Project On Nestle [PDF]

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A PROJECT REPORT ON NESTLE

FOR THE PARTIAL FULLFILLMENT OF BACHELOR OF BUISNESS ADMINISTRATION GURU GOBIND SINGH INDRAPRASTHA UNIVERSITY SUBMITTED BY: VIPUL BBA (GEN) SUBMITTED TO: Mr. AMIT GUPTA

COURSE CORDINATOR OF BBA (GEN)

MAHARAJA AGRASEN INSTITUTE OF MANAGEMENT STUDIES AFFILATED TO GURU GOBIND SINGH INDRPRASTHA UNIVERSITY

1

ACKNOWLEDGEMENT I here with take the opportunity to express my profound sense of gratitude and reverence to all those who have helped and encouraged me towards the successful completion of the project .It’s been a great experience working on NESTLE .It give me complete insight about how an organization not only survives in cutthroat completion but also maintain a killer instinct in the competitive world. I would like to thank my project guider Mr. AMIT GUPTA for his immense guidance .A valuable help and provided me the opportunity to complete the project under his guidance I would like to thanks all the faculty members of MAHARAJA AGRASEN INSTITUTE OF MANAGEMENT STUDIES for guiding me and supporting me in the completion of this project from time to time Last but not least my greatest gratitude to the almighty and my parents, without their support this dream would have remained dream

CERTIFICATE

2

This is to certify that VIPUL study in our institute MAHARAJA AGRASEN INSTITUTE OF MANAGEMENT STUDIES was allotted the project on “NESTLE” by Guru Gobind Singh Inderprastha University has successfully completed it under the guidance of Mr. AMIT GUPTA

DECLARATION I here by declare that the project work entitled “ NESTLE” is an authentic work carried out by me under the guidance of MR. 3

AMIT GUPTA (project coordinator) for a practical fulfillment of the degree of

BBA(GEN) and this has not been submitted

anywhere else for the award of any degree

Name of the student VIPUL

4

INDEX CHAPTER 1 • OJECTIVE • RESEARCH METHODOGY CHAPTER 2 • INTRODUCTION • COMPANY PROFILE CHAPTER 3 • ANALYSIS OF DATA • PRODUCTS CHAPTER 4 • CONCLUSION • LIMITATIONS BIBLOGRAPHY ANNEXURE

EXECUTIVE SUMMARY 5

The current millennium has unfolded new business rules most the significant of them being that company has to constantly look into minds of the customer. Customer loyalty plays a significant role and today securing that loyalty requires quality right price and of course last but not the least i.e. creating awareness about their service. As a trainee, I was given knowledge about the way and style of their working, their routine and their environment. It was a great experience in getting under such a reputed company, which has in it the ability to retain customer.

6

OBJECTIVE To identify the services and products offered by NESTLE.  To study and analyze the customer perception and preference about NESTLE.  Finally to draw the various conclusion and recommendation on the on the basis of study conducted. 

7

RESEARCH METHODOLOGY

Managers need information in order to introduce products and services that create value in the mind of the customer. But the perception of value is a subjective one, and what customer’s value this year may be quite different from what they value next year. As such, the attributes that create value cannot simply be deduced from common knowledge. Rather, data (information) must be collected and analyzed. The goal of Marketing Research (analysis) is to provide the facts and direction that managers need to make their more important marketing decisions. The analysis involves the following steps:  Define the problem.  Determine research design.  Identify data types and sources.  Determine sample plan and size.  Collect the data.  Analyze and interpret the data.  Prepare the research report.

8

For the purpose of study, data from the in-house survey conducted by the marketing department (secondary data) has been used and also for coming out with the recommendation. It was also felt that mere secondary data would not provide in-depth information for the analysis, hence it was decided that interactive discussions with the managers and the head of every department would help in an in-depth and true understanding of challenges faced by the department. The methodology adopted was to gather relevant information from the appropriate department, correlate the information obtained and to present the information in a logical and systematic manner.

9

INTRODUCTION Nestle India Ltd. is a part of the Nestle SA group which is one of the largest manufacturing companies in the world. Henri Nestle founded the company (with its headquarters in Vevey, Switzerland) in 1867. Nestle has two major divisions - Le Societe des Produits which looks after the production and marketing and Nestec Ltd. which provides the technical assistance to the group companies. Since its inception in 1867, the company has diversified it product range from the infant weaning formula (which was its first product) to beverages, confectionery, ice creams and pet foods among others. In a span of 130 years the company has ranked 26th among the world’s largest corporations and boasts of a turnover of $ 48932.5 million and employee strength of 221,144 people spread over 75 countries worldwide (Annexure A).

Nestle has long been viewed as one of the most multinational of the multinationals. This is because today only 2% of its turnover comes from Switzerland. Out of the remaining 98%, Europe contributes 43.5%, North and South America contribute 36.5% and Africa and the Asia Pacific Regions contribute 18%.

10

Company Profile Although Nestle has been associated with India since the beginning of the century through the importing and trading of infant food and condensed milk, manufacturing in India only began with the setting up of the factory in Moga in 1962. The first product to be manufactured was Milkmaid. In the last 35 years the company has shown rapid progress and has increased its product range to 80 products as of October 1997. Nestle India Ltd. now ranks 22nd amongst India’s most valuable companies (Annexure B) . Its gross revenue has increased from Rs 1001.1 crores to Rs. 1213.8 crores in 1996. This remarkable growth has been achieved through -

•

Rapidly creating greater manufacturing capacity, both at factories as well as with co-packers.

•

Taking measures to ensure availability and improved quality of key raw materials - fresh milk in particular.

•

Strengthening of the sales and distribution network (particularly in smaller towns)

•

Ambitious and cohesive manpower training and development programs for the personnel of the company across all disciplines.

