Introduction
Although Nestlé is the world’s biggest food producer, its power is not universal; similar to any business, it may have problems that derive from both external and internal factors. Among the former are social trends and shifts that form customer behavior, political perturbations, and positive or negative tendencies in the economy as well as technological progress. Internal factors, meanwhile, include the imperfections of the company’s structure or performance that may prevent it from responding to the above quickly and adequately. A combination of those actually has caused a considerable change in recent years, which has had a noticeable influence on the organization under review. The paper investigates how the reputational issues that Nestlé is experiencing are a symptom of its insufficient attention to the customers’ values and preferences and offers reasonable solutions.
Analysis of Macro Environment
Political Factors
In the more states a business operates, the more vulnerable it is to governmental regulations, which, furthermore, may be non-coincident. Nestlé’s presence in over 190 countries puts it at a serious risk of production bottlenecks of political nature (Frue, 2019, para. 5). One of the recent and most devastating of those was Brexit, which made the brand discuss relocating its British production to Poland. It is worth noting that such a decision can destabilize the political climate in the UK further, primarily due to a considerable job loss.
Economic Factors
Similar to a variety of businesses around the globe, Nestlé experienced a downturn because of the COVID-19 pandemic. In one respect, lockdowns increased the demand for food products since more people began to eat at home on a regular basis (Ahmed, 2021). Along with that, the affordability of most goods dropped because of supply and transportation issues, as well as the fact that many lost their jobs. Nevertheless, according to the company’s report of October 2021, it is overcoming the crisis; total sales grew by 2.2% in comparison with the first nine months of the previous year (‘Nestlé reports’, 2021, para. 1). There are hardly any guarantees, however, that the growth will be stable, considering that the consequences of the pandemic are quite long-lasting by definition.
Social Factors
One of the recent tendencies in consumer behavior is the shift towards a healthy lifestyle. In terms of nutrition, this involves reducing the consumption of salt and sugar as well as giving preference to less caloric products (Frue, 2019). Nestlé, meanwhile, specializes predominantly in processed food, including confectionery, instant meals, and frozen goods. The modern organic trends, naturally, could not remain beyond the attention of the giant business; it is planning to reshape its production accordingly throughout the following decade (‘Creating shared value’, 2020). However, this requires substantial investments of finance, time, and human resources, putting the corporation at a risk of losses, which the post-pandemic economic difficulties can aggravate.
Another reason why Nestlé is becoming less favored is its highly controversial approach to extracting mineral water for future selling. Specifically, Frue (2019) mentions that the company “takes spring water from the land, leaving nothing or polluted water behind,” which already has affected indigenous locations in Canada (para. 16). Therefore, although the quality of the foods remains appropriate, eco-friendly consumers, whose amount continues to increase, are disappointed with the brand up to boycotting it.
Technological Factors
The rapid development of technologies provides broad opportunities to businesses, and Nestlé is not an exception. Thus, staying in permanent contact with audiences is growing easier and easier due to digital marketing, online surveys, and direct communication in social media. Regarding production, progress can add to its cost-effectiveness considerably (Frue, 2019). Another possible area of development is delivery, specifically, improving the availability of the goods.
Industry Analysis
As said above, the global food and beverage industry is facing challenges due to the pandemic, which result from the substantial transformation of customer behavior. It is worth noting that experts actually regard the latest tendencies as the new normal (Ahmed, 2021; ‘Food and beverage industry trends’, 2020). This means the need for manufacturers to adapt to the change as soon as possible to remain competitive.
It is quite natural that security became the priority for both consumers and producers. The refocusing made 92% of the latter update their food safety procedures, which improved not solely customer satisfaction, but technological advancement of the businesses as well (‘Food and beverage industry trends’, 2020, para. 7). Other frequent modifications are enhancing online ordering and delivery services, intensifying direct communication with customers, and reframing menus, in particular, adding more healthy items and family-sized portions.
The above changes result from those in consumer behavior, which, as mentioned, most probably will last long. Among those is the preference of mobile and online food delivery services to eating in restaurants. More precisely, 18% of customers began to do the former more frequently, while the latter showed a 29% downward tendency (‘Food and beverage industry trends’, 2020, para. 8). The situation of such a kind may seem favorable for producers of packaged, frozen, and instant food, including Nestlé, because such products require little to no time to cook, which is important for busy population. Considering the ever-growing interest to a healthy lifestyle, however, the leading pattern in consumer behavior currently is the preference to organic and fresh products; brands who lack such in their assortments are facing a challenge.
Change Drivers and Predictions
As apparent from the above, Nestlé is quite dependent on a range of external factors that can influence not solely the corporation, but the entire industry. Throughout the recent three years, both have needed substantial change, which derives partly, but not exclusively, from the COVID-19 pandemic. Notably, customers became less interested in various kinds of processed products, which, meanwhile, make the majority of Nestlé’s offering, and began to seek closer interaction with producers. Another driver of change is the modern megatrend for eco-friendliness that may discourage the population from supporting the businesses whose ecological behavior they find unacceptable. Regarding opportunities, it would be relevant to refer to the technological innovations that enable updating the production process, as well as direct communication with customers.
