Good Food, Good Life

1. Good Food, Good Life

2. Overview Introduction Case Analysis Questions and Answers

3. Introduction Type: Public Founded: 1866 HQ: Vevey, Switzerland Key people: Henri Nestle (Founder) Products: Chocolate, water, dairy products Revenue: 88.6 billion USD Net Income: 4.9 billion USD Employees: 305,000

5. Industry Analysis Very strong globally Many different brands Compete in several markets Chocolate, dairy products, food, water, baby food and pet food

6. Global market Nestle leads the global milk market with a 3.2% share Leads the global ice cream market with a 17% share Leader of bottled water in North America, Europe, Middle East-Africa Ranks third in the soft drinks global market with 3.4 percent in total sales

7. Did you know.... Nestle invest around CHF 1.5 billion in Research & Development every year. Nestle markets its products in 130 countries across the world Nestle manufactures around 10,000 different products and employs 25,000 people Nestle sells over a billion products every day

8. Italian Culture on Coffee Consumption Coffee is so much a part of Italian culture that the idea of not drinking it is as foreign as the idea of having to explain its rituals. These rituals are set in stone and not always easy for outsiders to understand. For an Italian, coffee is an utter necessity. It is considered essential and without its presence all aspect of civilization will fall to pieces. Being stuck in a forsaken land mass situated across the Pacific does not change that fact. You may take away their mobile phones, you may take away their pasta or pizza, even their privacy, but not their coffee.

9. THE COMPETITORS Nescafe Italy

10. Lavazza SpA of Turin The coffee market leader and the only company to offer a complete product line. Coffee Shop

11. Lavazza SpA of Turin Coffee Machine

12. Lavazza SpA of Turin At Home

13. Lavazza SpA of Turin At Work Foodservice Outlets

14. Segafredo-Zanetti SpA of Bologna Segafredo Zanetti is the Italian leading espresso company worldwide. It has a huge number of clients in all distribution channels, from bars to restaurants, catering and large-scale distribution.

15. Crippa & Berger SpA of Milan This was the first company to produce decaffeinated coffee in Italy. The firm competed directly with Nestle through its own brand of instant coffee, Faemino.

16. Procter & Gamble Italia The Italian subsidiary of the Cincinnati-based multinational, with its Splendid brand, benefited from strong distribution penetration due to the broad range of the group�s grocery products. P&G promoted the Splendid brand by sponsoring television programmes with high viewer ratings (e.g. the most successful Italian variety show, Fantastico, in 1988.) The positioning was different for the different products: Splendid Oro and Classic were presented as the coffee used in the most prestigious restaurants; the other product in the line was targeted, through aggressive promotion, to the large family segment.

17. Illy Caff� of Trieste This firm produced one blend of normal coffee which seven different which seven different degrees of roasting. Illy Caff� was well known for its excellent quality and a series of decaffeinated and low-caffeine coffees (Mite).

18. Caf� do Brazil The company had a strong brand in Caffe Kimbo, favoured especially in Southern Italy where consumers enjoyed its strong, and bitter flavour. Kimbo coffee had rapidly gained in market share as a result of competitive prices coupled to a strong advertising effort.

19. MARKETING MIX 4P

20. PRODUCTS Whole Coffee Beans Coffee Houses Restaurants Ground Coffee (Home) 200 and 250 gram bags(49% in family segment) 400 and 500 gram bags (38%) 500 gram tins (4%), 1 kg bags

21. PRICES Suggested Retailer selling Price: 7,500 lire /125 gram Nescafe Instant Coffee was generally retailed to the public at 60,000 lira /kilogram, against 13,000 lire average for normal coffee. The price to wholesalers was 85% of the retail price, and the variable manufacturing costs amounted to 37.5% of the retail price. Sales and distribution costs represented 15,3%, and all of this ensured a high operating profit of about 32,3%.

