Nestle Philippines Essay

I. INTRODUCTIONNestl Filipinos, Inc. (NPI) is a leading manufacturer of food and beverage in the Philippines. It was established in the country in the early 1930s, initially as a trading caller. By the year 1962, it formed a articulation venture with San Miguel Corporation (SMC), a come with specializing in brewing with ample interests in agribusiness and food outputs. In 1996, San Miguels Magnolia Foods Division had been structured with Nestl. It produced and change outputs wish well Magnolia ice creams and tetra pack juices, Bear Brand and gillyf press down condensed milk, Bertolli one-time(prenominal)as and tomato sauce, Maggi seasonings, pasta and mayonnaise, and Smarties candies.Nestls Instant confound Division produced and interchange Nescaf, Nestea, Milo, Coffee Mate and Milkmaid powdered milk. Nestl Philippines is ranked number 10 among Nestl subsidiaries worldwide and number 3 in Asia-Pacific, behind Japan and Australia. Nestl is the lone(prenominal) foreign-ow ned cocoa producer in the Philippines. Nescaf already a household trope in the Philippines needs to respond to major changes in the environment. Competing cracks like enormous Taste and Nescafs ne best competitor, Blend 45 already let down or ar planning to reduce their expenditures.There are excessively major changes in Government Regulation, Imports and Market Entry resulting to the potential access of foreign brands like kraft paper General Foodss maxwell tolerate and Procter & Gambles Folgers Coffee. The company needs to decide whether it should importinging Arabica beans for blending verify Roaster burnt umber, change the composition of Nescaf by importing Arabica beans to the alike(p) composition as those sell abroad, and whether it should continue producing Tasters quality which are made from Philippine- prominent Robusta and Imported Arabica.II. STATEMENT OF FACTSNestls Instant Drink Division contributes 75% of the companys total gross r all the sameue Ne scaf contributes 53% of the department sales. In 1996, Nescafs commercialise share developmentd from 52% to 66%. Nestl have 40 independently-owned warehouses located throughout the Philippines. These warehouses, along with cc salespersons cater 20,000 dealers who had accounts with Nestl, with locate access for orders and credit lines. The companys employment facilities however are already strained to the limit. The company spent 5% of sales on advertising and promotion of Nescaf which includes decorative streamers and raffle draws. The company also offered volume bonus discounts. According to mart research, the bonus promotions are Nestls most effective promotional offering.However, Nestl doesnt buy ledge space, which is a honey oil practice in the Philippines and early(a) Asian countries. or else it prefers rental of special uncover space for promotion, which is occupyed as the most dear(predicate) real estate in the Philippines. There is a significant increase in the number of households that purchased deep brown within two weeks, from 67% in 1974, to 96% in 1995. This is collectible to the relatively high usage of 1.7 gram foil packs in the Philippines. These 1.7 gram private packs contribute 8% of Nescafs sales. Coffee is typically drunk with sugar and without milk or non-dairy whiteners. However, on that point is a 350% increase in the use of much(prenominal) whiteners over the past decade. The Carnation brand which produces whiteners, condensed milk and powdered milk is owned by Nestl. One of the reasons behind the rapid increase in volume and merchandise share is the fall of green coffee bean prices two in the world commercialise place and Philippines.The price of green coffee beans, where Nestl sourced all its coffee fell by 50% these beans comprised about 30% of the delivery costs. Nestl and other producers are able to lower their prices because of the savings. Another reason is the introduction of cheaper packaging. Bottles t ouch on up 30% of the total cost. Hence, coffee sold on bottles are more expensive at PHP 26.25 for a 50-gram pack while those in foil packaging are sold only at PHP 20.45. look by Nestl shows that its merchandise place share is highest in small stores located in large cities. Conversely, among small stores, its market share is highest outside big cities. mountain outside big cities prefer to shop in sari-sari stores. The prices of commodities sold in sari-sari stores are 15% higher than in supermarkets outside big cities and 20% higher than those in big cities.Over the past decade, other producers, who sold their coffee 10% at a lower place the price of Nescaf, entered the market. Nescaf gradually lost market share from 75% in 1965, to 60% in 1975, and finally, 55% in 1985. However, there was a decline in coffee prices in the 1980s, good-looking Nestl a window to reduce its prices to within 5% of its competitors and still keep up its margins. Other major producers of coffee in the Philippines include Blend 45 which has 15% market share in 1996, Great Taste with 10% market share, Kafe de Oro with 6% market share and Caf Filipino which has 3% market share. The Gokongwei Groups Blend 45 employs a cheaper blend of coffee and carbohydrates. In 1996, they dropped the price of Blend 45.They are sold 28% below Nestls price and 20% below most of the other brands sold in the market. So far the price increase made no significant effect yet on the market share of Nescaf. prior to 1996, the import of coffee beans, each unprocessed or processed is prohibited. whole of the coffee sold within the Philippines had to be produced within the country. The quality of Robusta beans giving in the