Case Analysis on Nestle Philippines
Background of the Case Nestle was the only foreign coffee producer in the Philippines owned by Nestle S.A. of Switzerland, the largest producer and marketer of food products in the world, and San Miguel Corporation, the largest beer brewer in the Philippines. For the past decades, the coffee consumption in the country has doubled causing its sales to increase. As Nestle’s market share increases it brought pressure to the company on how will they maintain high performance while facing the rapid change of the environment and competitors increase.
Statement of the Problem Nestle is the major producer of coffee in the Philippines, and over the past decade its market share has
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In late 1996, bean prices had declined somewhat, but they were still 90% above 1989-1994 levels. In 1995, Nestle surveys found that 96% of the household surveyed had purchased coffee in the past two weeks (up from 67% in 1974). This relatively high household penetration was due to the relatively high usage of 1.7 gram foil packs. In early 1996, Gokongwei had dropped the price of Blend 45 so that it was currently selling at 28 below Nestle’s price. Over the past decades as the other producers had entered the market, they typically priced their coffees about 10 percent below that of Nescafe. As a consequence, Nescafe gradually lost market share from 75% in 1965, to 60% in 1975, to 55% in 1985. In the late 1980s, declining coffee prices had given Nestle a window to reduce its prices to within 5 percent of its competitors and still preserve its margins. Starting at this time, Nescafe’s market share had started to rise. As the largest coffee buyer in the Philippines, Nestle devoted considerable resources to its relationships with its growers – and engaged in on-going activities to enhance the quality of their beans and their productivity. Nestle spent about 5% of sales on advertising and promotion of Nescafe. Filipinos loved contests and a chance to win a major prize. Whenever a new promotional draw is announced Nescafe sales would take an upward blip. Prior to 1996, imports of coffee beans, processed coffee in bulk, and packaged coffee had been prohibited.