Nestle's Brand Management Strategies

"Nestle is a brand in its own right. For consumers, relevance of Nestle as a company comes first of all through contact with products that are branded Nestle. Ifwe want to be perceived as the world's leading Food Company, we have to offtr consumers an increasing amount of products that they can identify as Nestle s."
- Peter Brabeck Letmathe, CEO, Nestlel

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INTRODUCTION
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In mid-1988, Nestle SA (Nestle), the world's largest consumer packaged foods company based in Switzerland, acquired Rowntree Mackintosh PLC (Rowntree), in the largest ever acquisition deal of a British company during that time. Rowntree was the world's fourth largest manufacturer of chocolates and confectionery products, with well-known brands like Kit Kat, After Eight, Smarties and Rolo. The deal attracted considerable attention allover the world since several bids2 to acquire Rowntree were rejected. Rowntree claimed that the bids were too low for its valuable, well-recognized brands. In the end, Rowntree was acquired by Nestle for 2.5 billion, two and a halftimes the pre-bid price and eight times the net asset value of the company. This acquisition made Nestle the largest chocolate manufacturer in the world. Analysts felt that Nestle had paid 2.5 billion because of Rowntree's brands, not its past financial performance. Industry observers wondered how Nestle would manage Rowntree's brands. Rowntree followed a "one product, one brand" policy. The brands were simply Kit Kat, After Eight, Smarties and Rolo, Rowntree was never mentioned. Moreover, Rowntree's brands were not strongly managed European brands. In fact, according to an analyse, Kit Kat was one of the worst cases of an over-localized brand of a company across Europe.

In the mid-1860s, Henri Nestle (Henri), a merchant, chemist, and innovator experimented with various combinations of cow's milk, wheat flour and sugar. The resulting product was meant to be a source of infant nutrition for mothers who were unable to breast-feed their children. In 1867, his formula saved the life of a prelDaturely born infant. Later that year, production of the formula, named Farine Lactee Nestle, began in Vevey, and the Nestle Company was formed. Henri wanted to develop his own brands and decided to avoid the easier route of becoming a private label. He also wanted to make his company a global company. Within a few months of establishing his company, Henri began to sell his products in many European countries. In the initial years, Henri restructured the organization to facilitate research, improve product quality, and develop new products. In 1875, Daniel Peter, Henri's friend and neighbor, developed milk chocolate. He soon became the world's leading chocolate maker. Later, his company was acquired by Nestle. In 1905, Nestle merged with Anglo-Swiss Condensed Milk Company, a manufacturer of milk-based infant food. During World War I, there was a huge
ill an interview with The McKinsey Quarterly in 1996. Nestle and Jacobs Suchard, which had already acquired 15% of Rowntree's major players in the tussle to acquire Rowntree, According to Chris Macrae, author of Brand Chartering, published in 1995,

stores, were the

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Brand 'Management demand for dairy products and Nestle capitalized on this opportunity by executing military contracts of various countries involved in the war. In 1938, after eight years of research, Nestle discovered a soluble powder that revolutionized coffee drinking around the world. The product was launched under the brand name Nescafe and became an instant success. The end of the World War II marked the beginning of a new phase of growth for Nestle. The company added many new products. In its effort to expand its operations further, Nestle merged or acquired several companies. In 1947, Nestle expanded into culinary products by merging with Alimentana, a Swiss company that produced and sold Maggi soups, spices and other food products in many countries. In 1950, Nestle acquired Crosse & Blackwell, a British manufacturer of preserves and canned foods. This was followed by the acquisition of Findus, a Swedish company producing frozen foods (1963), Vittel, a French mineral water company (1969), Libby's, a British fmits, vegetables and meat company (1971), Ursina Franck, a Swiss company producing milk products, baby food and culinary products (1971), Stouffer's, a US frozen foods company (1973), and L'Oreal, a leading French cosmetics manufacturer (1974). All these acquisitions (Refer Exhibit II for other acquisitions by Nestle) led to substantial synergies in Nestle's production, distribution and sales. In the mid-1970s, Nestle's financial position deteriorated. Oil prices rose, growth in industrialized nations slowed down; the US dollar, the pound, the deutsche mark and the French franc declined in value as compared to the Swiss franc; and the pri<;eof coffee beans and cocoa shot up. Between 1980 and 1984, Nestle divested a number of non-strategic or unprofitable businesses, amounting to nearly SFr 8 billion. The divestments included certain food products that were not coherent with Nestle's emphasis on high value added segments. In 1988, Nestle acquired Buitoni-Pemgina, Italy's third-largest food company. The first half of the 1990s was favorable for Nestle as several countries dismantled their trade barriers. The opening of Central and Eastern Europe and China and a general trend towards the liberalization of foreign investment regulations were strong positive indicators for Nestle. In 1997, Nestle strengthened its position in the mineral water business by acquiring the Italian San Pellegrino group. Through this acquisition, the company acquired three internationally well-known mineral water brands: San Pellegrino, Levissima and Panna. By the late 1990s, Nestle had emerged as the world's largest consumer packaged food company The company was the world leader in various product categories like coffee, mineral water, beverages and chocolates. It had manufacturing facilities in 522 locations spread over 81 countries, and sold its products in more than 100 countries. In the financial year 1998-99, the Nestle group's total workforce was 231, 881. In the same year, Nestle recorded revenues of SFr 71.7 billion (US $51.99 billion) and a net profit of SFr 4.29 billion (US $3.11 billion). Nestle had a market capitalization of SFr 117.3 billion (US $85 billion) in 1998 and ranked 36 in the Global Fortune 500 list Nestle was able to successfully expand globally because its products like instant coffee, chocolates and frozen foods appealed to consumers all over the world. Moreover, high R&D and marketing costs also forced Nestle to offer products with a global appeal so as to recover its high investments.

