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Chartered Postgraduate Diploma in Marketing (Level 7) © The Chartered Institute of Marketing 2015

561 – Analysis and Decision

Case Study

June 2015 and September 2015

Nestlé

Analysis and Decision – Case Study Important guidance notes for candidates regarding the pre-prepared analysis The examination is designed to assess knowledge and understanding of the Analysis and Decision syllabus, in the context of the relevant case study. The examiners will be marking candidates’ scripts on the basis of the tasks set. Candidates are advised to pay particular attention to the mark allocation on the examination paper and plan their time accordingly. The role is outlined in the Candidate’s Brief and candidates will be required to recommend clear courses of action. Candidates should acquaint themselves thoroughly with the case study and be prepared to follow closely the instructions given to them on the examination day. Candidates are advised not to waste valuable time collecting unnecessary data. The cases are based upon real-life situations and all the information about the chosen organisation is contained within the case study. No useful purpose will therefore be served by contacting companies in the industry and candidates are strictly instructed not to do so as it may cause unnecessary confusion. As in real life, anomalies may be found in the information provided within this case study. Please state any assumptions, where necessary, when answering tasks. The Chartered Institute of Marketing is not in a position to answer queries on case data. Candidates are tested on their overall understanding of the case and its key issues, not on minor details. In preparation for the examination, candidates need to carry out a detailed strategic marketing audit of the case study. The audit allows candidates to demonstrate their ability to: apply the appropriate models and techniques to analyse information on an

organisation/sector facing particular circumstances interpret the results of this audit to provide insights into the current situation and the

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ANALYSIS AND DECISION

CASE STUDY Candidate brief Scenario You are a self-employed Marketing Consultant specialising in the global baby food and drink market and have been hired by Nestlé. Nestlé has asked you to undertake a strategic marketing audit to analyse its current market position, so that the company can understand its options for growth and profitability. You have also been given a particular remit to consider the challenges in the baby food and drink market and the key issues – including innovation, market entry, stakeholder expectations and corporate social responsibility – that would impact Nestlé in developing its future vision and strategy. Finally, the company is seeking insights into how it can maintain its reputation and position in the market as a brand leader and successful innovator. Consideration should be given to the organisation’s financial position, its strategic risks, organisation risks and mitigating strategies to overcome risks.

Contents

Nestlé, and the baby food and drink industry in general 8

Branding, Innovation and Market Position 9-10

Key Market Trends 10-11

Customer behaviours and preferences 11

Nestlé vision, strategic direction and organisational culture 11-13

Current and past marketing strategies 13-15

Internal and external factors affecting changes in value proposition 16

External global issues 16-17

Main competitors 17-20

Risks to Nestlé and competitors’ future performance 20

Appendices 21-41

Appendices

1 Frequency of usage of baby food, by type, March 2013 21

2 Attitudes towards baby food and drink, March 2013 22

3 Further attitudes towards baby food and drink, March 2013 23

4 Forecast number of live births in the UK, 2010-17 24

5 Population forecasts, by infant age group, England, 2011-17 24

6 Leading brands’ sales and shares in the UK baby food and snacks market, by value and volume, 2012 and 2013

25

7 Leading brands’ sales and shares in the UK baby milk market, by value and volume, 2012 and 2013

26

8 Types of baby food, milk and drink purchased, March 2013 27

9 Types of baby food, drink and milk purchased, by socio-economic groups, March 2013

28

10 Types of baby milk purchased, by age and ACORN groups, March 2013 29

11 Agreement with statements 'I would be interested in buying non-sweet drinks for babies,' and 'I would buy baby juices/flavoured water containing added vitamins and nutrients,' by age of youngest child, March 2013