11

The company’s exports also resulted in a very successful year in this area as exports grew by 27% to Rs. 250.8 crores in 2003. The main contributors to this increase were the export of tea and coffee to USA, Japan, Russia, Hungary and Taiwan.

Nestle India Ltd. wants to further increase its operations in India and has started construction of its sixth Factory at Bicholim, Goa for the manufacture of culinary products (a key thrust area) for this purpose.

12

The Spirit of Nestle “Organisational excellence is never achieved through a one time effort; It is always a process of continuous

improvement across a

number of areas of operation.”

A key factor for Nestle’s success has been its quest for continuous improvement through ushering in greater productivity and more efficiency in everyday operations.

Despite the infrastructure

impediments in India, Nestle has set itself high standards of business performance. This is reflected through the essence of the company - its mission statement.

Nestle’s mission

“To be in every way the leading company in the Indian food industry and a good corporate citizen by providing our consumers with superior quality products, our shareholders with rapid growth & fair returns and our employees with a challenging and satisfying work environment.”

To translate this spirit into a planned and measurable process, Nestle has set up key objectives across all divisions.

13

Key Objectives

Production

•

To optimise production costs while enhancing product quality so as to make Nestle products even more competitive in the market place.

Sales and marketing

•

To reach a sales turnover of 3000 crores by the year 2003

•

To double the turnover every three years

People

•

To help employees to retain a long term perspective and integrate them fully with the company’s business goals

•

To retain a broad perspective while addressing individual needs

•

To view growth as a continuous process

•

To concentrate on attitudinal changes by developing leadership skills, an appreciation of interdependence between units and the enhancement of a sense of belonging to Nestle. 14

Finance

•

To maintain profit levels above the average for the food industry in India.

The Business Excellence and Common Application (BECA) initiative essentially translates the spirit of the Journey towards excellence into an organised, systematic and measurable approach. The aim is to aid the achievements of the company’s key objectives of rapid growth by ensuring that all operations incorporate the spirit of meaningful planning, effective cost control and efficient implementation. BECA is about “ planned improvement in everything we do ”

Factories

Nestle has 6 factories in India. These are

1. Moga (punjab) : The Nestle factory in Moga has the pride of being the first and most comprehensive factory of Nestle India. Set up in 1962, it represents the core competence of Nestle India in the manufacture of milk products (Everyday, Milkmaid), beverages, culinary products (Maggi sauces, noodles, soups etc.), weaning cereals (Cerelac) and infant milk formulae.

2. Choladi ( Tamil Nadu): The factory in Choladi started production in 1967. Situated about 60 miles from Calicut, the factory today has 81 15

employees and produces 1.5% of the total turnover of Nestle India. It is a 100 percent export oriented unit which processes freshly picked tea leaves into soluble instant tea.

3. Nanjagud (Karnataka): Production in this factory began in 1989 with the manufacture of Nestle instant coffee and Sunrise. Today in addition to instant coffee the factory also manufactures health beverages. The plant to manufacture MILO was also commissioned at this factory. This factory employs 145 people and is cited as a model in terms of environment protection for its installations to purify waste water as well as for its provisions for recycling coffee wastes.

4.Samalakha (Haryana): This factory was set up in 1993. Located 70 kilometres from Delhi ,

it manufactures weaning cereals , culinary

products ,health beverages and milk products. Recently the expansion of manufacturing capacity for Milkmaid Dessert Mixes was undertaken at this factory as this new and unique product category is viewed to have great potential in the future.

5.Ponda (Goa): This Kit-Kat factory was set up in Goa in 1995 at a cost of Rs. 50 crores. It represented a major step by Nestle towards becoming the Number 1 Chocolates and Confectionery Company in India.

6.Bicholim (Goa)

16

The construction work at this new factory is progressing with speed. This factory will soon commence the manufacture of culinary products, which is a key thrust area for the company and will include latest technological improvements relating to this category of products.

As a part of Nestles efforts towards continuous improvement and excellence in Manufacturing operation, a Moga Improvement team (MIT) was put in place at the Moga factory. The team comprised of international experts from Nestle Technical Services (NESTEC) and the local staff. In 1996, it embarked on a program with the single minded objective of optimizing production costs while enhancing the product quality so as to make Nestle products even more competitive in the market place. Drawing upon Nestle’s global experience and manufacturing expertise in 75 countries the team identified the following areas for detailed study -

•

Process improvement to ensure the optimal usage of resources

•

Improvement of operational efficiency

•

Cost optimization

A series of small but critically important initiatives ranging from redesigning laboratories to palletisation of raw materials and packaging material utilization, manufacturing and filling loses and labour man hours resulting in substantial savings and improved productivity and 17

machine utilization. In addition, several non tangible benefits in the form of systems for sustainable improvement in areas like factory maintenance planning tools , down time recording systems and performance measurement tools were also realized .

This project was highly successful and the company is now implementing its key learning’s of MIT in its other factories.

In a country as vast and diverse as India, supply chain management is absolutely critical to rapid growth. Through BECA, Nestle has concentrated heavily on streamlining and improving their supply chain management in order to make it more dependable, more cost effective and most importantly, more responsive to market needs.

For better supply chain integration the planning of key operations

-

purchase,

production,

distribution

and

sales

are

synchronised to ensure that everybody works towards a common business plan. Monthly objectives are broken down into weekly and (wherever necessary) into daily plans and monitored regularly to ensure smooth implementation and quick corrective action when needed . Major benefits accrued thus far include reduction in working capital through lower inventories of finished goods and materials, better stock availability and reduction in obsolescence of materials.

In addition to traditional performance indicators, quantifiable performance measures have been identified and implemented in all 18

functional areas such as sales planning, production output, quality assurance,

material

ordering

transportation

and

warehouse

management. These measures are monitored regularly to gauge the extent of improvement and identify root problems for taking corrective actions.

