celebrate life by providing its consumers
quality food products that are essential to good living. 15

14
http://nestle.pk/index/mdmessage.aspx
15
http://nestle.pk/index/mdmessage.aspx
Additional Part-Framework from BSP Course Pack page# 36
Mission Statement
Good Food Good Life”
Our Mission is to provide consumers with the best tasting, most nutritious
choices in a wide range of food and beverage categories and eating
occasions, from morning to night, while maximizing stakeholder’s value.
• From spreading awareness about nutrition and wellness to digging
wells in the Thar Desert and succoring earthquake victims, we are
committed to serving our country and its people.
• Our company is seen as the No. 1 career destination for talented,
motivated and ambitious professionals
• Fully integrated systems (Nestlé Pakistan, suppliers, customers)

ensure efficient business processes.
IT VALUED ALL
STAKEHOLDERS
AS A WHOLE.
1. Customers YES
2. Suppliers YES
3.Managers/employees YES
4. Community at large YES
5. Owners
6. Others
Corporate Level Strategy

Nestle is pursuing Diversification as corporate level strategy. Historically Nestle focused
to small range of products like food and beverages but from 1970 Nestle is in effort of
exploring for diversifying its product base. Nestle is entering into different countries
since now Nestle is operating into 115 countries. While maintaining same corporate
principles, it enters into different cultures. Nestle Geographic expansion takes place into
Africa, America, Asia, Europe and Oceania. Nestle is maintaining its commitment to
follow and respect all applicable local laws in each of its market. Growth and profitability
are main drivers for diversification strategy. As nestle approaches for increasing growth
and for product expansion and market expansion.
Factors which create Value and Synergies
Factors which create value for Nestle are Innovation and renovation, Communication
with consumers, Availability of products and Operational efficiency.
With strong marketing as well as Research and Development, Nestle brings innovative
ideas into its products and same helps as improvements
Perfect communication with consumers through TV Commercials and newspaper
advertisements and its product availability created a synergy for whole firm.
Competency Tree
Core Competence: For Nestle, core Competence is Infant Formula Milk, which
nourishes its whole business.
Core Product: it is technology, Research and Development. Through R&D Nestle is
created a valuable image allover the world. With R&D Nestle produces diversified
products with Nutrition, Health and Wealth aspects.
Strategic Business Units:
1. Milk Dairy and Chilled Dairy
2. Beverages
3. Bottled Water
4. Baby Food
5. Food
6. Breakfast Cereals
7. Chocolate and Confectionary
Core competency tree of Nestle is given below.

Evidence of Nestle Corporate Strategy
Nestle diversified not only into its product ranges but also it enters into different markets
all over the world. It is operating in to 115 countries and catering customer’s needs of
different cultures which is evidence that Nestle opted Diversification strategy.

In year 1977, Nestle diversified through acquiring Alcon Laborites lnc, who was leader in
eye care. Nestle is involved into related diversification but as it acquired Alcon and
L’Oreal. For this still synergies do exist for different products. All innovations for heath
care transferred to food and beverages of Nestle. Nestle is focusing on Nutrition, Heath
and wellness for each of it product line.
Co-relation of Corporate Strategy with 5 Forces
Within food products, competition is quite intense. Through variation in Nestle products
and its diversified portfolio business, it is performing very well and outperforms
competitors like Unilever and P&G.
Although threat of new entrants is high but Nestle as a leading company has potential to
challenge new companies by a diversified portfolio of its products.
Nestle maintaining its diversified portfolio so it has good relations with its suppliers and
buyers. Nestle have good contacts with their suppliers. Nestle tries to reduce threat of
substitute by offering new flavors and variants into its product line which gives an edge
over other substitutes in the market.
Business Portfolio Analysis

Explanation
Proposed strategy for Nestle is as shown in BCG Matrix that Breakfast cereals are in the
question mark quadrant, for bringing it to a star there should be enough investment is
needed. As Nestle focused on its dairy products and enjoying high relative market share
where market growth rate is high as well.

