Nestlé Pakistan Ltd is a subsidiary of Nestlé S.A. - a company of Swiss origin headquartered in Vevey, Switzerland. In Pakistan, it is the leading Nutrition, Health and Wellness Company with a mission to positively enhance the quality of life of the people of Pakistan by all that they do through their people, their brands and products and their CSV activities.
Nestle in Pakistan is divided into 4 major business units each headed by a business unit manager. The BM is given all decision making power with respect to his business as long as it is in accordance with Nestle Business Principles and is supervised by the Core Management Team sitting at the Head Office in Lahore. The biggest contributor is the Food and Beverages Unit which contributes 81% of the revenue followed by Nestle Waters 9%, Nestle Nutrition 8% and Nestle Professional 2%. The divisional hierarchy is shown below to better explain how it is structured. This paper will primarily focus on the Water Business of Nestle Pakistan.
[pic]Nestle Water Business:
The Nestle Water Business looks after the bottled water brands of Nestle. Even though Nestle has multiple brands in different markets worldwide, it understands that Pakistan is still a developing bottled water market and is thus operating with just a single brand NESTLE PURE LIFE. The bottled water division is further divided into 2 separate divisions, PET (contributes 56%) and Bulk Water (44%) of the revenues.
Analysis of the Water Business:
The bottled water business is still in its growth phase with the concept of purchasing water being alien to a majority of people. This can be concluded from the low consumption of bottled water per capita even in major cities of the country. Brands, like Nestle Pure Life is considered a luxury product by many due to its high cost in comparison to the traditional boiled water used at homes.
The cost structure has been affected considerably due to 2 major reasons, one is the cost of plastic related raw material used for manufacturing the bottles and the increasing fuel prices which hamper production and distribution side of this business.
Threat of New Entry:
The business even though looks very lucrative as there are high volumes that can be achieved; the margins however are very thin. Coupled with high costs of production and high energy cost, the bigger players are having a tough time meeting up with facility costs. Secondly the rising fuel prices have impacted the distribution of bottled water both in the case of BULK business and the PET business. Smaller Players have taken share of the market by operating in close vicinity to lower their distribution cost. Secondly due to lack of monitoring and increased corruption in the country, the quality of water goes unchecked further reducing the cost of production of these small manufacturers.
Rivalry amongst Existing Firms:
Competition is intense among the big players in the industry with Nestle’s Pure Life Brand being the market leader with 47% Market Share followed by Pepsi’s Aquafina brand 22% and Coca Cola’s Kinley Brand 13%. Leveraging on the heavy marketing budgets and extensive distribution networks of their parent companies, both Aquafina and Kinley have given a tough time to Nestle. There are other smaller players who operate in specific geographically divided areas in various cities of the country.
Threat of Substitutes
There are approximately 75 mineral water brands in the Pakistani market as water is basically a commodity so there is virtually no product differentiation. All major players in the market try to grab a share of the pie by advertising in an attempt to increase brand loyalty. There are little or no switching costs involved. Customers with low brand loyalty tend to switch between brands due to the low cost. Another factor is the availability which Pepsi and Coca Cola leverage due to their extensive distribution networks across the country leading to...