Teams have been put in place at all factories and sales offices to ensure the implementation is continuous and self-sustaining. Areas of improvement are regularly identified and time bound action plans established. For this purpose, standard tools such a Total Quality Management(TQM), Kaizen, 5S and Small Group improvement activity (SGIA) are being extensively used.

The efficacy of this hierarchical structure is seen in Nestle’s performance over past few years of various products.

By 1989 the company had achieved a sales figure of approximately Rs. 258 crores. 1989 was the year of launches. Seven new product lines were launched in this year. This was also the year in which the Nanjagud factory was set up. By the year 1992, this sales figure was touching Rs 500 crores. In the 1995 the pace of launches quickened and since the construction of the factory at Samalakha, 20 new products have been introduced. By 2003, Nestle had about 76 different products in its portfolio with various new products in the pipeline as well. The sales figure now touched Rs. 1214 crores. Thus sales grew by 450% over a period of one and a half decades. 19

Marketing Strategy

Nestle has adopted a four pronged growth strategy: -

1. Gunning the market with new products and brand extensions.

2. Expansion of the distribution network to small towns for extensive availability.

3. Reduce prices and introduce smaller packages for products to make them more affordable (a tool to enter price sensitive markets).

4. Focus on employ training and develop a positive attitude through enhanced manpower development.

5. By year 2003 it expects chocolate & confectionery to account for one in every third rupee in sale.

In the late 1996 fear of breading complacency by not having a continuous improvement, gave birth to an international sales & marketing improvement teams (SMIT).

SMIT maps the latest in helping towards the target of year. 2003. The SMIT exercise is a major global initiative of Nestle to enhance sales & marketing productivity. Linked with the already existing BECA project, which in turn emphasises on excellence by 20

improving the distribution set up , this gave rise to the following growth objectives for the year 2003

•

Ensure direct coverage of all urban towns in India.

•

Expand distribution to reach 1 million retail outlets on a regular basis.

•

Work in partnership with the distributor for the achievement of these objectives.

•

Provide sustainable solution to optimize our secondary sales from distributor to retailer.

21

NEW PRODUCT LAUNCHES

To put all the product launches into perspective, Nestle now has 80 products including various flavours and variants this awesome list of 80 products for most companies is an overfull palate. Nestle India Ltd. Still have a variety of new products in the pipelines. It believes in slowly colonizing as much territory as fast as it can, adapting to native conditions and then work at “holding off the advancing herds”. Nestle products can be broadly classified into 5 main ranges -

•

Milk Products

•

Chocolate and Confectionery

•

Beverages

•

Culinary

•

Food service

Milk Products

22

This category which comprises of condensed milk, baby milk foods , milk powders , acidified infant food , and other milk products, showed a slump in 1996 as sale of milk products fell from Rs 31.4 crores in 1995 to Rs 31.2 crores in the said year. Consumer offtake remained depressed throughout this year as a consequence of high price increases necessitated by substantial increases(+50%) in the cost of basic raw materials( fresh milk ) , over the past two years .

However Nestle retained its leadership in the infant food market with Cerelac, Lactogen and Nestum and even introduced a new flavour of Cerelac - Cerelac Rice in 1996.

Chocolates and Confectionery

Nestle pursues the objective of accounting for one in every three rupees in its sales figures through chocolates and confectionery. This has thus been one of the thrust areas in Nestle.

Nestle this year

widened its range of flavours in POLO, backed by its tremendous success in the Indian Market by adding POLO Spearmint to its Portfolio.

This new flavour has also received an encouraging

response in the market according to market analysts.

Milkybar also retained its position as the number one white chocolate brand in India, however it did not record a significant increase in sales as a majority of Indian tastes still do not accept this flavour. 23

This year however, was a year of tremendous success for Kit Kat .This internationally renowned brand gained a large increase in the Market share in the past year and Nestle officials are hopeful that this will further increase in the coming years. However this Brand along with it success has brought with it its share of Controversy as the Union of India has launched a Litigation against the Kit Kat family pack.

In 1997 Nestle added to its range of confectionery by introducing SPLASH, “A soft hearted, hard boiled sweet ” this is being promoted as a sweet unique to India and is positioned to a target audience in the age group of 4 to 12 years and “anyone with a soft heart” is a potential customer.

Priced at Rs. 1 for a 7.5 gram candy splash has been

introduced selectively in the South and has been speculated to repeat Polo’s performance. Nestle’s officials claim that this candy has the potential to grab a quarter of the 700 crores confectionery market.

The most recent of Nestle affairs with the confectionery market has been the introduction of Mithai Magic which is “a little Mithai , a little magic “ .This new product was launched in September 1997 ,in time for the Diwali purchases of sweets . This brand has been positioned somewhere between chocolates and traditional sweets and the company is employing a push strategy to promote this brand.

24

Beverages

This year has been very successful in the beverages market for Nestle .The sales of beverages has increased from Rs 323.3 crores in 2002 to Rs 398.8 crores in 2003.

Nestles Flagship Nescafe which was pegged at Rupees 1040 per Kilogram before the launch of Tata Cafe, met with stiff competition from Tata Cafe priced at Rupees 550 per Kg once it was introduced . Tata cafe claimed to have garnered a market share of 17% by December 1996. This forced Nestle to cut prices of Nescafe to Rupees 840 per Kg. However Nescafe still retains 83% market share in the Rs 177 Crores market for pure instant coffee.

Nestle Sunrise also showed an increase in sales and captured 20 % of the Rs 253 crores market in Mixed instant coffee.

This year Nestle also launched MILO, an internationally renowned chocolate energy drink, and the response for this has been encouraging.

Nestle has also introduced Tasters Choice tea bag pitched against Taj mahal tea bags.

