Sample Essay on Porter’s 5 Forces Analysis of Nestle

Porter’s 5 Forces Analysis of Nestle

Company history

Nestle is a multinational company which was started in 1867. Its first product was in the form of food for dehydrated children and since the company had no rival at the time, it was very well received in the market. Later on Nestle merged with good companies and this turned it into an even more successful company.

Porter’s analysis of Nestle

The Porter’s five forces analysis is a technique through which analysts assess the competitiveness of a company be evaluating its internal and external factors. This analysis evaluates factors that affect competition and can help a company to improve its business strategy and thrive despite the competition it faces in the market. Below is an analysis of five forces that affect Nestlé’s competitiveness in the market:

  • Threats of new entrants. The food industry is very viable and profitable. It has a huge and ready market which makes it very attractive. However, new entrants have to battle with long existing products from Nestle and other food companies. This makes it difficult to penetrate the market. Additionally, there are many government policies that have to be met in as far as manufacture of food products is concerned. Getting the red light from inspectoral agencies such as the FDA can be more difficult for new entrants.
  • Threats of substitute goods. There are many substitutes in as far as the food products in this market are concerned. There are other food processing companies such as Groupe Danone and Kraft foods which produce similar products as Nestle. The company has to therefore remain innovative in order to compete effectively and prevent clients from going for the substitutes. One of the ways through which Nestle has made its products unique is by making them healthier as compared to the other processed foods. This has made the company attract and retain the clients who are more health conscious.

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  • Bargaining power of suppliers. In the food processing industry the raw materials can make all the difference in the product. Nestle is well aware of this especially given the fact that most of its products are generated from dairy and agricultural raw materials. As a result the company maintains high standards in seeking quality suppliers and also goes to great measures in order to retain the best suppliers. Nestle also advises its suppliers on the way to reduce wastage and work more efficiently. This has helped develop a good relationship between the company and its suppliers and reduced problems with these essential teams.
  • Bargaining power of customers. The customers in the food processing industry have a lot of bargaining power. This is because of the easy access to substitute products as well as other food processing companies besides Nestle. However, Nestle has countered this bargaining power by constantly innovating new products that meet the demands and needs of the clients. The company has also maintained high quality production process and incorporated healthy products into its productions. This has given it popularity amongst the clients.
  • Competitive rivalry within the industry. Competition is stiff in the food processing market and Groupe Danone as well as Kraft Foods are the main rivals of Nestle. This is evident in the commercials that these companies carry out to attract clients and the constant innovations in their products. However, Nestle has always led in the industry because of its top quality products and constant innovations. Competition has also ensured that clients have access to the best products in the world.

Nestle has been able to curve a niche for itself in the food processing industry because it has maintained high quality products and taken into consideration changing demands of the clients. This has made it the best brand in a very competitive industry.

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