30

12 Agreement with attitudes towards baby milk, by age of youngest child, March 2013

31

13 Australia – Baby Food: Company retail market share by value (%) 32

14 China – Baby Food: Company retail market share by value (%) 32

15 UK – Baby Food: Company retail market share by value (%) 33

16 US – Baby Food: Company retail market share by value (%) 33

17 Canada – Baby Food: Company retail market share by value (%) 34

18 Germany – Baby Food: Company retail market share by value (%) 34

19 Socio-economic grouping descriptions 35

20 Nestlé Key Financial figures (consolidated) 36

21 Nestlé Baby Milk scandal has grown up but not gone away, theguardian.com, 13 February 2013

37-39

22 Nestlé beats Danone to Pfizer's baby food business, theguardian.com, 23 April 2012

40-41

Nestlé, and the baby food and drink industry in general Nestlé is one of the largest food and beverage companies in the world. Measured by revenues, it is in fact the largest. Its product portfolio includes baby foods, milk products and ice creams, bottled water, cereals, chocolate and confectionery, coffee, chilled and frozen foods, cooking aids, powdered and liquid beverages, and pet care products. It also carries out research into nutrition and health science. With its global headquarters in Switzerland, the company offers thousands of brands, and has a network of 468 factories located in 86 countries. The company operates in 197 countries, and has 339,000 employees. 43% of its sales are in the Americas, 29% in Asia, Oceania and Africa regions, and 28% in Europe. Nestlé claims its success is based on the concept that ‘food is a local matter’. Although their products are available in virtually every corner of the world, their marketing approach commits them to adapting products to local consumers’ tastes. These vary widely, not only from country to country, but even inside a country, which has led to today’s count (in 2014) of over 10,000 Nestlé products in total. In the mid-1860s Henri Nestlé, a trained pharmacist, began to develop an alternative source of infant nutrition for mothers who were unable to breastfeed. His ultimate goal was to help combat the problem of infant mortality due to malnutrition. He called the new product Farine Lactée Henri Nestlé (Henri Nestlé Milk Flour). Nestlé was formed in 1905 by the merger of Henri’s company with the Anglo-Swiss Milk Company, established in 1866 by brothers George and Charles Page. The company grew significantly during the First World War and again following the Second World War, expanding its offerings beyond its early condensed milk and infant formula products. The company has made a number of corporate acquisitions, including Crosse & Blackwell in 1950, Findus in 1963, Libby's in 1971, Rowntree Mackintosh in 1988, and Gerber in 2007. Baby foods first became popular in the early 1900s, but it was a hard sell for consumers. The industry has hugely affected people’s way of living and eating. At first, it was difficult to sell baby food to parents, since people were used to mashing and straining their babies’ food themselves. Heavy marketing coupled with a fall in baby food prices hastened the adoption of baby foods. In the US, Gerber – owned by Nestlé since 2007 – has a market share of about 70%, with Beechnut having about 15% and Heinz about 10%. In Australia, Canada, and New Zealand, Heinz has about 90% market share, while also being the market leader in the UK, Italy, and several eastern European countries. Nestlé has a presence in the UK baby milk market through its Celerac and SMA brands, the latter having a 14% share in 2013. Nestlé also has a very strong financial position. After a decrease of 4.9% in sales between 2010 and 2011, the company’s revenues grew by 10.2% to CHF 92,186 million in 2012, driven by strong performances across all categories and regions. In 2013, revenues levelled off at CHF 92,158 million, then decreased slightly to CHF 91,612 in 2014. Such a strong financial position provides the company with financial flexibility and also helps with expansion activities.

Branding, Innovation and Market Position Nestlé’s most obvious commercial strength is its ownership of some of the world’s best known and most valuable brands across diverse product categories. The company owns 32 ‘billionaire’ brands – that is, brands which generate more than CHF 1 billion (US$1.13 billion) in revenues annually. Gerber, the baby food brand, is one of these (alongside others such as Nescafé, KitKat and Purina Friskies). In 2013 alone, these billionaire brands achieved 7% organic growth in revenues. More widely, Nestlé has some 8,000 brands, with a wide range of products across a number of markets, including coffee, bottled water, milkshakes and other beverages, breakfast cereals, infant foods, performance and healthcare nutrition, seasonings, soups and sauces, frozen and refrigerated foods, and pet food. Some of the best known of these include:

Nescafé CoffeeMate Perrier

San Pelegrino Vittel Carnation

Nesquick KitKat Aero

Cheerios Shreddies Felix

Maggi Buitoni Purina pet care

The company’s strong brand portfolio gives it an easily recognisable credibility to consumers. This allows it to penetrate into new markets as well as consolidate its presence in the existing ones. Nestlé has strong research and development (R&D) capabilities, with a network of 34 global R&D centres spread across five continents. Nestlé also has the ability to customise newly-developed products to suit the preferences of local markets. Good examples of this R&D strength in action are the development of BabyNes, a comprehensive nutrition system for infants and toddlers*, launched in the Swiss market in 2011. Nestlé has also launched the Lactogen range in 30 markets worldwide, products especially designed for babies during the early stages of life and incorporating a unique active culture. These strong R&D capabilities allow Nestlé to renew its product line at regular intervals, while offering customised products for its various consumer and geographic categories, which, in turn, will boost revenue growth. A continuous focus on innovation drives performance, allowing the company to remain successful and deliver profitable growth. For example, in 2014, Nestlé introduced a new lactose-free infant formula with probiotic Lactobacillus reuteri that helps infants recover from diarrhoea. Nestlé has suffered a persistent brand impact over the last 20-30 years over its ‘aggressive marketing’ of breast milk and baby food substitutes in developing countries. A boycott of Nestlé was launched in the United States in 1977, which spread into Europe in the early 1980s. In recent times, Nestlé has been transformed from a global food and beverage company to become a nutrition-, health- and wellness-focused company. This coincides with clear consumer concern about lifestyle-related health issues such as obesity, diabetes and chronic heart disease. For example, during 2010-11 alone, Nestlé reduced the overall sugar content of its products by nearly 34%, and saw salt content in many of its products reduce by as

* A toddler is a young child who is learning, or has recently learnt, to walk.

much as 75%. Nestlé is well positioned to claim that this is not just a response to growing consumer demand but also based on the company’s roots and original values. Such an increased focus should help Nestlé gain customer loyalty and therefore sustainable revenue growth. Nestlé is well – although not uniquely – positioned to take advantage of immense opportunities in the world’s developing and emerging economies. These are the economies showing signs of the fastest recovery from the recent global economic crisis. Nestlé has made several strategic investments to strengthen its presence in these markets: for example, in 2012 Nestlé acquired Wyeth Nutrition from Pfizer, which will enhance the company’s market position in infant nutrition in China. Nestlé has also opened new R&D units in China, as well as acquiring smaller companies in Latin America and Eastern Europe. By focusing on such places, Nestlé will be well positioned to leverage the growing potential of these markets in future. Key Market Trends The global business environment faced a great deal of market uncertainty in 2014, with disruptive socio-economic and political changes affecting growth in emerging markets, and economic volatility and weakening of currencies slowing growth in developed markets. The annual rate of UK births rose each year between 2010 and 2013 from 811,000 to 845,000 live births. According to the Office of National Statistics, the country’s immigrant population was the primary driver. Over the next four years, however, the rate of live births is expected to decline slightly to 835,000 (by 2017). Within that overall pattern, figures show an increasing proportion of live births coming from non-UK-born parents. Population forecasts show the number of infants under 12 months peaking in 2014 with the number of four-year-olds still set to be rising at the end of the current forecast period in 2017. More mothers are breastfeeding, and more mothers are breastfeeding for longer. The UK’s National Health Service (NHS) figures show the percentage of mothers breastfeeding at birth rising from 76% in 2005 to 81% in 2010. Looking at breastfeeding rates at six months, the difference is even more apparent, with 25% of mothers still breastfeeding at six months in 2005, compared to 34% in 2010. This reflects greater efforts by government and non-government organisations to promote the health benefits and economy of breastfeeding. However, only one in 100 new mothers breastfeed exclusively for the recommended six months, reflecting lack of support for new mothers and the wide availability of formula milk products, among other factors. In 2013, figures revealed a surge in exports of baby milk products from Europe to China. This followed a large rise in levels of distrust in that country about the safety of domestic products, following reports of some formula milk being laced with an industrial chemical. Although the UK emerged from an economic downturn in 2012, spending habits have remained frugal, with particular pressure on discretionary items. Accordingly, times have been tough for some organic baby food brands, and the organic sector in general, which had been steadily increasing in value prior to the economic downturn. According to the Soil Association, the organic baby food sector shrank by 2.6% in 2011-12, accounting for a 13.9% share in the overall organic food market. Some individual brands suffered heavy declines, while a few others, notably HiPP and Ella’s Kitchen, enjoyed positive growth over the period.