In the following three years, the tendencies that the previous paragraph describes most probably will remain strong. Customer behavior in terms of nutrition, according to research, ‘has changed forever,’ which allows assuming further decrease in the demand for confectionery and instant food (‘Food and beverage industry trends,’ 2020, para. 1). The social factors that result from the existing environmental issues also are likely to be influential on a long-term perspective; boycotting insufficiently eco-friendly brands may become routine (Gaudig, Ebersberger, and Kuckertz, 2021). Technologies, meanwhile, are a promising area due to their rapid development and the subsequent improvement of their availability.
Internal Analysis
Resources
As mentioned, Nestlé added to its financial resources in the current year in comparison with the previous. Specifically, its total revenue in the first three quarters of each equals CHF 63.3 billion and CHF 61.9 billion, respectively (‘Nestlé reports’, 2021, para. 1). It is worth noting that organic sales are the biggest contributor to the growth since they increased by 7.6% (ibid, para. 3). This marks the increasing importance of healthy nutrition as a physical resource of the corporation. It involves, in particular, organic blends that are sold under the subsidiary brand name Compleat, bottled water whose labels differ from country to country, and several names of coffee. In addition, the corporation continues to distribute sweets, baked as well as frozen goods, and instant food. Healthcare nutrition, for instance, that for diabetics, belong to its offering as well. Another branch is pharmaceuticals, but it is not relevant to regard this within food and beverage industry.
Human and technological resources in the possession of Nestlé also are substantial. Notably, the business employs approximately 273,000 people in all of the countries where it operates (‘How many people’, 2020). Regarding technologies, it continues to implement green approaches, such as zero waste production, reusable and/or recyclable packaging, emission reduction, and other (‘Creating shared value’, 2020). However, the brand’s reputation, which is another intangible but essential resource, has been compromised during the recent years.
Capabilities
Capabilities mean the effectiveness of the ways the firms deploys its resources; in the case of Nestlé, those apparently allow for high productivity. Thus, the company reports the real internal growth of 6.0% in organic production (‘Nestlé reports’, 2021, para. 1). In addition, 88% of packaging is possible to reuse or recycle, and 95% of factories follow zero waste principles (‘Creating shared value’, 2020, p. 6). Regarding greenhouse gas emissions, the reduction in them since 2010 equals 37% (ibid.). In addition, the company is investing in improving social conditions around the globe; it was the first to collaborate with the Fair Labor Association against child labor, in particular, in cocoa supply. Other social initiatives, such as reducing young unemployment, also have the brand as an active participant.
Competencies
As apparent from the above, Nestlé seeks to occupy a strong position in the list of innovative and, in parallel, green businesses. It continues to improve the eco-friendliness of its production; according to the report of 2020, it ensures to avoid deforestation while gaining raw materials, such as palm oil or sugar (‘Creating shared value,’ 2020). Regarding innovation, the firm invests in research on new production methods as well as packaging materials.
Gap Analysis
Both external and internal analyses of Nestlé show that the brand is facing challenges due to its generally poor adaptability to the values of its customers. In one respect, it responds to the ecological issues, such as air and water pollution, littering, and climate change, planning to eliminate its impact on the environment by 2050 (‘Creating shared value’, 2020, p. 6). Although such an ambition hypothetically is realistic, considering the current progress in this area, it is not the only determinant of the firm’s reputation.
In fact, Nestlé does not seem to be willing to take any action for reducing the damage to the indigenous lands, which results from inappropriate water extraction. Notwithstanding the above strategies for minimizing deforestation, the company continues to harm the territories where it operates, to which it actually has no “valid rights” (James and Wilson, 2021, para. 1). By ignoring the official protests and accusations, it neglects not solely the authorities, but its customers as well, among whom are the residents of the affected areas and eco-friendly people around the globe.
The double standards of such a kind are a big drawback of the business, which roots at its fundamental strategic problem, specifically, insufficient communication with the audience. In one respect, the variety of approaches that Nestlé applies to informing and guiding its customers continues to expand from year to year (‘Creating shared value’, 2020). Direct collection of data from consumers, meanwhile, is quite scarce; according to Nunes (2020), there were 205 million records in the previous year (para. 1). This doubtlessly is too few for detailed feedback from the population of almost 200 countries.
In other words, research allows assuming that Nestlé positions itself as a supervisor who can instruct people, for instance, on healthy lifestyle, but is hardly open to their comments. This along with the water scandals marks the lack of responsibility and respect towards stakeholders, whose opinions remain beyond the firm’s attention. The resulting symptom is loss of trust, which can cause that of market presence and, consequently, profitability. Therefore, it is possible to state that one of the root causes of the company’s problems is the way it organizes its performance.
Strategic Response
Considering the Opponents of Land and Water Misuse
The above makes it apparent that, to restore and maintain customer loyalty, Nestlé has to intensify its direct communication with consumers. This is possible to do in several ways, but the most apparent solution is to stop unauthorized extraction of mineral water, which presupposes whether resolving all of the legal issues or ceasing the campaign. Both variants can cause certain financial issues, specifically, the need for extra investments in the former case and losses in the latter. However, if the firm misuses the natural resources further, the share of the population who are disappointed with its behavior will continue to grow, and the resulting fall in profit may equal even bigger sums.
