Not Just Chocolate: Nestlé

HBR calls the brand synonymous with chocolate, “everything that today’s high-flying, headline-grabbing companies are not.” With over $100 billion in annual revenue, Nestlé is the world's largest food producer, owning over 2,000 subsidiary brands.

To think, it all began with a pharmacist’s fascination with baby formula and a little competition.  

Around 1866, Henri Nestlé was a pharmacist’s assistant trained in chemistry. Over the course of his life, he tried to develop multiple innovations, such as fertilizers, cement, mineral water, and vinegar, but failed each time.

As a keen innovator, Henri noticed that babies in Germany frequently died from malnutrition, so he experimented with milk, wheat, and sugar until he created ‘farine lactee,’ a baby food. The product was so powerful that it saved a child’s life.

This is one of the most important takeaways from the firm’s history. A great product doesn’t yield success—that product has to fill a clear need. Henri leveraged tailwinds from industrialization, urbanization, and high infant mortality. He partnered with doctors and nutritionists to boost his product’s efficacy.

Inspired by his own success, Henri decided to produce his product on a larger scale, purchasing fresh milk each morning. However, he quickly realized this method wasn’t practical and began working with a nearby milk company.

At the same time, two American brothers, Charles and George Page, saw an opportunity to commercialize milk production and supply. Inspired by the plentiful milk in the Swiss countryside, they used their business acumen to set up a facility manufacturing condensed milk.

The two firms, Nestlé and the Page brothers’ Anglo-Swiss Condensed Milk Company, were in competition. Throughout the late 19th century, they tried to outbrand one another.

Henri launched his product in Switzerland, eager not to be outdone by the Page brothers, who placed it in their eyeliner. Nestlé was also one of the first Swiss companies to use a logo, yielding greater marketing success.  

Henri’s business and marketing skills were legendary. Early failures instilled in him a mind toward stiff competition, and just eight years after he began his company, his products were available on four continents.

Nestlé won the milk production battle after Page’s company endured a series of poor business decisions and didn’t expand. The Page brothers had no choice but to sell to Nestlé, forming the company that’s still in business today.

As a firm, one of Nestlé’s key features is its mind toward diversification. The firm’s chocolate story is just an example of this. Henri was friends with candlemaker Daniel Peter. Peter saw Henri’s production process and wondered if he could combine milk with chocolate.

Peter launched milk chocolate in 1887, and by 1901, he could no longer keep up with demand. He approached Henri, who made a deal to produce high-sugar cocoa, Nestlé’s chocolate. By 1929, the merger was done, and Nestlé became synonymous with chocolate, as it is today.

Over the 20th century, Nestlé continued its product diversification strategy: sell products that fit a clear need. This notion came to a head in 1929: the stock market crashed, lowering coffee prices. A French Bank suddenly found itself with plenty of coffee but without a way to profit from it. The bank asked Nestlé to preserve the coffee to save its investment.

Nestlé, quick to innovate and problem-solve, determined a method of rehydration. The firm launched Nescafe in 1938, just in time to provide soldiers in WWII with a much-needed caffeine boost. Rehydrated coffee still remains among Nestlé’s most profitable sectors, garnering them $17 billion in revenue yearly.

Following their vast success, Nestlé expanded its product range significantly after WWII, purchasing soup companies and frozen food manufacturers as the technology emerged. The firm continued in this manner throughout the century.

Today, the firm’s strategy of catering to shifting customer needs manifests in meeting demand for healthier products. CEO Mark Schneider says, “We are providing plant-based alternatives that taste the same, offer better nutrition, and have a much better environmental footprint.”

Nestlé, now ranked 22nd on Fortune’s European 500, maintains “a global footprint and vast supply chains” through constant innovation and consistency. Their market share in the food production sector remains high at 35% in the U.S. and around 25% in Europe.

The firm has stakes in multiple food production subsectors, including pet food, water, coffee, diet foods, and, of course, chocolate. Their brands range from Blue Bottle Coffee, DiGiorno, and Friskies to Gerber and Hot Pockets.

Here’s what we can learn from Nestlé about emotional connection, diverse product lines, and setting consistent goals.

