1 What approach, in terms of customer segments, business lines and functional scope should Nestle
use for its digital nutrition platform?
② With what company/organization should Nestle partner to develop and launch its digital nutrition
platform?
③ How could Nestle leverage the data, which it can capture through its digital nutrition platform,
while still respecting consumer privacy especially in view of the new General Data Protection
Regulation (DGPR)?
④ Analyze the information in the case using one of the following conceptual frameworks: PEST,
Five Forces Model, Business Model Canvas, etc.
Everyone thinks of alternatives
Presentation outline:
- Company introduction
- General company introduction
- Value chain
- Nestle in Japan – current situation
- Problems and opportunities of Nestle in Japan
- business opportunities related to existing problems, classifying the problems opportunities into a few major areas, extracting some common criteria from the major areas
- Alternatives (e.g., possible three or four alternatives to overcome the problems and make use of the opportunities, pros/cons (or costs/benefits) of each alternative, comparison of the alternatives identified using criteria, etc.)
- Recommendations (e.g., recommend the best alternative, describe its major action plan, etc.)
- Short-term recommendations
- Long-term recommendation
- Company introduction
- General company introduction
Founded in 1866 in Switzerland (Vevey) by Henri Nestle, Nestle now is the largest food and beverage company in the world. Initially, the company sold only infant’s cereal but they quickly diversified to include a variety of products including chocolate, coffee, soup, yogurt, water, and frozen foods in their portfolio.
There are six segments through which Nestle operates: Zone Europe; Zone Americas; Zone Asia, Oceania, and Africa; Nestlé Waters; Nestlé Nutrition; and Other. The organization employs nearly a quarter of a million people from 70 different countries around the world. Nestle has reached an impressive global audience both through its own efforts and through joint ventures with companies like Coca-Cola.
Nestlé ‘s success has been driven by a combination of product innovation and business acquisition. Today, Nestlé owns more than 2,000 brands that are sold in more than 197 countries around the world. It is their motivation for growth and diversity that has allowed Nestlé to become the key player in nutrition that it is today.
Since 2010, Nestle has been working to transform itself into a nutrition, health and wellness company in an effort to combat declining confectionery sales and the threat of expanding government regulation of such foods.
2011: Nestle bought 60% of Hsu Fu Chi International Ltd. for about US$1.7 billion;
2012: Acquired Pfizer Inc.’s infant-nutrition unit for $11.9 billion;
2013: Purchased Jenny Craig, a weight-loss program for $600 million;
2014: Announce that it was opening 10 skincare research centers worldwide;
2017: Acquired a majority stake of Blue Bottle, and acquired Sweet Earth, a
California-based producer of plant-based foods;
2018: Lowered a sugar content in Kit Kat, Yorkie and Aero chocolate bars by 10%;
2018: Settled a distribution deal with Starbucks, which allows Nestlé to market, sell and
distribute Starbucks coffee globally and to incorporate the brand’s coffee varieties
into Nestlé’s proprietary single-serve system, expanding the overseas markets for
both companies
- Value chain
Nestle actively focuses on a healthy food market as a combination of medicine and food, which is the core product. They offer affordable, high-quality nutrition and provide the tastiest and healthiest choices, for all times of the day and for all stages of life, delivered in a convenient manner. Nestle’s long-term value creation model is based on the balanced pursuit of resource-efficient top and bottom-line growth. Nestle is powered by data and technology, modernizing its existing brands and business operations while developing new, digitally-centric business models. They create value by:
- Increasing growth through innovation, differentiation and being relevant to the consumers. They have committed to reaching mid-single-digit organic growth by 2020.
- Improving operational efficiency with the goal to increase the underlying trading operating profit margin to between 17.5% and 18.5% (from 16.0% in 2016)
- Allocating the resources and capital with discipline and clear priorities, including through acquisitions and divestitures.
- Nestle in Japan
Japan has a serious issue of aging populations and the highest ratio of the population over the age of 65 in the world. Since Japanese older people were attempting to maintain good physical and cognitive capabilities, they face a problem of decreasing medical expenses as well. The Japanese market was very important for Nestle because they make big efforts to increase the population’s awareness of healthy lifestyles, including healthy eating.
