Nestle – BCG Matrix and Brand Divestment

Nestle is a multinational food and beverage producer, based in Switzerland.  The firm currently has the 69th highest revenue in the world, generating $98,484m worth of sales in 2012.  Nestle sell over 8,000 brands, ranging from bottled water to pet food, of which 29 brands have sales of approximately $1 billion.  However, Nestle’s CEO, Paul Baulk, recently announced plans to divest (sell-off) under-performing brands due to poor sales.  It is highly likely that the marketers at Nestle have used the Boston Consulting Group Matrix (BCG Matrix) to identify which brands to sell off.  This post will look at what Nestle’s BCG Matrix is likely to look like and critique how useful the matrix is.

Based on recent news sources and Nestle’s 2012 Annual Report (PDF), here is Nestle’s current BCG Matrix for a slection of their brands:

Question Marks – these strategic business units (SBUs) have a low market share of a high growth market.  Magi 2-minute Noodles currently require lots of investment in order to capitalize on the growing culinary segment, which may not offer the highest return on investment in Nestle’s brand portfolio.

Stars – SBUs with a high share of a high growth market.  Nestle’s wide range of mineral water has benefited from the combination of healthier lifestyle trends and emerging markets.  These products require large amounts of investments in order to differentiate the bottled water brands from competitors in mature markets and grow brand awareness in emerging markets.

Dogs – SBUs in this category have a low market share in a low growth market. Sales of Jenny Craig and Lean Cuisine, weight loss management brands, have failed to expand outside of the USA – these two brands are tipped to be divested in the future.  Sports performance and nutrition brand, PowerBar, is confirmed to be divested.  This is most likely because of poor sales in a saturated market. SBUs in this classification may generate enough profit to be self-sufficient, be are considered to never be major sources of revenue.

Cash Cows – perhaps the most important SBU, Cash Cows have a high share of a low growth market.  They require very little investment to generate revenue, which allows funds generated from such SBUs to be reinvested into Stars or Question Marks.

Although Nestle appear to have taken the recommendations from the BCG Matrix, there is no such thing as a fool-proof strategic tool.  As such, Nestle should be aware of the following drawbacks of using this analysis:

Multi-industry comparisons  – Nestle have 8,000 brands across a whole range of industries.  This can make it difficult to compare different SBUs in the same matrix.  For instance, sales of gluten-free food may be growing more quickly than water but it would not be wise to allocate more budget to the former at the expense of the latter as the market for mineral water is obviously much more lucrative.

Market growth may be directly influenced by the firm – Nestle is the world-leader of milkshake products, with a huge market share.  Consequently, an increase in investment in Nestle’s milkshakes would be very likely to lead to a growth of the overall milkshake market.  This would give the impression that Nesquik is actually a Star SBU, which is not accurate.  The exact opposite of this is true: perhaps the reason why the growth of weight-loss management market has slowed is because major firms like Nestle have stopped investing in their products. The result of this is that consumer demand may be there, but not visible in sales revenue because it is highly influenced by the amount of marketing consumers are exposed to.

No consideration of future trends – a major weakness of the BCG matrix is that is focused purely on the present and not on the future.  Hence, divesting PowerBar would be a very bad decision if the sports nutrition market undergoes a resurgence.

Time consuming – given the above weaknesses, is the BCG matrix worth Nestle’s marketers time?  This is a very important question Nestle should have asked themselves before analyzing 8,000 brands!

In summary, the principles of investing different amounts of money into different SBUs is a good practice;  however, the BCG Matrix should not be wholly relied upon.

© Josh Blatchford, author of Manifested Marketing, 4th October 2013

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