Explanation
MD is on the top. Under Managing Director comes Head of Committee, followed by
General Manager of each SBU. Under the General Managers, departmental Heads of
each department like HR, Sales and Marketing, Finance etc comes. Under each
Department such as sales, three zonal heads comes I-e Sales Manager North, South and
Central. Nestle have made their structure in such a way that it can be easily be align with
its generic strategy that is differentiation strategy. The structure is decentralized and
delegation of authority is observed. Decision making is not only don on the top
management but middle and lower management is also involve in decision making in this
many new ideas come which help in differentiating its product with the competitors.
Strategic Changes last 3 years
Nutrition, Health and Wellness concept has been added into Nestle business. Due to
changes in social trends Nestle is adapting this NHW concept for its all SBU’S.
Strategic Changes last 1 year
Adding various variants into its product lines like if see its Nestle Fruit vitals Brand, its
being adding flavors like latest is Peach and it promoting its Nestle Fruita vital as a brand
of healthy beverage brand and through a tag(Slogan) line Rise and Shine, it is promoting
its juices. If we see Maggi Noodles, Nestle recently introduced new variety of its noodles
for catering heath conscious people who prefer less salt and No Trans Fats. More over it
introduced Vegetable Atta Noodles which is more nutritional product than before
noodles.
Evolutionary and Revolutionary Changes
From the interview which we have taken from Asad Ahmed, we have come to know that
changes in Nestle are Revolutionary. The changes are revolutionary because as
competition in food industry is increasing lots of new entrants are entering and capturing
their share so for maintaining Nestlé’s image as number one food and beverages
company, Nestle quickly with in years changes its strategy towards health preferences for
consumers.
Magnitude and Pace of Change
Scope of change
Broad Narrow
High Revolutionary Focused

Amplitude of change change radical change
Narrow
Comprehensive moderate Evolutionary
change change
Due to increasing competition
and changing trends as consumer preferences, for this magnitude is quite large. For
instance Nestle adopted a new strategy which focuses primarily on Heath and Nutrition
and for this Nestle is spending large amount on R&D for developing pure healthy food
and beverages etc.
Due to intense competition Nestle is changing its strategies at fast pace according to the
need of market.
Issues revolves under Change Process
Due to changing pattern of buying from buyers as they demand healthy and hygiene food
and beverages, Nestle made changes to its overall strategy of SBU’S for maintaining its
image as number one company in this business. Pattern of buying drinks is changed from
fizzy drinks to juices and nectars. Due to an increase in the competition like entering of
new companies in the Pakistani drink industry such as Engro introduced its juices in an
aggressive manner and many international brands enter in the Pakistani market so to
maintain the market share and to remain the market leader nestle tried to change its
strategy. As in the last few years Pakistani media has expanded a lot in many ways due to
this people are more aware of the offerings of different companies as this was a kind of
threat for nestle it changes its strategy and it is focusing more on TV and radio
advertisement.
Steps for Learning
Nestle is continuously improving its learning cycle through setting its KPI (Key
performing Indicators) and assigning targets appropriate according to demand going
upward.
Detailed Financial Analysis
Nestle Pakistan is a member of the growing FMCG Market in Pakistan and it has several
competitors. Nestle Pakistan faces the biggest competition from Unilever Pakistan and,
which is involved in marketing various same products, which Nestle Pakistan is
producing and marketing.
The industry's overall performed fairly well during 2009. The industry value of the Profit
margin was 7.65%, while gross profit margin was even higher than the profit margin,
standing at 31.96%.
Liquidity of the overall industry is quite same and has the same trend of worsening with
quick ratio standing at 0.27% and current ratio is at 0.84%.
Asset management ratios show increase in the operating cycle of the industry, which has
risen from 46 days in 2008 to 53 days in 2009. This indicates tightening liquidity in the
market with the companies being unable to convert the sales into cash quickly.
Debt management is again quite similar because all the multinationals operating in
Pakistan and controlling the major chunks of the market are fairly established and have
the same capital structure with very few differences.
Market ratios indicate that investor confidence in the companies is high with
continuously rising share prices. Furthermore, companies on average in the industry have
shown consistent growth in EPS, dividend payout and book value.
Current Ratio
The current ratio of Nestlé in 2006 was 0.89 which improved slightly to 0.94 in 2007 and
then grew to 1.07 in 2008. This ratio has improved from 2006 to 2008 because current
assets grew more rapidly than current liabilities. The current ratio fell from 1.07 in 2008
to 0.85 in 2009 as the increase in current liabilities was more than by the increase in
current liabilities.
Year 2006 2007 2008 2009 Industrial Avg