22. PLACE Food Channel, Modern Outlets, Cash and Carry, Street Vendors Coffee-house Restaurant, Hotel Channels, Coin Operated Coffee Machines, Public Places

23. PROMOTION Using TV ads from France: The Train 1981

24. SWOT ANALYSIS Strengths- Broad geographic coverage � Nestl� is the leading player in hot drinks in every regional market, except North America (in which it ranked sixth in 2007), insulating it against downturns in particular markets. - Global leader in instant coffee � the company has a clear global lead in the important coffee sector, which is growing significantly in emerging markets, accounting for 21% of global value in 2007. - World number one in other hot drinks � Nestl�'s portfolio of chocolate and malt milk products have established it as the leading player in global other hot drinks, in which it held a 23% share in 2007. - Strong brand portfolio � the company's hot drinks portfolio includes a number of high-recognition brands supported by considerable marketing and research and development resources, including Nescaf�, Nesquik and Milo. - High levels of research and development expenditure � Nestl�'s high levels of investment in research and development offer significant opportunities to develop its operations beyond the Nestl� Nutrition division, including hot drinks. - Solid financial base � Nestl� has a number of cost-savings programmes (notably GLOBE) in place and as a result, has been able to place itself in a position where it is able to afford sizeable investment in brand development. - Capacity to pass on costs � Nestl�'s size and marketing power enable it to pass on a significant proportion of the rising costs resulting from increasing coffee and cocoa prices to retailers and consumers. Moreover, the economies of scale and synergies available to the company increase its capacity to make internal cost savings to offset the remainder of the increases.

25. SWOT ANALYSIS Weaknesses - Reliance on mass market � the mass-market positioning of Nestl�'s core hot drinks brand, Nescaf�, presents significant difficulties in terms of tapping into the growing demand for premium coffee products. - Limited presence in tea � Nestl� has developed only a minimal presence in tea, a sector which is benefiting notably from the rise in consumer health-consciousness and would therefore seem to fit with the company's efforts to reposition itself as a health-orientated manufacturer. - Increasing bias towards low-margin products � the relatively strong growth registered by emerging markets, where the company is largely represented by lower margin brands, is negatively impacting Nestl�'s beverages' operating margin. Meanwhile, higher margin Western European markets are being hit by challenging trading conditions. - Bias towards caffeine-based products � Nestl�'s hot drinks portfolio is biased towards products containing caffeine, a substance which has gained a negative image amongst many health-conscious consumers. - Negative ethical image � Nestl� has received considerable negative publicity for its infant formula operations in emerging markets, which may hamper its efforts to target the trend towards ethical consumerism in markets such as the UK.

26. SWOT ANALYSIS Opportunities - Strong growth forecast in Asia-Pacific � Euromonitor International forecasts that Asia-Pacific will be the fastest growing market for hot drinks over the 2007-2012 period. As Nestl�'s largest regional market, Asia-Pacific therefore presents significant opportunities for the company in spite of poor conditions in major Western European markets. - The premium trend � while the mass-market positioning of Nescaf� is an obstacle, the growing demand for premium coffee products is creating opportunities for the company to generate growth in mature markets through the development of brands and extensions, such as Nespresso and Nescaf� Dolce Gusto.

27. SWOT ANALYSIS Opportunities- The health trend � while coffee has not received the positive health-related publicity of tea, its image became less resolutely unhealthy in recent years, with suggestions that it can help to prevent various conditions, including Parkinson's disease. Moreover, the company's repositioning and substantial research and development infrastructure place it in a strong position to develop health-orientated new products.- Ethical consumerism � fairtrade products are growing strongly in hot drinks markets such as the UK, offering a potentially important way to counter maturity in developed regions.- Cross-branding � Nestl�'s diversified packaged food and beverage portfolio offers it the opportunity to develop brands from other categories in hot drinks. Notably, it could further develop its confectionery brands in other hot drinks along the lines of existing products such as Aero Hot Chocolate.