To the contrary, the implementation of the strategies may be challenging not only for financial reasons. Other investments, in particular, those of time and human resources, will be needed as well. In addition, those who currently work in bottled water production will lose their jobs in case of a disapproval. It would be possible, however, to redirect at least a part of them to the branches with the highest demand, such as Nestlé Health Science (Nestlé, 2021). The given solution is appropriate not solely in strategic terms, but from the ethical and humanistic viewpoints.
Closer Contact to Stakeholders
Another essential step for Nestlé lies in developing its communication with the audience into mutual. In fact, it is planning to do this; Nunes (2021), notably, reports that the company’s representatives introduced an outline for future feedback collection. It involves doubling “first-party consumer data records” by 2025, in particular, through monitoring activities on recipe websites to identify the visitor’s preferences more precisely (para. 1). Analyzing the outcomes will enable creating personalized content and, subsequently, improving customer loyalty.
It would be even more effective, however, to use several channels in parallel. This could not only add to the coverage, but also highlight the firm’s readiness to listen to its customers, restoring its reputation. Thus, an effective way of direct interaction with the population is surveying, which is possible to conduct on websites as well. A drawback of this method is that many may find questionnaires annoying or simply neglect them as seemingly useless information. Considering this, it would be relevant to accompany the surveys with the comments on their purpose, so that people see the corporation’s growing interest in the opinions of its customers. Announcing also is an appropriate method, notably, attracting the population to the surveys with topic-specific advertisements and commercials may be helpful.
A campaign of such a kind requires substantial costs, but Nestlé apparently is ready to invest in marketing, in particular, digital. Precisely, it plans to increase the spending from 47% in 2020 to 70% throughout the next five years (Nunes, 2021, para. 1). This shows that the business actually is responding to the change, albeit in insufficiently diverse ways. Adding to the variety of strategies, therefore, would improve the efficiency of marketing; the recovery of the brand’s positive image, hence loyalty, may be able to compensate for hypothetical extra investments. The relevance of the solution, however, is not exclusively strategic, as ignoring the customers’ views is unethical and contradicts the principle of mutual respect, which should underlie any relationships, including business.
Reflections and Conclusions
The analysis of Nestlé in particular as well as food and beverage industry in general shows that the given brand is overcoming the pandemic-related economic downturn but experiencing reputational issues. Those partly derive from the pandemic as well; thus, health concerns increased people’s interest in organic food, which continues to make the minority of Nestlé’s assortment, notwithstanding the gradual growth (‘Creating shared value’, 2020). The main cause, however, is the way the business treats its stakeholders. For instance, it keeps ignoring their discontent with its practice of unauthorized and environmentally unfriendly mineral water extraction (Frue, 2019; James and Wilson, 2021). This illustrates the dramatic lack of direct communication with people that actually is the big strategic mistake of the business.
The latter problem presumably derives from the lack of flexibility, which, in turn, may root at the great scale of the firm’s performance. Simply stated, Nestlé operates in too many countries and has too large audience to have as much room for individual approaches as smaller companies do. Judging by its reports, its policies are centralized and mandatory in all factories; this simplifies governance but limits personalization (‘Creating shared value’, 2020). Structural imperfections, however, are not the only cause of the above symptoms, considering the scarcity of the feedback that the business collects from consumers.
To summarize, Nestlé presumably seeks to guide its customers rather than meet their expectations; in other words, form the needs, not satisfy them. Such an approach may seem to be strategically effective, but in fact, it bears a serious threat of losing loyalty. Nestlé actually is experiencing this, as people begin to boycott the corporation that does not respect them. Although the brand is responding to the situation, its reaction is too narrow. Direct interaction with customers, notably, needs not only quantitative expansion, but also more techniques and approaches. Ceasing the water misuse would be reasonable as well since this apparently is among the most effective ways to prevent the business’ reputation from further destruction.
Reference List
Ahmed, M. (2021) ‘COVID-19 impact on consumer behaviour, demand and consumption’, International Journal for Innovative Research in Multidisciplinary Field, 7(1), pp. 63-67. Web.
Creating shared value and sustainability report (2020) Web.
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Frue, K. (2019) PEST Analysis of Nestlé: how politics and social culture affect its growth. Web.
Gaudig, A., Ebersberger, B., and Kuckertz, A. (2021) ‘Sustainability-oriented macro trends and innovation types – exploring different organization types tackling the global sustainability megatrend’, Sustainability, 13, 11583. Web.
How many people work at Nestlé? (2020) Web.
James, I., and Wilson, J. (2021) ‘Nestlé doesn’t have valid rights to water it’s been bottling, California officials say’, Desert Sun, Web.
Nestlé (2021) ‘Nestlé’s grows 9-month organic 7.6%, raises outlook’, Food Manufacturing, Web.
Nestlé reports nine-month sales for 2021, raises full-year organic sales growth guidance (2021) Web.
Nunes, K. (2021) ‘Nestlé wants to get closer to consumers … much closer’, Food Business News, Web.