NESTLE'S BRANDING STRATEGY

The Nestle brand itself had played a key role in the company's globalization efforts. In 1996, about 40% of the total revenues were generated from products covered by the Nestle corporate brand. Nestle's logo was an important part of the company's corporate identity. The 'nest' was a graphic translation of Henri Nestle's name, which
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Strategies

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meant "little nest." The logo attempted to convey security, maternity and affection. The symbol, a central element in Nestle's corporate identity, also projected Nestle's ~story, quality and tradition. During the mid 1990s, Nestle's brand portfolio (Refer Exhibit I) consisted of ten worldwide corporate strategic brands, 45 strategic worldwide product brands, 140 regional strategic brands, 700 local strategic brands and more than 6,700 local brands. Some of the leading worldwide corporate brands included Buitoni, Carnation, Friskies, Maggi, Perrier, Nescafe, and Nestle. The company's worldwide strategic brands included After Eight, Baci, Cerelac, Coffee-Mate, Crunch, Kit Kat, Mighty Dog, Polo and Smarties. The regional strategic brands included Alpo, Contadina, Findus4, Herta, Mackintosh, Perugina, Stouffer's and Vittel. Some of Nestle's local strategic brands were Brigadeiro, Rocky, Solis and Texicana. Each of Nestle's worldwide corporate strategic brands was managed by a senior executive, called 'brand champion,' based at Nestle's headquarters in Vevey. The brand champion, who also had other roles such as VP Nutrition, acted as a brand advocate and had full authority and responsibility of the corporate strategic brand he/she handled. Nestle consolidated all its resources behind its worldwide corporate strategic brands. Typically, each product brand was supported by one of its corporate brands. For example, Nestle was a corporate brand while Milo was a product brand. Milo was supported by Nestle, hence the name 'Nestle Milo.' The selection of the products that were clubbed under the Nestle brand depended on the way these products enhanced the Nestle image and not on what Nestle brought to these products. The worldwide strategic product brands were the responsibility of the general management at the strategic business units (SBUs). They established a framework for each brand including a planning policy document, labeling standards, brand positioning, communications methodology, and packaging. Each worldwide product brand was managed by the concerned SBU. For example, Polo was managed by the chocolate and confectionery SBU. The regional brands were the responsibility of the SBUs and the regional management. Apart from this, Nestle had local strategic brands that were important to particular countries. These were managed by the local markets and only monitored by the SBUs. Nestle's management was only involved in establishing their positioning and a minimu~ labeling standard. There were also many local brands in which Nestle's management did not intervene at all. Brands varied in the amount of independence they had from the corporate brand. For example, Maggi, a product brand, was not supported by the Nestle corporate brand. Those products that did not carry the Nestle brand, carried a 'Nestle Seal of Guarantee' with a short note like, "All Maggi products benefit from Nestle's experience in producing quality foods allover the world." Nestle attempted to strike a balance between making consumers aware of the Nestle brand and preserving the distinct identity of its other strategic corporate brands. Lethmathe explained, "Where we have a relevant core competence combined with a specific brand territory, as we do with Maggi and Buitoni for example, it is better to keep a separate brand identity. We do not combine Nestle/Buitoni, because Buitoni is more than a product: it represents the authentic Italian lifestyle. Nor do we have Nestle/Maggi. Maggi offers local recipes to suit local tastes, even though it belongs to a multinational."s However, there were a few exceptions to Nestle's branding strategy. The Nestle seal of guarantee was not used on products consumed by animals for many reasons, including cultural ones. Nestle also decided not to put its seal of guarantee on mineral water since the company felt that people buying water were concerned with the purity