28. SWOT ANALYSIS Threats- Sluggish prospects in developed markets � market maturity and aggressive competition amongst retailers are set to constrain hot drinks growth severely in major developed markets during the forecast period.- Coffee machine competition � Nestl�'s efforts to attract younger consumers and tap into the growing demand for premium coffee in developed markets with the introduction of the Nespresso and Nescaf� Dolce Gusto coffee systems could come under threat from the development of rival cheaper models.- Rising costs � increasing transport and raw material costs, mainly relating to rising bean, oil and packaging prices, are placing significant pressure on margins in the company's beverage operations.- Competition from beyond hot drinks � the expansion and diversification of soft drinks, which are effectively targeting trends towards health and convenience, pose a notable threat to Nestl�'s hot drinks product

29. 4 strategic options given by Mr Baruffa To focus on old segment, already heavy consumers of the product To broaden the use of Nescafe, as a �milk modifier�, particularly in the morning To try to position Nescafe for younger and more �cosmopolitan� professionals, marketing Nescafe as the �international coffee beverage� Try to penaltrate the CHR segment of the market

30. Which of the four options outlined in the case would you adopt and why? Is there yet another, even better alternative? QUESTION 1

31. We highly agree with the option chosen by Mr Guiliani, head of strategic planning: Radically modify the Nescafe positioning, marketing the coffee as an international coffee (not as Italian coffee) that mainly lives in the Northern cities. Nestle food products should become standardized in the future at least in the European market Couples of Reasons for our decision: For this strategy, Nescafe still can nurture and strengthen their mainly heavy coffee consumers � old people and singles who sensitize to the effects of caffeine (less Robusta) and prefer the less �aggressive� image as well as the ease of preparation Furthermore, they are also able to extent the coffee market due to the significant organizational benefits could come from this policy and that, looking at the market place, there were a �transnational consumers� segment that, travelling and living all over the world, was achieving �universal� consumption habits

32. What would be the target segment(s)? Proposed positioning and promotion, pricing and distribution strategies? QUESTION 2

33. Target Segments Our group has agreed to targeting the both segments. Young Executives (25-34) and Elders (45-54). We believe that the composition of the age group, will help the brand to reach it�s highest position in Italy Market. In Recent times and also in the future.

34. PRODUCTS Il Caffe Caffe Golosi

35. PRODUCTS Caffe Golosi Il Cappucino

36. PROMOTION 1. Young Executives Oriented Go for sponsoring college/universities events. Provide the special marketing team to market their HCRs. 2. Elder People Oriented Sponsoring Seminar, Free Tester

37. PRICING The price slightly above the average is still okay. Because the power purchase parity for young executives and the elders are higher than the other customers.

38. DISTRIBUTION STRATEGIES Universities, Colleges Food Channel, Modern Outlets, Cash and Carry, Street Vendors Coffee-house Restaurant, Hotel Channels, Coin Operated Coffee Machines, Public Places Office Building

39. What would be the advertising copy strategy and the budget to invest on the �relaunch� of Nescafe? QUESTION 3

40. To counter Starbucks' test of Via instant coffee in Chicago and Seattle, Nescafe has launched an outdoor campaign in both cities via McCann Erickson, Los Angeles. One Chicago subway car, plastered in the ads, makes the price case this way: "Starbucks makes great instant. We make great instant. So why does theirs cost 400% more?" The last piece to the multipanel ad proclaims Nescafe's Taster's Choice as "the smart choice." The style, copy and even typeface strongly resemble advertising for the Starbucks brand and Starbucks Via.

41. Given how much instant coffee has been in the news lately, Nestle wants the communications to remind people that with Nescaf� they can enjoy a great-tasting, high-quality cup of coffee with a wide variety of blends and flavor options at the right price. There are other competitors who charge much more for a similar-quality coffee, and we would like to encourage people to prove for themselves that there are smarter options from which to choose.

42. THANK YOU FOR ATTENTION!