25

Culinary Products

The market in culinary products had witnessed a high growth consequent to aggressive pricing decisions on existing products and the introduction of a variety of new products to match the needs of the Indian Housewife. Encouraged by this success Nestle launched Maggi Macoroni Snack in three flavors - Chicken , Masala and Tomato. Nestle officials’ say that this would consolidate Maggis position as the number 1 culinary brand in India. The product focuses on convenience and innovation as its Unique Selling Proposition. This snack has opened a new segment for the maggi brands. The brand is positioned as youthful and is represented by the twists and curls of the macaroni snack. It is speculated to be introduced in a phase manner nation-wide to be placed in the 7.5 lakh outlets that Maggi noodles sells in .

In the spirit of catering to Indian tastes Maggi introduced maggi pickles in five variants benchmarked to give the “ghar ka swad”. Maggi Dosa Mix was also introduced to offer superior quality and added convenience. Apart from this Milkmaid Kalakand Mix, a traditional north Indian sweet of premium quality was added to the milkmaid dessert mixes. Maggi soup also launched three new variants. Maggi Rassam in particular was noticeable as yet another attempt to make traditional Indian cooking a little bit easier.

26

Food Service

Food service items basically deal with the out of home segments, which would include vending machines. Nestle’s food service business is poised for rapid expansion to meet the growing need for such a reliable, time saving and cost effective service in this modern age .

Nestle wants to sell 500 million cups of tea and coffee through its vending machines in the year 2003. It currently has 3500 vending machines at assorted locations (both public and private). In 1995 Nestle food service did well to vend 40 million cups of Nescafe and Tasters Choice tea. Its 2003 sales were placed at 59 million cups of Nescafe and 36 million cups of tea, this figure was however way below the expected sales for the year.

Distribution strategy

It is an indisputable fact that fundamentally all consumers marketing must first assure availability of the product to the consumer. In India, the urban population alone is of a whooping 250 million consumers -an unbelievable potential for any FMCG . The potential being spread across more than 4000 towns have to be very effectively and efficiently tapped. Nestle till now was retailing in a limited number of towns with only 200 towns accounting for 70 % of their business. For

27

Nestle to be a leader in the food industry, expanding the distribution network for more retail outlets was a must.

To meet this challenge, Nestle is working towards an objective of increasing the retail base to 1,000,000 outlets by the year 2003. This network is feasible as Nestle has a triangular distribution structure thus the span of control is still retained. The Distribution Network is explained in figure 2.

In order to achieve these distribution objectives Nestle has formulated an international sales and marketing improvement team (SMIT). SMIT focuses on a single objective -provide sustainable solutions to optimize the distributor and retailer sales through a step by step approach starting with analysis of market followed by identification of the probable retail outlets and finally selection of the same .The team also focuses on proper implementation of resources and timely follow ups for effective solutions.

Advertising Strategy

28

Nestle, a cash rich company has plenty of marketing prowess. This can be credited to a strong and sound advertising strategy.

Nestle in the year 2002 had an advertisement spending of Rs 43.3 crores (net) . Tracing Nestles advertising responses the ad campaign by HTA of ‘Hot and Sweet’ was a runway success this ad was actually meant to fend off a challenge from H.J Heinz. The Maggi ranges of sauces were introduced in 1985 but sales didn’t catch up until 1990 but till 2003 it got considerable market share. At this point the popular and memorable campaign of Javed Jaffrey and Pankaj Kapoor was launched by Producer Pralad Kakkar . This commercial was an instant success. The volume of sales kept rising from an initial growth of 13% to 20% in the next year. Today the sales figure for Maggi Sauces is growing at a steady 6% per year.

Another noteworthy campaign was that of POLO (the mint with a hole), devised by Mudra advertising agency. This campaign was awarded 11 industry ad awards.

In 2002 the advertisement budget has been approximately Rs 56 crores where again innovation was the main focus. The new nationwide product launch of Maggi Macaroni Snack and Mithai Magic have been designed by Mudra . The Macaroni ad with its use of “English “ and a catchy beat (which is the latest trend amongst the Indian Advertisers) appeals well to the target audience and the Mithai Magic commercial does keep the secret of the contents in the box , intact. 29

“Training is an integral and indispensable part of Nestle . I regard the importance of training a highly as research and development .It is a major investment in the Future of the company and imperative because it is an investment in people ” - Mr. Helmut Maucher Chairman and CEO Nestle S A Group Nestle India Ltd. has an employee base of 3040 people and aims to be

in the top quartile of the FMCG companies .For this

purpose it follows a very stern and rigorous recruitment policy .

Recruitment Policy

Recruitment of fresh management trainees and sales officers is done every April-May. These graduates are generally selected from the best institutes in the country through a series of interviews. They are then put through a probation period of 12-18 months. Although Nestle does not offer some of the highest pay packets in the industry, it is considered a growth oriented company.

Training and Development

Continuous development of skills and attitudes of employees is critical to the achievement of excellence. At Nestle therefore training

30

and development of human resources is viewed as a long term investment .

“ If you are planning for one year , Plant wheat;

If you are planning for ten years, plant a tree;

If you are planning for life, train people.”

- Old Chinese proverb

This proverb goes with the organizations most enduring beliefs worldwide -

•

That long term planning is the key to Nestles global success

•

That Nestle’s most valuable assets are its people

•

Nestle’s policy is to rely on a more decentralized form of management by building in the habit to “ Think Nestle”.

At Nestle India training and development is an integral part of the business plan and strategy in line with the objectives for the year 2003 and aims to -

31

•

Help employees to retain long term perspective and integrate them fully with the company’s business goals

•

View the growth of both the personnel and the company as a continuous process .

•

Concentrate on attitudinal changes by developing leadership skills, an appreciation of interdependence between units and the enhancement of a sense of belonging to Nestle .

In 2003 Nestle India benefited greatly from the training program offered at the Rive Reine International Training Center at Vevey, Switzerland. This training program helped facilitate the transfer of common Knowledge (technical, marketing, and finance) across the Nestle Group and ensure interdisciplinary approach to learning and uniform progress with a tailor-made approach for all.