Also, there were quite supportive regulations on consumer health foods and great opportunities for the nutrition, health, and wellness strategy of Nestle in Japan. In the early 1980s, Japan introduced FOSHU regulation, which legally recognizes food with health claims with four different categories, such as FHC (food with health claims), FNFC (foods with nutrient function claims), FFC (foods with functions claim), and FOSDU (food for special dietary uses). The initiation of the FFC category spurred the growth of Japan’s market for functional food, and the competition in the health-food industry increased.
Additionally, Japan is a leader in the high-tech equipment, and in 2017, they created a new law of enabling medical data, including patient data, to be provided to outside parties, including pharmaceutical companies. It allowed the use of big-data technology in the Japanese healthcare industry and encouraged a revolution in digital health platforms, including portals and mobile apps.
Nestle Health Sciences in Japan were divided into three main areas, such as specialized health foods for consumers, nutritional foods for medical institutions, and new nutritional food for therapeutic purposes. Nestle in Japan was trying to explore new sales channels and innovative digital solutions to create additional touchpoints with customers and increase engagement with them. Then, Nestle created a digital platform service called Nescafe Connect to address the issues of Japan’s rapidly aging society and after that Nestle is working to create a platform that provides its customers with personalized diet/nutritional recommendations of daily supplements based on AI (artificial intelligence) analysis of the photo images of the customers individual meals. They avoided taking a risk of handling sensitive and individual biocentric data.
While the platform is not just for older people, Nestle Japan aims to further develop its services to help seniors live healthily for as long as possible. Nestle intends to widen its healthcare platform in Japan to the point where consumers can obtain all the information they need from a single source without connecting with other professional medical assessments across various industries.
- Problems & Opportunities for Nestle in Japan
SECTION A: Problems
Main problems:
- Low adoption rates of E-commerce & smartphones
Japan is known for its aging population. Elderly people age 65 or older accounts for 26.7% of the 127 million total population. With this high number, Japan has the lowest rate of smartphone adoption as the older generation is not familiar with it. This will be a problem for Nestle if it wants to execute a fully functioning digital platform as a huge part of the market is not yet engaged in E-Commerce and IoT.
- Novelty to the adoption of EMR
Medical institutions throughout Japan used to have different standards and ways to record medical data of its patients. Only recently that they adopted the EMR. But there is a bit of a struggle as Japan had a hard time to standardize and synchronize health information data nationwide.
- Costly investment in the gathering and processing of data.
Data gathering requires a huge investment of time, money, and energy. It requires the processing of nationwide data and the benefits that come out from it might or might not leverage the high cost.
- Matter of keeping medical confidentiality: a very big ethical issue otherwise.
- Requires high maintenance and personalized customization due to Japan’s unusually high “door-to-door” sale channel.
Japan’s food retail industry is highly fragmented. It requires specialty stores and functional food products and dietary supplements are usually really catered to individual consumer’s situation. Nestle will have to create a highly personalized platform that caters perfectly to each individual’s needs for the platform to succeed.
- Big players of the functional food market, no single leader identified. Each market segment has its own strong player that dominates. Thus it is harder for Nestle to win over or expand its market. [especially since there seem to be slow growth in the value size of the health-food market from 2013-2015 (1.612, 1.673, 1.675 JPY Billion)]
- Increased competition in the health-food industry: Food with Functions Claim (FFC) category provided a favorable framework for small and medium-sized companies because it eliminated the need for lengthy, costly approval procedures before health claim could be added to product label—as a result, increase competition.
- The low adoption rate of mobile phones among the elderly (the largest segment of Japanese consumers but only 28% of respondents aged 60 years or older owned personal smartphone)
- Elderly prefer to receive care in their homes and have family members physically involved
- Most important distribution channels for health food were non-store: mail order, door-to-door sales and online and tv shopping (also an opportunity)
- CEO of Nestle Japan against the use of sensitive biocentric data of customers to personalize service: says they should not take the risk of handling sensitive info, while other nutrition platforms such as Zipongo and Nutrino relied on these medical data inputs.