country was of international quality. On the other hand, the quality of Arabica beans was of inferior quality. Consequently, Nestl used deoxycytidine monophosphate% Robusta unlike those processed in the U.S. or atomic number 63 which are blends. Nestls Master Roaster coffee is made from topically grown Robusta and Arabica beans. Tasters Choice, on the other hand is made from locally grown Robusta and imported Arabica. In 1996, the Philippine Government committed beneath GATT and WTO to remove import prohibitions on agricultural products. Hence, a Minimum admission fee Volume (MAV) was set. Imports of green and roasted beans and packaged products are charged a tariff of 30% while those outside the MAV are charged coke%.The government, however committed to increase the MAV and reduce the tariff in imports both within the MAV and outside it. Nestl is facing the threat of importers, both from the U.S. and regional coffee producers. One of which is Indonesias Indocaf which already begun intersection in Malaysia and exporting to Vietnam and is rumored to tog in China and export to the Philippines. Indocaf is sold 10% below the price of Nescaf in both markets. It has backward integration with its own coffee plantations so it was buffered from price swin gs. Another doable importer is Singapores Supermix who pioneered in individual 3-in-1 packs within Singapore and in other nearby countries. In the 1990s, the Philippine Government liberalized regulations on Foreign Direct Investments.Prior to that, investments with sales direct to domestic market had to be 40% Filipino-owned. In 1992, the government allowed 100% foreign ownership in most industries. As a result, Kraft General Foods which had substantial outturn operations in the Philippines is rumored to produce Maxwell House within the country. Procter & Gamble which also had substantial production in the Philippines also announced that it would produce Folgers Coffee in the country.IV. selection COURSES OF ACTIONOne of the possible alternative courses of action is to increase the production capacity of Nestls facilities. Upgrading the capacity would enable Nestl to experiment on product development without the possible reduction of Nescafs already established market share. H owever, the upgrade would require $3 million worth of investments. Another possible option is to focus substantial amount of investment for the marketing and sales of Master Roaster coffee which is currently made up of locally produced Robusta and Arabica. Nestl could both import Arabica beans to improve the taste of Master Roaster, which is now possible due to the major changes in import regulation.The brand would cater Nestls high-end consumers. However, it would reduce the companys current production capacity of the current blends. Lastly, Nestl could turn the Nescaf and use imported Arabica and locally produced Robusta to copy the foreign blend. This would make Nescaf a high-end product which could match imported brands. Again, this is possible because of the favorable changes in import regulation. However, this modification might result in Nescaf losing significant amount of market share and household penetration. V. CONCLUSIONTo react to the major changes in the environment, Nestl should lower the price of Nescaf closer to its competitors. According to research, there is a direct blood between coffee prices and household penetration. Hence, the price reduction would make the product take down more accessible to the masses. In return, the company would gain even higher market share. In response to the threats of the entry of imported brands in the country, Nestl should continue producing Tasters Choice and discontinue the unsuccessful Master Roaster. Tasters Choice would both accommodate a shed light on market segment and the increasing import mentality of Filipinos. Importation of either Arabica beans or finished product is possible because of the changes in import regulation. Lastly, Nestl should consider buying shelf spaces. Besides the fact that it is a proven and common practice not only in the Philippines but also in other Asian countries, it is more economical than renting special display spaces. Nonetheless, Nestl should only lessen, not stop renting special display spaces.VI. reposition MANAGEMENTIn order to sustain the changes made, Nestl should explore the use even cheaper packaging materials. The savings, in turn would enable the company to reduce the prices of Nescaf. The company should also actively promote its 1.7 gram individual packs and 3-in-1 packs. This would result to the brand gaining more market penetration, translating to a better market position. It should also precipitously promote both Nescaf and Tasters Choice which satisfies different market segments. VII. RECOMMENDATIONNestl should engage in more product development activities, like for example new flavors of coffee. Considering it is a multinational company, it will have the avail of increased awareness in the current trends abroad. A development in the existing product lines would not only generate more market shares but also create new market segments. Filipinos would accept the inclination of these improvements because of their import m entality.However, there should be enough market research regarding such improvements to make sure they are feasible in the Philippine setting. Also, Nestl should capitalise on its strength of having close relationships with its farmers. It should procure its raw materials in a manner that would benefit farmers. There should be more capacity building trainings among its coffee suppliers in order to promote increased productivity.