Company Training needs -

•

analysis of training needs of Managers

•

self development programs for staff at HO

•

programs for company orientation and information sharing 32

•

programs aimed at computer training and computerization

•

Establishment of contact with leading management institutes with a view to use the same for meeting local training requirements

Nestle’s Corporate Culture

As we had discussed before, Nestle is one of the most multinational of multinationals and is spread over 75 countries worldwide. This implies that it has employees from diverse cultural backgrounds. Nestle respects the distinctive culture, mentality and traditions of every employee in every country. What Nestle aims at is to incorporate its own culture into its employees without stifling the individual employee’s culture and identity. When we went to Nestle we could feel the existence of a distinctive

work culture amongst the

management - the staff seemed highly motivated & cheerful

and

everybody had pin up boards in front of their tables with reminders , motivational messages and even time logs (the Nestle people seemed as if they availed of the benefits of time management) .

Nestle Apart has a from diverse this, product Nestlerange has aand vastsodistribution it also has network. diversified Inrisks order Thus Management on Information systems plays a vital role in Nestle to provide information to the Sales and Marketing as well a the finance department

.The Electronic Data Processing Department

looks after Management Information Systems . 33

availability, aid quick decision-making and improve supply chain integration.

34

Nestle India Ltd., is a part of the Nestle SA group, which is one of the largest manufacturing companies in the world. The company (with its headquarters in Vevey, Switzerland) was founded by Henri Nestle in

1867.

Nestle has two major divisions-Le Societe des Produits which looks after the production and marketing and Nesstec Ltd. which provides the technical assistance to the group companies. Since its inception in 1867, the company has diversified it product range from the infant weaning

formula

beverages,

(which

confectionery,

was ice

its

first

creams

product)

and

pet

to

foods

among others. In a span of 130 years the company has ranked 26 th among the world's largest corporations and boasts

of

a

turnover

of

$48932.5

million

and

an

employee strength of 221,144 people spread over 75 countries worldwide (Annexure A). Nestle

has

multinational

long of

been the

viewed

as

multinationals.

35

one

of

This

the is

most

because

today only 2% of its turnover comes from Switzerland. Out of the remaining 98%, Europe contributes 43.5%, North and South America contribute 36.5% and 18% is contributed by Africa and Asia Pacific Regions.

OVERVIEW

Although Nestle has been associated with India since the beginning of the century through the importing and trading of infant food and condensed milk, manufacturing in India only began with the setting up of the factory in Moga in 1962. The first product to be manufactured was Milkmaid. In the last 35 years the company has shown rapid progress and has increased its product range to 80 products as of October 1997. Nestle India Ltd. now rank 22 nd amongst India's most valuable companies (Annexure B). Its gross revenue has increased from Rs. 1001.1 crores to Rs. 1213.8 crores in 1996. This remarkable growth has been achieved through:

•

Rapidly creating greater manufacturing capacity, both at factories as well as with copackers. 36

•

Taking measures to ensure availability and improved quality of key raw materials-fresh milk in particular.

•

Strengthening of the sales and distribution network (particularly in smaller towns).

•

Ambitious

and

development

cohesive

programs

manpower

for

the

training

personnel

of

and the

company across all disciplines.

The

company's

exports

also

resulted

in

a

very

successful year in this area as exports grew by 27% to Rs. 250.8 crores in 1996. The main contributors to this increase were the export of tea and coffee to USA, Japan, Russia, Hungary and Taiwan.

Nestle India Ltd. wants to further increase its operations in India and has started construction of its sixth Factory at

Bicholim,

Goa

for

the

manufacture

products (a key thrust area) for this purpose.

37

of

culinary

The spirit of Nestle "Organizational excellence is never achieved through a one time efforts; It is always a process of continuous improvement across a number of areas of operation."

A key factor for Nestle's success has been its quest for continuous improvement through ushering in greater productivity and more efficiency in everyday operations Despite the infrastructure impediments in India, Nestle has set itself high standards of business performance. This is reflected through the essence of the company-its mission statement.

Nestle's mission

"To be in every way the leading company in the Indian food industry and a good corporate citizen by providing our

consumers

with

superior

quality

products,

our

shareholders with rapid growth and fair returns and our employees

with

a

challenging

environment."

38

and

satisfying

work

To translate this spirit into a planned and measurable process, Nestle has set up key objectives across all divisions.

39

KEY OBJECTIVES

Production

•

To optimize production costs while enhancing product quality so as to make Nestle products even more competitive in the market place.

Sales and Marketing

•

To reach a sales turnover of 3000 crores by the year 2000.

•

To double the turnover every years.

People

•

To help employees to retain a long-term perspective and integrate them fully with the company's business goals.

•

To

retain

a

broad

perspective

individual needs

40

while

addressing

•

To view growth as a continuous process.

•

To concentrate on attitudinal changes by developing leadership skills, an appreciation of interdependence between units and the enhancement of a sense of belonging to Nestle.

Finance

•

To maintain profit levels above the average for the food industry in India.

Key Fact

This section offers a quick and simple overview of NESTLE, making it an excellent place to begin learning more about the World’s Largest Food Company. Here introduction is given with some key facts and figures, including

2001

Financial

Information,

Company

Profile, Historical Development and Main Brand.