Lessons

Use branding that cultivates an emotional connection with your target audience. Throughout its 150-year history, Nestlé has gone through many major shifts in marketing and branding, especially regarding its coffee products. For example, the firm faced major issues marketing its NESCAFÉ products in Japan in the late 20th century. Committed to breaking into the market, Nestlé hired French Social psychologist Dr. Clotaire Rapaille to investigate the problem and determine solutions. Dr. Rapaille found that because Japan was such a strong tea-drinking society, study participants had no childhood memories of coffee and couldn’t form an emotional bond with products. To address this issue, Nestlé designed coffee flavored chocolates and marketed them to children, the beginning of a long-term strategy to instill an interest in coffee in Nestlé’s target audience. Resultingly, twenty years later, the Japanese market had a taste for coffee, one that, today, translates to over 500 million tons of Nestlé coffee exports annually. Here’s the takeaway: Cultivating an emotional connection with audiences is a multifaceted yet highly profitable strategy. Combined with a long-term approach, the practice creates brand loyalty, particularly in fickle markets with longstanding cultural traditions. Today, Nestlé’s longevity does this emotional work for them. In the U.S., Nestlé has a stronghold in coffee and chocolate (their most common and popular product lines), allowing children to familiarize themselves with the firm’s products and become avid purchasers later in life. This strategy is highly profitable and breeds significant longevity for its practitioners.

Lean into competition through scale. Nestlé, more so than PepsiCo and others, leverages tailwinds, leaning into competition through rapid global expansion. Following WWII, the firm recognized a strong need to expand into global markets, particularly those East. Food supply was often unstable then, and Nestlé seized the opportunity to commercialize and commodify instability in these regions. But it’s not solely about leveraging tailwinds: Nestlé beats out its competition by doing what it knows best—growing. Throughout the 20th century, the firm leveraged its vast resources to stomp out and avoid further competition in the food and beverage sectors. Nestlé acquired other firms, diversifying their offerings in the process and expanding into emerging markets. When the firm found strong competitors in other regions, they purchased those, giving them greater access to local resources and customers. This practice is crucial: Through economies of scale, Nestlé could offer lower prices through previously established distribution and supply chains, cutting competition off at its source. Lean scale was key to Nestlé’s expansion strategy: The firm operates on a relatively lean employee model, using the necessary resources and nothing more. This practice alleviates strains associated with scale, allowing firms to grow more sustainably.

Diverse product offerings lower risk. Nestlé understands the role of diversity in risk, having experienced quite a few ebbs and flows in product lines with shifting customer preferences. Take Nestlé’s stake in coffee, for example. Today, coffee is the firm’s most profitable division, and the product line saved the firm during WWII as instant coffee fueled troops worldwide. Nestlé’s product offerings are diverse today, with stakes in baby food, bottled water, cereal, chocolate and candy, beverages, and pet care. Diversity in the firm’s product offerings lowers risk: Coffee is its most profitable area, but baby food or chocolate may reign supreme as consumer preferences shift. Not only do diverse product lines help lessen the risk associated with longevity, but Nestlé relies on multiple pricing strategies to diversify its target audience and further lower risk. Many of their key products, like KitKats, have several pricing options, each with varying packaging and sales points used to target the product’s determined audience. These practices drastically expand the firm’s customer base, allowing it to stay competitive in multiple markets. This practice further lessens risk; tumult in one market doesn’t necessarily translate to low product sales overall, which broadens the model’s appeal and contributes to the firm’s longevity.

Use a product-based strategy when working with an extensive product line. With over 10,000 products in its arsenal, Nestlé navigates extensive products through an idiomatic strategy: Instead of marketing the company or product lines, the firm operates on an individualized marketing model. In other words, each product within a line has drastcially different marketing and accompanying target audiences to expand the firm’s customer base. While laborsome, Nestlé is a food industry giant, and its products appeal to drastically different markets and customers, sometimes with little overlap. Furthermore, Nestlé doesn’t have a target audience: While their individual products are marketed to differing consumer classes, the firm’s general marketing tactics are designed to appeal to everyone, aligning well with its mission statement—quality food for all. Quality is a focus at all price points, and set market prices allow Nestlé to glean high sales with low earning margins, yielding high returns. Along that line, the practice creates shared value through pseudo-iterative development, allowing the firm to examine multiple strategies and determine what works. Better yet, balancing value-based and competitive pricing aligns well with Nestlé’s mission, creating synergy within the brand.