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The brand was later divested by Nestle's in February 1999. In an interview with The McKinsey Quarterly in 1996.

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of the source, not the seal of the manufacturer. In this case, Nestle established a special institute, Perrier-Vittel, to guarantee the quality of the mineral water. Nestle developed a comprehensive brand positioning and communication system to communicate its long-term vision of a brand's personality. In addition, Nestle produced positioning documents for its worldwide brands and key regional brands. These were compiled by the SBUs in conjunction with the marketing and communications staff from the markets, and were approved by the general management. Nestle established minimwn labeling standards to protect its brands. All local markets were expected to follow these standards. Nestle also constantly reviewed its brand communication strategy. The company made efforts to establish a link between its corporate communication theme, which was "good food, good life, throughout your life," and its product advertising. Establishing a balance between global and local brand identities and creating an interface between tactical and strategic decision-making during the branding process was a challenging process for Nestle. The company's visual communications experts were entrusted with two major tasks. They had to arbitrate between Nestle's strategic brand requirements and ideas on brand identities related to marketing initiatives recommended by national subsidiaries. They also had' to ensure that Nestle's worldwide corporate strategic brands were communicated in a consistent manner throughout the world, projecting the image of a global consumer packaged food company and yet flexible enough to connect up with every sub-branding presentation. Each corporate strategic brand had its own "territory" into which the local brand was clubbed. Nestle gave its local managers considerable autonomy. By decentralizing brand management to a certain extent it kept close to its billions of consumers.

INTERNATIONALIZING

THE 'KIT KAT' BRAND

When Nestle acquired Rowntree's brands in 1988, the major challenge before the company was managing them. Rowntree had a "one product, one brand" policy. The brands Kit Kat, After Eights, Smarties and Rolo were marketed with no mention of Rowntree. Rowntree's brands were not strongly managed European brands. Before the 1980s, 'country managers' outside the UK in several European countries managed Rowntree's business. They were free to run their units provided business objectives were met. The orientation at Rowntree was short-term just to meet annual business objectives and country managers added nothing to the overall organization Even though Kit Kat was a leading brand in UK, it was ignored outside the country. In the early 1980s, Rowntree established Rowntree Continental Europe, which handled business responsibilities outside the UK in Europe. However, this did not benefit Kit Kat, which was launched in Europe by Rowntree Continental Europe as a multi-local brand. Rowntree's local market research suggested that almost every aspect of Kit Kat's UK brand mix needed customization. Almost every country manager created hislher own brand design of Kit Kat. The name reminded some Europeans of a cat food brand. The chocolate pack's red and white color was unfamiliar to Europeans and did not appeal to them. It was reported that Kit Kat's UK advertising slogan, "have a break, have a Kit Kat," meant nothing to Europeans, because .only the British had institutionalized the tea or coffee break at work Moreover, analysts felt that Rowntree never appreciated that a product-oriented slogan like "have a break, have a Kit Kat" could appeal to global consumers. In the early 1990s, Nestle faced the challenge of turning Kit Kat, a multi-local brand into a European brand. The company decided to support Kit Kat with Nestle, one of its corporate strategic brands. Hence, Kit Kat became Nestle Kit Kat. An analyst6
According to Chris Macrae, author of Brand Chartering, published in 1995.