41

SALES ANALYSIS

By Geographic Area

In Million of CHF

2006 (%)

Europe

25/706

36.7

North and South America

22/262

31.8

Africa, Asia and Oceania

13/493

19.3

Other Activities

8/537

12.2

69/998

Other Activities 12.2%

Europe 36.7%

Africa, Asia and Oceania 19.3%

North and South Am erica 31.8%

By Main Product Group

42

In Million of CHF

2001(%)

Beverages Milk

19/142

Products,

Nutrition

and

Ice 334

27.4 27.6

Cream Prepared Dishes and Cooking Aids

17/660

25.2

Chocolate and Confectionery

10/663

15.2

Pharmaceuticals

3/1999

4.6

Chocolate and Cofectionary 15.2%

Pharm aceutic als 4.6%

Prepared Dishes and Cooking Aids 25.2%

Beverages 27.4%

Milk Products, Nutrition and Ice Cream 27.6%

43

Breakdown of 2006 Trading Expenses (in %)

Percentage Raw Materials

26.2

Packaging

8.8

Salaries and Welfare Expenses

16.6

Depreciation

4.1

Other Trading Expenses

34.5

Total Trading Expenses

90.2

Trading Profit

9.8

Go to Financial Guide for additional facts and figures.

Company Profile

Trading Profit 5.2%

Raw Materials 13.8% Packaging 4.6% Salaries and Welfare Expenses 8.7% Depreciation 2.2%

Total Trading Expenses 47.4%

•

Other Trading Expenses 18.1%

Chairman of the Board: Helmut O. Maucher

44

•

Chief Executive Officer: Peter Brabeck-Letmathe

•

World’s leading food company

•

Switzerland’s largest industrial company

•

Worldwide operations

•

495 factories

•

Group’s total work force: 225, 808 people.

Historical Development

1866

Company’s foundation

1905

Merger between Nestle and Anglo-Swiss Condensed Milk Company

1929

Merger

with

Peter-Cailler-Kohler

Suisses. S. A. 1947

Merger with Alimentana S.A. (Maggi)

1971

Merger with Ursina-Franck (Switzerland)

1985

Acquisition of Carnation (USA)

45

Chocolates

1990

Acquisition of Buitoni-Perugina (Italy)

1992

Acquisition of Rowntree (GB)

1994

Acquisition of Perrier (France)

1998

Acquisition of Spillers (GB)

2002

Divestiture of Findus brand and parts of Nestlé's frozen

food

business

in

Europe.

Divestiture of Hills Bros, MJB and Chase & Sanborn roast and ground coffee brands (USA). 2006

Acquisition of PowerBar. Factories

Nestle has 6 factories in India. These are

1. Moga (punjab)

The Nestle factory in Moga has the pride of being the first and most comprehensive factory of Nestle India. Set up in 1962, it represents the core competence of Nestle

India

(Everyday,

in

the

Milkmaid),

manufacture beverages,

46

of

milk

products

culinary

products

(Maggi sauces, noodles, soups etc.), weaning cereals (Cerelac) and infant milk formulae.

2. Choladi ( Tamil Nadu)

The

factory

in

Choladi

started

production

in

1967.

Situated about 60 miles from Calicut, the factory today has 81 employees and produces 1.5% of the total turnover of Nestle India. It is a 100 percent export oriented unit which processes freshly picked tea leaves into soluble instant tea.

3. Nanjagud (Karnataka)

Production

in

this

factory

began

in

1989

with

the

manufacture of Nestle instant coffee and Sunrise. Today in

addition

manufactures manufacture

to

instant

health MILO

was

coffee

beverages. also

the The

factory plant

commissioned

at

also to this

factory. This factory employs 145 people and is cited as a model in terms of environment protection for its

47

installations to purify waste water as well as for its provisions for recycling coffee wastes.

4.Samalakha (Haryana)

This factory was set up in 1993. Located 70 kilometres from Delhi ,

it manufactures weaning cereals , culinary

products ,health beverages and milk products. Recently the expansion of manufacturing capacity for Milkmaid Dessert Mixes was undertaken at this factory as this new and unique product category is viewed to have great potential in the future.

5.Ponda (Goa)

This Kit-Kat factory was set up in Goa in 1995 at a cost of Rs. 50 crores. It represented a major step by Nestle towards

becoming

the

Number

Confectionery Company in India.

6.Bicholim (Goa )

48

1

Chocolates

and

The construction work at this new factory is progressing with

speed.

This

factory

will

soon

commence

the

manufacture of culinary products, which is a key thrust area

for

the

company

and

will

include

latest

technological improvements relating to this category of products.

As

a

part

of

Nestles

efforts

towards

continuous

improvement and excellence in Manufacturing operation, a Moga Improvement team (MIT) was put in place at the Moga

factory.

The

team

comprised

of

international

experts from Nestle Technical Services (NESTEC) and the local staff. In 1996, it embarked on a program with the single minded objective of optimizing production costs while enhancing the product quality so as to make Nestle products even more competitive in the market place.

Drawing

manufacturing

upon

Nestle’s

expertise

in

global

75

experience

countries

the

and team

identified the following areas for detailed study -

•

Process improvement to ensure the optimal usage of resources

49

•

Improvement of operational efficiency

•

Cost optimization

A series

of small

but critically

important

initiatives

ranging from redesigning laboratories to palletisation of raw

materials

and

packaging

material

utilization,

manufacturing and filling loses and labour man hours resulting

in

substantial

savings

and

improved

productivity and machine utilization. In addition, several non

tangible

benefits

in

the

sustainable

improvement

in

maintenance

planning

tools

,

form

of

areas down

systems like

time

for

factory recording

systems and performance measurement tools were also realized .

This project was highly successful and the company is now implementing its key learning’s of MIT in its other factories.

In a country as vast and diverse as India, supply chain management

is absolutely

50

critical

to rapid growth.

Through

BECA,

streamlining

Nestle

and

has

concentrated

improving

their

heavily

supply

on

chain

management in order to make it more dependable, more cost effective and most importantly, more responsive to market needs.

For better supply chain integration the planning of key operations - purchase, production, distribution and sales are

synchronised

to

ensure

that

everybody

works

towards a common business plan. Monthly objectives are broken down into weekly and (wherever necessary) into daily plans and monitored regularly to ensure smooth implementation and quick corrective action when needed . Major benefits accrued thus far include reduction in working capital through lower inventories of finished goods

and

materials,

better

stock

availability

and

reduction in obsolescence of materials.