Current Ratio 0.89 0.94 1.07 0.85 0.84
Quick Ratio
In quick ratio, inventory is excluded from calculation which is generally the least liquid
current asset. Quick ratio fell drastically from 0.45 in 2008 to 0.26 in 2009. This is
because current assets of the company showed a high increase in 2009 more than 20%;
the increase was mostly credited to inventory and stock in trade, which reduced liquidity
of the current assets. Furthermore, the current liabilities is also increases this will give the
bad impact on the Quick ratio.
Quick Ratio 0.46 0.47 0.45 0.26 0.27

Inventory Turnover Ratio
The inventory turnover rose from 35 days in 2008 to 42 days in 2009, however, if we
compare it with the industrial average this is well below the industry average of 53
days. Its means still the company turnover ratio is good.
Inventory Turnover(Days) 36.55 36.08 34.68 41.67 53

Average Collection Period
Average collection period of Nestlé has improved significantly over the three years from
39.04 days in 2006 to 15 days in 2009 which is positive sign for the company. This
means that they have reduced the credit period and collection process is improved.
Year 2006 2007 2008 2009

Average Collection Period 39 31 21 16
Total Asset Turnover
The total asset turnover of Nestlé is 2.21 times for the year 2009 which is better than the
figures of 2008 and 2007 at 2.05 and 1.78 respectively. This means that Nestlé’s sales
volume increased more than total assets in that year.
Firm invested a reasonable amount in fixed assets during the last year which increased
the amount of total assets and hence growth in asset turnover was limited in spite of 17%
increase in sales in the last year.

year 2006 2007 2008 2009

Total Assets Turnover 1.7 1.78 2.05 2.21
Debt Ratios
These ratios depict the debt position of a company. Debt position indicates the amount of
other people’s money being used to generate profits. The more debt a firm uses in
relation to its total assets, the greater its financial leverage.
Debt Ratio
Debt Ratio of Nestlé was 80.42% in 2006 which reduced to 74.06% in 2007. This was
because the firm increased its investment in fixed assets, and total assets rose by around
25% whereas total liabilities increased just a little. There was a minor improvement in
2008 when debt ratio was calculated to be 73.69%.
year 2006 2007 2008 2009

Debt to Equity Ratio 80.42% 74.06% 73.69% 76.18
Times Interest Earned Ratio
This ratio measures the firm’s ability to make interest payments. For Nestlé, this ratio
was 5.48 in 2006 which improved to 5.36 in 2007 as increase in profit before interest and
taxes was larger than increase in interest expense (finance cost). In 2009, due to
prominent decrease in discount rate during the year 2009 this will reduce interest
expense, times interest ratio further moved up to 10.47.

year 2006 2007 2008 2009

Time Interest Earned 5.48 5.36 5 10.47
Profitability Ratios
There are many measures of profitability. These measures enable us to evaluate the firm’s
profits with respect to a given level of sales, a certain level of assets, or the owner’s
investment.
Profit Margin
than 8% in profit for every Rupee.
year 2006 2007 2008 2009

Profit Margins 6.19% 6.39% 4.54% 7.3%
Earnings per Share (EPS)
The EPA depend on the Net Income, the EPS is the key factor who attract the Investor.
EPS rose from 30.06 in 2006 to 39.81 in 2007 due to increase in profit after tax. As
mentioned above, profit after tax fell in 2008 so EPS fell to 34.24.
But in 2009 the tremendous increase in the Net Income the EPS rose from 34.24 to 66.27.
Number of outstanding shares of Nestlé remained same for these four years.
year 2006 2007 2008 2009

EPS 30.06 39.81 34.24 66.27
Return on Total Assets (ROA)
The return on assets (ROA) have upward trend thereby sustaining the profitability of
company. ROA almost doubled from 9.3% in 2008 to 16.17% in 2009 attributed to a
92.5% increase in Profit after tax by an 11.4% rise in total assets between 2008 and 2009.
The company still below the industry average ROA stood at 21.46%. Its means the
company is not utilizing its resources and assets efficiently.
year 2006 2007 2008 2009