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commented: "Increasingly, more and more branding effort is being put into what Nestle stands for. Kit Kat is re-badged now with Nestle's name and logo very prominently alongside Kit Kat The idea is that both brands can contribute to each other. So Kit Kat's leading position in the UK and strong consumer loyalty can rub off on Nestle, and meanwhile Nestle can now launch Kit Kat in other parts of Europe where Kit Kat isn't known but Nestle is." However, some analysts argued that before Nestle's double-branding strategy could work, it had to converge the various brand designs of Kit Kat; converge local managers' views regarding the essential meaning of Kit Kat; and re-organize ways of working so that national marketing and international branding could work together. Nestle's management felt that since Kit Kat was essentially the same product in the same packaging allover Europe, giving local country managers full freedom to manage the brand was not appropriate. They felt that if a brand had been a leader in a highly competitive market like the UK matket for many decades, it was likely to comprise some strategic elements, which should be non-negotiable in any international translation of the brand. Nestle drew up a four-pronged strategy to transform Kit Kat from a multi-local to an European brand. As part of this strategy: All country managers in Europe were directed to work together. A leading ad agency was appointed to fqcus on the core meaning of the Kit Kat brand. Market researchers were taught to put global interpretation before local accentuation. Product mix elements and production were progressively harmonized.

Nestle decided to retain the advertising slogan, "have a break, have a Kit Kat" The company felt that this slogan was essential to the brand, and used it in all its advertising campaigns in Europe. Nestle felt that this message did not have to be associated only with coffee breaks. Continental Europeans could, for example, take a break by having Kit Kat even when they were stuck in traffic. Thus, Nestle's European managers worked in a collaborative manner to converge Kit Kat's multilocal branding back to a singular European one on all strategic elements of the brand Drawing from the Kit Kat eXperience, Nestle's CEO commented on the future of confectionery brands in Europe: "The future will be in the hands of the mega brands whose manufacturers have understood and managed the 'virtuous circle' of world class quality and value." Nestle's attempt to internationalize the Kit Kat brand paid handsome dividends. By the mid-1990s, Kit Kat's sales in continental Europe had more than doubled since Nestle's acquisition. Moreover, Kit Kat soon became Nestle's flagship brand in the confectionery segment. The "Kit Kat from Nestle" link had become strong enough for each brand to add to the other's reputation.
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The success of the Kit Kat brand inspired Nestle to think and act 'glocally' i.e. establishing global as well as local brand identity. Nestle had taken a similar approach to several other acquired sub-brands. Moreover, Nestle introduced the Kit Kat brand in several other countries across the globe. Nestle's brand management strategy included the divestment of non-strategic brands. In February 1999, Nestle negotiated the sale of its Findus brand of frozen food to EQT Scandinavia BV. The divested business had annual sales of SFr. 1 billion. Investors
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Brand Management

welcomed this move and Nestle shares went up by 3.2% to reach SFr 2764. Francois Perroud, a company spokesperson, explained, "The strategy is to shift the company's focus away from smaller, low-margin frozen vegetables and fish lines to high-valueadded sectors, including pizza, prepared dishes and snacks. We are not getting out of the frozen-food business but shifting to high growth areas." According to analysts, the divestritent of Findus was expected since the brand was not performing well. In an interview ill; 1996, Lethmathe had made the following observation about the Findus brand's performance, "Findus was a worldwide strategic brand for frozen food for thirty years. It has been redefined as a regional strategic brand. The market had moved so far that in the emerging markets, and where Findus had no presence, we could launch our frozen food products under the prevailing culinary brand! If one day we take frozen food into Eastern Europe, I'm sure we will use Maggi, not Findus. In Germany, Maggi isa powerhouse. When we launched under Ma~, we got a unanimous reaction from the trade that finally we understood branding." Complementing Nestle's brand management skills, Doriana Russo, an analyst, commented, "This move confirms that Nestle management is getting more aggressive about profitability."

Questions for Discussion 1. Critically analyze Nestle's branding strategies. The company successfully managed a large portfolio of brands across the globe. Why do you think it was so successful? Discuss the rationale for Nestle's double branding strategy. What problems did the company face when applying the same strategy to Kit Kat? Explain how Nestle successfully turned Kit Kat from a multi-local brand to a global brand. Why did the company decided to retain the advertising slogan, "have a break, have a Kit Kat?"

2. 3.

ICFAI Center for Management Researr:h. All rights reserved.

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Quarterly in 1996.

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II

Nestle's Brand Management

Strategies

Exhibit I

'e: www.nestle.com. 2002 'e:By 2002, Nestle had more than 8,500 brands across the globe.

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Exhibit II Nestle's Major Mergers and Acquisitions

Source: www.nestle.com

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Nestle's Brand Man~gement Strategies

Exhibit III Nestle's Financial Information