In

addition

to

traditional

performance

indicators,

quantifiable performance measures have been identified and implemented in all functional areas such as sales planning, production output, quality assurance, material

51

ordering

transportation

and

warehouse

management.

These measures are monitored regularly to gauge the extent of improvement and identify root problems for taking corrective actions.

Teams have been put in place at all factories and sales offices to ensure the implementation is continuous and self-sustaining.

Areas

of

improvement

are

regularly

identified and timebound action plans established. For this

purpose,

standard

Management(TQM),

tools

Kaizen,

such 5S

a

and

Total

Quality

Small

Group

improvement activity (SGIA) are being extensively used.

The efficacy of this hierarchical structure is seen in Nestle’s performance over past few years of various products.

By 1989 the company had achieved a sales figure of approximately Rs. 258 crores. 1989 was the year of launches. Seven new product lines were launched in this year. This was also the year in which the Nanjagud factory was set up. By the year 1992, this sales figure

52

was touching Rs 500 crores. In the 1990’s the pace of launches quickened and since the construction of the factory

at

Samalakha,

20

new

products

have

been

introduced. By 1996, Nestle had about 76 different products in its portfolio with various new products in the pipeline as well. The sales figure now touched Rs. 1214 crores. Thus sales grew by 450% over a period of one and a half decades.

53

TODAY

NESTLE

IS

PRESENT

IN

DIFFERENT

MARKETS WITH THE FOLLOWING MAIN BRANDS

Soluble coffee

Nescafe, Taster's Choice, Ricore, Ricoffy.

Roast and Ground Coffee

Hills Bros., MJB, Bonka, Zoegas, Loumidis

Mineral Water

Perrier, Contrex,

Vittel,

Valvert,

Quezac, Arrowhead,

Poland Spring, Buxton, Vera, Blaue Quellen, Calistoga, Santa Maria, San Pellegrino.

Other beverages

54

Nesquik, Nescau, Nestea, Milo, Carnation, Libby's Caro.

55

Dairy Product

Nido, Nespray, Carnation, Milkmaid/ La Lechera, Gloria, Neslac, Barenmarke.

Breakfast Cereals

Nestle

Coffee Creamers

Coffee-mate

Infant Foods and Dietetic Products

Nestle, Nan, Lactogen, Cerelac, Nestum, Guigoz

Culinary Products (Bouillons, soups, seasonings, prepared dishes, canned food, pasta, sauces)

Maggi, Crosse and Blackwell, Libby's, Thomy, Builtoni, Contadina

56

Frozen Foods

Findus, Stouffer's Buitoni, Maggi

Ice Cream

Nestle, Frisco, Dairy Farm, Magnolia, Motta, Camy , ect.

Refrigerated

Products

(yogurts,

desserts,

pasta

sauces)

Nestle, Locatelli, Vismara, Buitoni, Contadina

Chocolate and Confectionery

Nestle,

Crunch,

Cailler,

Frigor,

Chokito,

Sarotti,

Galak/Milkybar, Yes, Kit Kat, Quality Street, Smarties, Baci, After Eight, Baby Ruth, Butterfinger, Lion, Nuts, Rolo, Aero, Polo, etc.

57

Food Services and Professional Products

Chef, Davigel, Santa Rica

Pet Care

Friskies, Fancy Feast, Aplo, Mighty Dog, Gourmet.

Specialized products for the food industry

Food Ingredients Specialties (FIS)

Ophthalmological products

Alcon

Cosmetics

L'Oreal

58

NEW PRODUCT LAUNCHES

To put all the product launches into perspective, Nestle now

has

80

products

including

various

flavors

and

variants this awesome list of 80 products for most companies is an overfull palate. Nestle India Ltd. still has a variety

of new products in the pipelines. It

believes in slowly colonizing as much territory as fast as it can, adapting to native conditions and then work at 'Holding off the advancing herds'. Nestle products can be broadly classified into 5 main ranges:

•

Milk Product

•

Chocolate and Confectionery

•

Beverages

•

Culinary

•

Food Service.

59

Milk Products

This category which comprises of condensed milk, baby milk foods, milk powders, acidified infant food, and other milk products, showed a slump in 1996 as sales of milk products fell from Rs. 31.4 crores in 1995 to Rs. 31.2 crores in the said year. Consumer off take remained depressed throughout this year as a consequence of high price increases necessitated by substantial increases (+ 50%) in the cost of basic raw materials (fresh milk), over the past two year.

However Nestle retained its leadership in the infant food market with Cerelac Lactogen and Nestum and even introduced a new flavor of Cerelac-Cerelac Rice in 1996.

60

Chocolates and Confectionery

Nestle pursues the objective of accounting for one in every

three

rupees

in

its

sales

figures

through

chocolates and confectionery. This has thus been one of the thrust areas in Nestle. Nestle this year widened its range of flavors in POLO, backed by its tremendous success in the Indian Market by adding POLO Spearmint to its Portfolio. This new flavor has also received an encouraging response in the market according to market analysts.

Milkybar also retained its position as the number one white chocolate brand in India, however it did not record a significant increase in sales, as a majority of Indian tastes still do not accept this flavor.

This year however, was a year of tremendous success for Kit Kat. This internationally renowned brand gained a large increase in the Market share in the past year and Nestle officials are hopeful that this will further increase in the coming years. However this brand along with its 61

success has brought with it its share of Controversy as the Union of India has launched a Litigation against the Kit Kat family pack.

In 1997 Nestle added to its range of confectionery by introducing SPLASH, "A soft hearted, hard boiled sweet" this is being promoted as a sweet unique to India and is positioned to a target audience in the age group of 4 to 12 years and "anyone with a soft heart" is a potential customer. Priced at Rs. 1 for a 7.5-gram candy Splash has been introduced selectively in the South and has been speculated to repeat Polo's performance. Nestle's officials claim that this candy has the potential to grab a quarter of the 700 crores confectionery market.