Set—and work toward—consistent goals. Nestlé is guided by their key purpose, “Our purpose is to unlock the power of food to enhance quality of life for everyone, today and for generations to come.” Their pivots must align with this goal, which is a lofty feat considering their 150-year history. Nestlé isn’t like other companies; largely, the firm exercises strong focus, discarding anything that doesn’t align well with its overarching goals. Along that line, Nestlé isn’t easily distracted by new technologies and opportunities, unlike many other companies. According to HBR, “[Nestlé] respects technology but doesn’t consider it central to strategy. It values growth but prefers it controlled.” The firm’s former CEO says, “Yes, all companies must change to compete in today’s turbulent marketplace—but they mustn’t change everything all the time. Such an approach is unsustainable for the business.” Instead of emphasizing constant pivots and innovations, Nestlé prefers to rest on its laurels, filtering potential growth opportunities based on what aligns with their central goal. In other words, consistency is key for the firm. In today’s rapidly shifting market, the firm focuses on fine-tuning product improvements and marketing to enhance consumer quality of life.

Weekly Challenge

CEO Peter Brabeck-Letmathe says, “It is the consumers who tell us what they need and want.” This week, consider Nestlé's lessons and determine a method for incorporating them into your life.

1. On consistent goals.
   • What is the value of consistent goal setting?
   • Do you have goals you work toward consistently?
   • Determine which goals you’d like to work toward consistently. Then, outline a stepwise approach for meeting them.

2. On emotional connection.
   • How do you prioritize emotional connection in the workplace?
   • How can you leverage vulnerability to build connections further?

Speeches

• Mark Schneider, CEO of Nestlé Talks To Miami Herbert—CEO discusses leadership.
• Why Nestlé’s CEO has been in the office every day since COVID-19 hit—An interview transcript with fortune.
• Nestlé Investors | JP Morgan fireside chat with Nestlé CEO Mark Schneider–Current CEO chats with JP Morgan about the firm’s next steps.
• Nestle CEO Schneider: See Turbulent Environment Remaining—CEO discusses sustainability.

Videos

• The Dark Side of Chocolate—Documentary examines the brand’s largest controversies and history.
• How He Built The Biggest Food Company In The World!---Nestlé’s company history.
• Nestlé: 150 Years of Food Industry Dominance—Company history and shifting strategies.
• Henri Nestle: The Founder of World's Largest Swiss Company Nestle—The founder’s integral story.
• The History of Nestlé—Quick company history.
• Nestle - Why They're Hated—The firm’s major controversies and legal strategy.

Book Recommendations

• Nestle: The Secrets of Food, Trust and Globalization—The firm’s key moments.
• Nestlé in Fulton, New York: How Sweet It Was—Nestlé’s history in the U.S.

Further Readings

• The unrepentant chocolatier—Examines Nestlé’s shifting food safety and research strategy.
• The History of Nestlé—An extensive company history.
• From Milkmaids to Multinational Markets: Nestlé’s Branding Story—Nestlé’s branding and IP strategy.
• Nestlé: Tailoring products to local niches—Nestlé and localization.
• A Brief History of the Nestlé Brand—A company overview.
• History of Nestlé—The firm’s early history.
• How Nestlé Expanded Beyond the Kitchen—NYT covers the firm’s expansion and growth strategies.
• Nestlé SA: Nutrition, Health and Wellness Strategy—How Nestlé adapts to shifting customer concerns.
• Nestlé Wants to Sell You Both Sugary Snacks and Diabetes Pills—The firm’s diversification strategy.
• Nestle Is Said to Pay $425 Million to Buy Blue Bottle Coffee—Nestlé’s acquisition strategy.
• History of Milk Chocolate—Key moments in Nestlé’s most famous product.
• Nestlé Agrees to Sell U.S. Confectionery Business to Ferrero–The firm’s modernization strategy.
• The reasons why we hate nestle so much—Redditors discuss the firm’s major shortcomings.
• Nestlé And Starbucks Agree To A $7B Distribution Deal, But Will It Work In The Long Term?---The firm’s distribution strategy.
• Milking it—How the firm copes with criticism.
• Understanding Nestlé—The firm’s current financial data.
• Travel through our history timeline—Nestlé’s firm timeline.
• The Untold Truth Of Nestle—An extensive company history.
• How Nestlé Became The World's Largest Food Company—A complete company history.
• The Business Case Against Revolution—HBR examines the firm’s shifting strategies.
• The Birth of Nestlé, A Global Corporation—Nestlé’s early history.