According to CNNMoney, Nestlé, the world's largest food company, reported profits of $9.6 billion in 2009. Given the state of the economy in 2009, what is it that contributed to this company's (relative) success? Do they provide superior products than its competitors? Does Nestlé have the best marketing team or business tactics in its industry?
Here are my thoughts – A poor economy leads to businesses suffering. When businesses suffer, the people working for those businesses aren't making as much money, and are therefore stretching their budgets to make ends meet. This leads to stress. What do many typical Americans turn to when they get stressed?..FOOD! And even more specifically, junk food: candy, baked goods, etc... Among other things, Nestlé is the number one provider of chocolate, ice cream, frozen foods, and coffee (Nescafé). And beyond the junk food aspect of stress, how about people being forced to work longer hours than usual? If you've ever worked a day in your life then you are aware that a large portion of our work force rely on coffee as a stimulant source to keep themselves awake and alert in the work place. The public's consumption of store-bought coffee (not a $5 latté from Starbuck's)has probably increased as well.
Although Nestlé reported $9.6 billion in profits in 2009, sales were still down from the previous years. Nestlé attributes this primarily to a decrease in sales of bottled water, probably because the general public has to stretch their budgets and have finally realized that purchasing bottles is the most cost ineffective way to obtain water. On the bright side, Nestlé predicts that sales will increase in 2010.
What do you believe contributed to Nestlé's success in 2009?
I hate to blame the cliche, but it at least partially contributes to their success: hard times raise stress, chocolate makes everything better.
ReplyDeleteAnd I don't just say this as some stereotypical "hormonal female." Think of Charlie and the Chocolate Factory; chocolate is an American comfort device, culturally acknowledged as a stress neutralizer.
Secondly, Nestlé is a highly diversified company, and made a lot of very smart investment choices: coffee products, cereals, various bottled waters, powerbar, lean cuisine, pet products like Purina, several well known ice creams including haagen-dazs and edy's, frozen foods, and a plethora of beverages. Those are a lot of big names, so it's pretty reasonable to me that they had big profits.
Honestly, I think you are forgetting that food and beverage is largely an industry that is immune to changes in the economic landscape. Regardless have how well the stock market is doing or where unemployment or GDP is, people still need to put food on the table. Nestle sells this food, and a wide variety of it, that they will buy regardless of how well the economy is doing.
ReplyDeleteWhat will suffer are sales of luxury or expensive foods...things people do not need to survive. Really expensive cakes or some other kinds of desserts are likely to take hits. Nestle is so well diversified and sells a great deal of inexpensive, as well as necessary, foods that it will still do very well.
What you also need to consider is that companies are making major budget cuts, which can almost falsely lead to higher profits. At present and in the short-term, this will not affect sales or profits very much...it is in the long term that the company will really feel its affects. Budget cuts coupled with an anticyclical business (cigarettes, for example, are another business that sells nearly the same regardless of the state of the economy) cause Nestle to do well.
I definitely agree that hard times leads to stress which leads to chocolate and gluttony. This is probably most of the change. But because sales were down at the same time, Nestle's hard times might have made them re-evaluate their production pipeline, make cuts, and turn out the same products for cheaper. Or they could even be adding new products and discontinuing old products based on sales and productivity. One smaller thing to consider, is that 2008 and 2009 where two of the biggest years for the Hollywood Box Office in a while, and everybody buys that crap when they go to the movies. But one thing to remember overall, America is the fattest country in the world - we're always gonna buy this junk, and Nestle will be around forever.
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