The most recent of Nestle affairs with the confectionery market has been the introduction of Mithai Magic, which is "a little Mithai, a little magic." This new product was launched in September 1997, in time for the Diwali purchases of sweets. This brand has been positioned somewhere between chocolates and traditional sweets

62

and

the

company

is

employing

a push

strategy

to

promote this brand.

The

latest

launch

of

Nestle

in

the

Chocolate

and

confectionery division is Charge.

Beverages

This year has been very successful in the beverages market for Nestle. The sales of beverage have increased from Rs. 323.3 crores in 1995 to Rs. 398.8 crores in 1996.

Nestles Flagship Nescafe, which was pegged at Rupees 1040 per kilogram before the launch of Tata Cafe, met with stiff competition from Tata Cafe priced at Rupees 550 per Kg., once it was introduced. Tata cafe claimed to have garnered a market share of 17% by December 1996. This forced Nestle to cut prices of Nescafe to Rupees 840 per Kg. However Nescafe still retains 83% market share in the Rs. 177 Crores market for pure instant coffee.

63

Nestle Sunrise also showed an increase in sales and captured 20% of the Rs. 253 crores market in Mixed instant coffee.

This year Nestle also launched MILO, an internationally renowned chocolate energy drink, and the response for this has been encouraging.

Nestle has introduced Tasters Choice tea bag pitched against Taj Mahal Tea bags.

Culinary Products

The market in culinary products had witnessed a high growth consequent to aggressive pricing decisions on existing products and the introduction of a variety of new

products

to

match

the

needs

of

the

Indian

Housewife. Encouraged by this success Nestle launched Maggi Macoroni Snack in three flavors-Chicken, Masala and

Tomato.

Nestle

official’s

say

that

this

would

consolidate Maggis position as the number 1 culinary brand in India. The product focuses on convenience and

64

innovation as its Unique Selling Proposition. This snack has opened a new segment for the maggi brands. The brand is positioned as Youthful and is represented by the twists and curls of the macaronic snack. It is speculated to be introduced in a phase manner nationwide to be place in the 7.5-lakh outlets that Maggi noodles sells in.

In

the

spirit

of

catering

to

Indian

tastes

Maggi

introduced maggi pickles in five variants benchmarked to give the "ghar ka swad". Maggi Dosa Mix was also introduced

to

offer

superior

quality

and

added

convenience. Apart from this Milkmaid Kalakand Mix, a traditional north Indian sweet of premium quality was added to the milkmaid dessert mixes. Maggi soup also launched three new variants. Maggi Rassam in particular was

noticeable

as

yet

another

attempt

traditional Indian cooking a little bit easier.

65

to

make

Food Services

Food service items basically deal with the out of home segments, Nestle's

which

food

would

service

include

business

vending is

poised

machines. for

rapid

expansion to meet the growing need for such a reliable, time saving and cost effective service in this modern age.

Nestle wants to sell 500 million cups of tea and coffee through its vending machines in the year 2000. It currently

has

3500

vending

machines

at

assorted

locations (both public and private). In 1995 Nestle food service did well to vend 40 million cups of Nescafe and Tasters Choice tea. Its 1996 sales were placed at 59 million cups of Nescafe and 36 million cups of tea; this figure was however way below the expected sales for the year.

66

In 2001 and 2002 nestle has come with a number of new products like it has come with many of the diary products like milk. The milk is avaliable in the market in the full cream , toned and double toned

milk. The nestle has also come with the

dahi, butter which is available in the market but at very few shops .

NESTLE

has also come with the products which

target

the

children

like

FRUITIPS,MILKYBAR

CHOO,NESTLE CHINESE MAGGI NOODLES.

67

will

BIBLIOGRAPHY  www.nestle.com  www.google.com

NEWSPAPER MAGZINES

68

ANNEXURE

Financial Results and Operation 2006(Rs. in millions)

1996(Rs. in millions)

Gross Revenue

12144

10011

Gross Profit (BIT)

1343

1183

Interest

506

315

Depreciation

227

165

Provision for Tax

68

171

Profit after taxation

542

532

Extraordinary tax

14

116

528

416

Profit brought forward

215

145

Reserves written back

49

130

Balance available for

792

691

Payment Profit after taxation and extraordinary item

appropriation

69

Interim dividends paid

353

321

Final Dividend proposed

-

97

Transfer to debenture

42

2

54

56

343

215

redemption reserve transfer to general reserve Surplus carried in Profit and loss Account Gross Revenue increased by 21% during the year, and crossed the 1200 crores mark . Domestic sales grew by 19% and exports (including sales to Nepal ) grew by 27 %. Net profit after tax grew by 27% - From Rs 41.6 crores to Rs 52.8 crores.

Throughout 2003, there was a marked lack of buoyancy in the domestics

market caused primarily by increased inflation and the

financial liquidity squeeze which affected all segments of the industry and trade .

Interest costs rose substantially on account of higher funding needs to service recently commissioned projects as well as to meet increased exports for which materials often had to be purchased in advance .

70

Considering the recessionary market conditions, Nestles overall sales and progression during 2003 can be considered satisfactory.

Financial Information

In millions of CHF

2006

Sales

81 422

EBITDA (a)

12 516

as % of sales

15.4%

EBITA (b)

9600

as % of sales

11.8%

71

Trading Profit

9 186

as % of sales

11.3%

Net Profit

5 763

as % of sales

7.1%

Capital expenditure

3305

Equity

29 904

Total Assets

65 524

Research and development costs Market Capitalization, end December

1 038 146 864

(a) Mainly Pharmaceutical products and Water, managed on a worldwide basis. (b) Mainly corporate expenses, research and development costs, amortisation of goodwill

72