Nestlé’s Case Analysis
Fairtrade or not to Fairtrade
I. Analyze: Identify Issue and its Scope
1. The primary issue is related to the coffee farmers in Africa and South America. They are not paid a sufficient price for their crop, and health and environmental standards are unregulated. Low coffee prices due to a higher supply than demand around 2000 leaving several coffee farmers with earnings below sustenance level. This caused large coffee producers to enforce a more sustainable supply chain with their coffee farmers. Nestlé is facing a decision whether to market their new instant coffee under the fair-trade brand or to keep complying with their own high CSR standards.
2. Nestlé complies with all UN principles, however some are more relevant to the situation than others. The first two human right principles are complied with, as well as the 4th (the elimination of all forms of forced and compulsory labor), all the environmental and the anti-corruption principle. Besides this Nestlé is building schools for the workers children in the coffee plantations. They are also addressing the environmental challenges by providing farmers with agricultural assistance in form of watering systems using a minimal of water, as well as guaranteeing the farmers a base pay out of harvesting seasons.
3.Management's objective is to improve the quality of products, at the same time, Improve the life quality of farmers in Ethiopia and El Salvador by reducing the uncertainty. With a transparent supply chain and quality control at the grass root level, company wishes to expand profits in the ethical market segment.
4. Information includes type of coffee, ingredients and composition which define the kind of coffees manufactured by Nestlé’s. Combining such details with provided data of countries coffee production helps in deciding the target-developing nation for production and target consumers. The given production cost of such varieties help in determining the market cost and eventually, the marketing decisions. Market costs however also depend on the market events in different countries and fluctuate with the conditions. Costs also depend on the supply and demand of coffee in the market. We are given the sales records of hot drinks and coffees consumption records by volume and value. This helps us in understanding the UK market. To determine the unit margin from 100gms of coffee, the average cost breakdown helps in a big manner. It effectively shows margins for roaster and retailer. This leads us to Nestlé’s financial performance. The financial highlights (net income) yearly keeps up the track of net profit. Grouping financials through products makes the task simpler clearing the picture of contribution by each segment. The company share in the market compared to other companies tells the competition in the market. Combining it with fair trade financial reports help us in understanding of the necessity of the trademark. Overall, the data helps us in supporting our decisions. The decision has to be a mix of facts and intelligence.
5. In order to make a good decision, the following information is necessary: The customers’ side of the story * How important fair-trade is when it comes to purchasing the product * UK had a group of people that boycotted Nestlé’s due to unethical marketing strategy before and impact of these types of activity on company’s existing customers.| The espresso bean farmers’ side of the story * How fair-trade would affect their income level (is it helpful? Is fair-trade what they really need?)| Alternates Available * Clarification of alternatives other than getting the new instant coffee “fair-trade” certification * The chance of Nestlé catching up the business if the new product is only available for sale in supermarkets * Cost of fair-trade certificate is $500K but we need to know the cost of alternate solutions also *...