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In this PEST analysis of Nestlé, you’ll learn about how the world’s largest food and beverage company is affected by four prominent macro environmental factors. In each section, surprising information about the company will be uncovered, including…
- Why Nestlé moved production from Britain to Poland?
- What caused a massive profit increase the last year?
- Why people are boycotting the company over controversial news?
All of this is part of the PEST framework. Using it, the goal is to understand how politics, the economy, social culture, and technology impact a company’s growth and success. It’s easy for you to understand and just as simple for you to do yourself.
Following this framework, let’s get started and learn more about Nestlé, the second-largest Swiss company in the world.
Also read: SWOT analysis of Nestle
Political factors: The company’s ability to impact the government
Since Nestlé operates in more than 190 countries, any shift in regulatory environments can massively impact operations. Multinational firms like Nestlé have a greater risk of production bottlenecks because of governmental policies and changes. Basically, the more countries a business operations in, the greater the chance of policy changes that may interrupt operations.
For example, the Brexit situation threw a wrench in Nestlé’s plans. The change threatens the livelihood of production and food workers. Europe is an important market for Nestlé production and profits. And the instability of Brexit has disrupted the entirety of the UK food supply chain. The Brexit change has been so catastrophic that Nestlé discussed replacing production in Newcastle and York to Poland. Since, even now, Brexit is still in the air, the company doesn’t have faith in the future of the country. For that reasoning, it’s smarter to move operations out of this volatile landscape.
Although political changes often affect the company, moving operations out of the country affects the unstable environment for Britain. Losing Nestlé means a loss of over 300 jobs, impacting the already controversial political British climate. Keep in mind, not many companies can impact political stability, but Nestlé can.
Nestlé also has to abide by the changing of food standards and regulations. Each country has its own set of regulations. If Nestlé doesn’t abide by them, they’ll be cut off; the products won’t be purchasable, nor edible, in the eyes of the government.
Many food companies, like Nestlé, are experiencing problems associated with the rising costs of ingredients. As such, many are decreasing the amount of product they offer. This is a particular problem for chocolate. People continue to buy chocolate treats at the same (or even increased) price, without knowing companies are shrinking the amount of product they get.
Economic factors: A surprising increase of profits after a slow year
Foreign exchange swings are an economic issue for Nestlé. As a multinational firm, the company is easily impacted by the sway of foreign-exchange rates and prices. If the currency weakens, it may lead to profit loss, depending on the location. It could also result in the reverse — a profit increase. Or cheaper options for the importing or exporting of goods.
Within the last couple of years, Nestlé has been in an upswing for profit. In fact, in 2018, the company’s profits increased by more than 40 percent. According to the company, profits changed from $7.6 billion to $10 billion. Much of this success is thanks to three things: The United States market, the Chinese market, and selling off its confectionery business.
This is a big difference, considering the company reported less than stellar results from 2017. The company blamed a decrease in consumer demand in the US and Brazil. But at that time, Nestlé’s CEO Mark Schneider held faith that company profits would increase in 2018… and boy, was he right!
Social factors: The food is adored, the company… not so much
The social environment, including the attitudes, buying behaviors, and changing demographics, all affect a business. What’s truly affected food and beverage companies like Nestlé is the public’s obsession with healthy eating. People want to consume less sugar and lower calorie foods.
Nestlé knows this. If it didn’t, the company would be in a world of trouble. Nestlé is focusing on reducing sugar, salt, and saturated fat in some of its products. This requires reformulating existing products, but it also opens the door for new versions of classic foods and drinks Nestlé consumers love.
Although the food is still adored, the company is held less favourably.
Over the last couple of years, Nestlé ran into controversy regarding the extraction and usage of drinking water. Nestlé takes spring water from the land, leaving nothing or polluted water behind in its wake. This has affected indigenous Canadian land, and locations like Flint, Mich.
When the company does pay to take this water, the price is next to nothing. Combine this with what previous Nestlé CEO Peter Brabeck-Letmathe said about the rights to water being “extreme”, people have become weary of Nestlé. Some are even boycotting the company, although this can be difficult since Nestlé owns so many food products.
Technological factors: More ways to increase production and quantity
Nestlé needs to spend more money on research and development. It has more technology at its disposal to achieve greater feats in the R&D department; social media, digital surveys, email marketing, discounts… the list goes on.
It’s much easier to connect with audiences all over the world thanks to evolving technology. It also means Nestlé has more options to increase production, food quality, and food availability to consumers.
Some companies are adopting blockchain technology to have full informational access to products — from development to delivery. This is also an option for Nestlé, as it can decrease production time. At the moment, it’s still a costly venture, and would need to be introduced slowly to each of Nestlé’s production lines.
PEST Analysis of Nestle: Conclusion
Nestlé is a massive company with ties to 194 countries. It has the funds and presence to impact governments. It’s also on a profit upswing, despite the major controversies about Nestlé’s ownership and views about water rights. The company is in the position to adopt new technology to learn more about what their consumers want, but if they don’t clean up their public image, it might be for nothing.
Photo by Thibault Penin on Unsplash