ROA 10.55% 11.39% 9.31% 16.17%
Return on Common Equity (ROE)
ROE for Nestlé was 53.86% in 2006 which fell to 43.90% in 2007 because of increase in
common stock equity. In 2008, it further declined to 35.38% because earnings available
for common stockholder (profit after tax) fell and common stock equity rose this year as
well. Then ROE increase from 35.38% in 2008 to 67.88% in 2009 as the total equity fell
from Rs 4.888 billion in 2008 to Rs 4.426 billion in 2009. ROE for the industry is
80.18%. Overall, Nestle Pakistan's profitability ratios remained well below the industry
average showing high competition from the competitors.
year 2006 2007 2008 2009

ROE 53.86 43.9 35.38 67.88
Price/Earnings Ratio:
P/E ratio of Nestlé jumped from 34.93 in 2006 to 45.47 in 2007 and in the next year, it
fell drastically to 38.96. This fluctuation is due to the changes in market price of shares
and EPS. In the year 2007, profit after tax increased, while the number of outstanding
shares remained same, hence EPS increased. But the increase in market price per share
was more than that of EPS, so P/E ratio improved. Then in 2009 P/E ratio again decrease
from 38.96 in 2008 to 18.8 2009 this is because of the decrease in the Price per share due
to the economic and political instability.
year 2006 2007 2008 2009

Price/Earning Ratio 34.76 45.22 38.96 18.8
Horizontal and vertical Analysis:
Net sales of the Nestle have been continuous increasing since 2004 by increased almost
20% in 2009 from 34 billion to 41 billion. The major contribution of the increase in sale
was nestle milk pack and nutrition products 20% increase in sale of the milk related
products and 24% increase in sale of the beverages.

Increase in sales due to the well diversification of the portfolio, company introduces a
range of new brands such as NESQUIK MILK ENHANCER, LACTOGEN GOLD &
CERELAC FRUIT CEREALS. Furthermore export of the Nestle products increased by
the 48%.
Gross profit for Nestle Pakistan rose 32.91% in year 2009 from Rs 8.952 billion to Rs
11.898 billion it shows the significant increase in net sales. Net operating expenses
sharply increases by almost 300% due to the quality issue in milk related product during
the year 2008 this will reduce the EBT to 17%, This significant rise can be contributed
to strict-controlled operations of the company and a rise in other operating income
generated by Nestle Pakistan.
Nestle Pakistan's PAT in 2009 was Rs 3.005 billion, rising from Rs 1.552 billion in year
2008, an increase of 92.5% as a result of the higher EBIT and a significant decrease in
financing costs incurred from Rs 0.557 billion in FY08 to Rs 0.442 billion in year 2009
(20.68%). Finance costs reduced owing to lowering of the policy rate by SBP, which
allowed easier access to bank loans than in the previous year.
The COGS increase tremendously by 15% in year 2009 from 25 billion to 30 billion. The
main contribution to increase in COGS was the increase in price of the raw material and
the labor cost and the employee salaries.
The net income of the company increase by almost 100% but on the other hand relatively
the expenses are increase by 15% to 20%. Nestle decrease its Financial cost by the 15%
relative to the last year. It also shows the company decreasing its debt.
than 8% in profit for every Rupee. The past performance shows that company
continuously increasing its profit margin.
Du Pont Analysis:
ROE=Net income/sales *Sales/Assets*Assets/Total equity
2008
ROE=4.54*2.05*3.8
ROE=35.38
2009
ROE=7.30*2.21*4.19
ROE=67.88
year 2006 2007 2008 2009

ROE 53.86 43.9 35.38 67.88
The Due Pont identity tells us that the ROE is affected by the three things:
4. Operating efficiency (as measured by profit margin)
5. Asset use efficiency (as measured by the total asset turnover)
6. Financial leverage (as measured by the equity multiplier)
Weakness in either operating efficiency or assets efficiency gives the bad impact on the
ROE. The higher ROE its means the company is low leverage company. However
increasing in debt also company pay more interest rate on debt which will reduce the
company profit margins, which acts to reduce the ROE. In 2009 the company is paying
low interest as compare to the 2008. Due to pay less interest rate the profit margin
increases from the year 2008 4% to 2009 7%. The increase in profit margin show that the
company operating efficiency increasing. The company is using its assets efficiently and
maximum utilization. ROE depends on the decrease in the interest rate if company pays
less interest then profit margin increase, which acts ROE increase. And the other factors
like Assets use efficiency and financial leverage also affect the ROE if all these factors
are performing well then obviously the ROE will be higher.
Analysis of Cash Flow Statement:
The major part of the cash is generated from the company operation almost 6.3billion
cash is generated from the day to day operation; this amount is increased by the 33% as
compare to the last year. But on the other hand in the financing activities instead of
generating the cash company increase its investment in differed project or assets. This
shows that the company is expanding yourself making its investment in assets or
launches new projects. If we talk about the financing activities the company paid an
almost double cash dividend as compare to the last year 2008. This dividend shows the
company profit abilities and it also increase the invest confidence to invest in this
company. On the other hand the company borrows the money on the short term bases but
this borrowing is not taken from the financial institution, the company barrow this short
term long from the associated companies. Its means the Nestle no need t pay the financial
cost, the cost of the borrowing will be automatically adjust in the consolidated profit and
loss statement.
CAPM
The required rate of return (k) is high because risk free rate is high at 11.85%, which is
taken from thirty days T- Bill rate. Market beta (β) for Nestle is calculated as 0.42 from
market stock price and market index of twenty four months, risk premium (Rm- Rf) is
8%, thus giving a required rate of return as 15.21% The CAPM tells as that investors are
willing to take on more risk only if they can reasonably expect a higher return. It
measures the relationship between expected return and risk.
As the returns of the risk free security increased with time so did the required rates of the
company.
CAPM is calculated using the following equation:
K= Rf + β (Rm- Rf)
WACC
The weighted average cost of capital is used as the hurdle rate for investment decisions,
and as it is the measure to be minimized in order to find the optimal capital structure for
the company. For Nestle the WACC for year 2009 is 12.10%. The weight of debt (Wd)
was 27% and weight of equity (We) was 73% which clearly indicates that Nestle is more
financed by its equity portion. Further cost of debt (Kd) was 6.83% and cost of equity
(Ke) was 15.21% This shows that Nestle is a good company and its cost of debt is lower
than the cost of equity, meaning it can manage a cheaper funding by debt.
To calculate WACC we used the following formula:

Wd KdT +We Ke
Major Problems
Due to extra ordinary increase in the demand of Juices, Nestle is facing difficulties in
calculating how much investment is required and how to cope with such immense
increase.
As nestle is only targeting the premium class in juices so with differentiated product its
focus is limited to small target. Nestle is focusing more in big cities, villages are
neglected under Nestle Strategy. This is unfair because 70% of Pakistani population lives
in rural areas.
Nestle has complex supply chain of its juices (FruitaVitals) which ultimately hamper the
efficiency of overall process of juice production.
Recommendations
Nestle is facing difficulty in predicting demand of juices, so there should be a proper
efficient mechanism for accurately predicting the demand forecast of juices.
Nestle should launch a product which cater lower to middle segment demands for juices.
As more that 80% of Pakistanis population is middle and lower class so this will be a
great opportunity for nestle to diversify and to expand its market share.
As Nestle has ware houses only in their factories which are in sheikhopura and
kabirawala, and like for catering demand of south they transfer juices to kabirawala
factory ware house. According to us if they increase the number of warehouse and built
warehouses apart from their factories as well then it will help to minimize storage and
transportation cost.
Currently Nestle is producing 50,000 tons juice annually, as demand rate is increasing
rapidly we are recommending Nestle to increase its production capacity approx up to
70,000 to 750000 ton annually.
Nestle supply chain is very complex; it should try to minimize the wastages in the supply
chain and should address the entire problem in order to have an efficient and responsive
supply chain system.
Nestle has lot of potential for expansion. It should expand its beverage business to other
smaller towns and cities and in those geographical areas where the demand is more and
the supply is less. Existing markets are not fully tapped and the company can increase its
presence by penetrating further.
Nestle should introduce new flavors (as the new peach flavored is introduced recently) so
that it can differentiate it self from other competitors.

Since manufacturing of some products is cheaper in Pakistan (which also includes the
manufacturing of beverages) as compared to other countries so it can become an export
hub and can cater many other countries.
Nestle should improve its relationship with government and to do this the best way is to
have friendly relationship with top politicians of Pakistan.
The market for beverages is growing rapidly so there is a great opportunity for nestle to
invest more and gain maximum market share.

Conclusion
As a whole Nestle is one of the leading food and Beverages Company in Pakistan. With
respect to Juice segment it is enjoying up to 60% market share. It operates with state of
the art factories situated at Sheikhupura and Kabirwala. Nestle bring a change in overall
Juice market of Pakistan as people are transferring from fizzy drinks which are
carbonated drinks towards healthy juices with full of nutrition’s.
Nestle enjoys first mover advantage in juice segment as it first introduced lots of flavors
which were not present in the market and it created a image in the consumers mind which
leads to consumer loyalty.
Although Nestle is facing difficulty in coping rapidly increasing demand in juices, but it
is trying its level best to maintain its market share and remains it market leader position.
Nestle is pursuing Diversification strategy at corporate level and it entering into lots of
different markets and segments. It is using differentiation and focus strategy for its Nestle
Fruita Vitals. During the last couple of years Nestle is focusing primarily on Heath and
Nutrition for wellbeing of consumers.
Nestle always keeps itself up-to-date and change its strategy according to circumstances
revolving in the environment.

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FINAL PROJECT “BSP” 1

Business Strategy and Policy, which we have studied in the class.

and tactics uses in Business.

operational fields as well as in marketing of their products.

Core competencies and Identify 2 or 3 major problems and then present

recommendations for it.

CHF 108 bn.

consistently delivering on their promises. These objectives and behaviors are

The Nestlé Group is managed by geographies (Zones Europe, Americas and

Switzerland-based Nestlé SA, first acquired a share in Milkpak Ltd.

philosophy, and their aim is to bring products to people's doorsteps.

food products have evolved from mere commodities to a statement of lifestyle. As

tastes and lifestyle.

nutritional information about the product is accessible thanks to their user-friendly

nutritional labeling and guidelines.

commercial mode of communication, offering programmers catering to better child

nutrition and good parenting.

Their widespread global network presents opportunities to learn from innovative

available all around the world!

from other companies.

three distributors in a city due to prevent from their own competition.

How Global is Pakistan economy

The impact of terrorism is so badly affecting Pak Economy. It resulted in decrease of

Foreign Investments, stock exchange is suffering.

GDP as there was no viral disease this year.

and services yet the condition are deplorable.

Impact on textile industry:

negative impact on the industry’s competitiveness internationally, because of the entire

cost also increasing.

Link with Article Competing with Giants

globalization is low so this industry seems to be Defender in positioning its product

Past 5 year trends in Beverage Industry

Cold Beverage Market

into two segments.

• Fruit-flavored drinks (no juice content)

• Juice drinks (up to 24% juice)

• Nectars (25-99% juice)

supply in urban areas and increasing health consciousness.

market and prove to be tough competition for Diet Coke.

products across the country.

sell at cheap prices in lower class, urban areas.

Division of Beverage Industry

Juices, 22.62% Cola Drinks,

budget 2010-2010 which is:

Withdrawal of restriction on adjustment of FED paid on beverage concentrate is aimed at

to satisfy the needs of customer.

yet the result is positively in favor of beverage companies.

less-tech based in nature, technology in this industry is therefore limited to function as a

catalyst to improve production capacities, speed of product manufacturing cycles and

inventory management etc.

Forecast what will happen to the industry in the upcoming 5 year

taking place at a good pace.

Threat of New Entrants

Threat of New entrants is high because of following reasons:

can also do so.

make profits in this entry.

Bargaining Power of Supplier

suppliers of plant and machinery.

As there is no significant cost of switching suppliers, the bargaining power of supplier

trade in agricultural products. This is an advantage that can strengthen supplier’s

suppliers. This decreases bargaining power of supplier.

influence over total cost of production.