Total advertising spend within the UK baby food and drink sector reached £20.5 million in 2012, its highest level since 2009. Some 43% of parents agree that it is important to provide a variety of food to babies and toddlers, with 21% of parents saying they would be interested in buying non-sweet drinks for babies. Customer behaviours and preferences Highlighting the competition that home-cooked baby food poses for manufacturers, just over two-thirds of UK parents with children aged 0-4 feed them home-cooked food at least twice a day. 89% of such parents report that they feed their 0-4-year-old child home-cooked food at least once a week. Only 37% of parents with children this age use any pre-made foods at all. Homemade food is less used by parents in the lower income brackets, compared with those who have a higher income. Parents in the lower income bracket are also those least likely to trust homemade food over manufactured food. Nearly half of men feed their babies or toddlers pre-made food compared to just 31% of women, highlighting the potential rewards for brands through their marketing processes of targeting ‘dad’s involvement’. Of all the six-month ‘bands’ in the 0-4 age range, it is the 6-12 month age range that is most likely to be fed pre-made foods. 84% of parents with a gross annual household income of £50,000-plus bought baby foods and snacks in the past three years, compared with 67% of those earning under £25,000. This difference is highlighted within the baby snacks sub-group, with 63% of AB† parents purchasing compared with just 30% among Ds, perhaps reflecting this sector’s more discretionary appeal. Breakfast cereals are slightly more likely to be purchased than any other type of baby food or drink, possibly reflecting a lack of suitable alternatives among standard cereal options, and also greater trust in this type of baby/infant food. The different buying habits of AB and D parents is reflected even more in respective sales of snacks, chilled desserts, follow-on milk and pouch meals. This highlights potential for new product development in the competitively priced and budget own-label ranges or better value packs. Older parents (those aged over 35) are less likely to buy infant/formula milk but more likely to buy follow-up milk, possibly because they are more likely to have older children. Younger parents (aged 16-24) are more likely to buy infant milk than any other type of baby food or drink. Only one in 100 new mothers breastfeed exclusively during the first six months of their child’s life, while the parents with the lowest incomes are less likely than any other income group to buy either infant or follow-on milks. One in three parents buy baby juice drinks, but wealthier parents are much less likely to buy juice drinks than those on lower incomes. Research suggests they are deterred by health concerns, rather than price. Nestlé vision, strategic direction and organisational culture Nestlé’s objectives are to be recognised as the world leader in nutrition, health and wellness, trusted by all its stakeholders, and to be the reference for financial performance in its industry. According to its corporate website: “We believe that leadership is not just about size; it is also about behaviour. Trust, too, is about behaviour; and we recognise that trust is earned only over a long period of time by

† For an explanation of socio-economic grouping classifications, see Appendix 19.

consistently delivering on our promises. These objectives and behaviours are encapsulated in the simple phrase, ‘Good Food, Good Life’, a phrase that sums up our corporate ambition.” Nestlé has developed the Nestlé Roadmap which is intended to create alignment for its staff and workers behind a cohesive set of strategic priorities, in order to achieve its objectives more quickly. These objectives ask its people (staff, contractors and suppliers) to ‘blend long-term inspiration needed to build for the future and short-term entrepreneurial actions, delivering the necessary level of performance’. Nestlé says its competitive advantages are: unmatched product and brand portfolio unmatched R&D capability unmatched geographic presence people, culture, values and attitude. Nestlé describes these advantages thus: ‘True competitive advantage comes from a combination of hard-to-copy advantages throughout the value chain, built up over decades. There are inherent links between great products and strong R&D, between the broadest geographic presence and an entrepreneurial spirit, between great people and strong values.’ Its growth drivers are: nutrition, health and wellness emerging markets and popularly positioned products out-of-home consumption premiumisation. According to Nestlé’s corporate website: ‘These four areas provide particularly exciting prospects for growth. They are applicable across all our categories and around the world. Everything we do is driven by our Nutrition, Health and Wellness agenda, Good Food, Good Life, which seeks to offer consumers products with the best nutritional profile in their categories.’ Its ‘operational pillars’ are: Innovation and Renovation. This focuses on new or refreshed products, to which

innovation is central. Nestlé’s approach is to ‘take an invigorating point of view to keep our consumers excited about our brands’.

Wherever, whenever, however. Simply, Nestlé says this is about ‘products being available sustainably whenever, wherever and however consumers want to buy them.’

Consumer engagement. Nestlé wants to keep its customers abreast of and informed

about all company developments, but also to listen and learn from customer experience to support continual product improvement.

Operational efficiency. This is about having the most efficient supply chain, with the

best raw materials, smoothest processes and freshest products available for customers to buy.

Nestlé call these ‘pillars’ but elsewhere they may be referred to as ‘core competences’, which as far as Nestlé is concerned are interrelated: ‘They drive product development, renewal and quality, operational performance, interactive relationships with consumers and other stakeholders and differentiation from our competitors. If we excel in these areas we will be consumer-centric, we will accelerate our performance in all key areas and we will achieve excellence in execution.’ Nestlé promotes its concept of ‘Creating Shared Value’, whereby shareholders, communities and consumers all have an equal status when the company pursues its corporate objectives. ‘We believe that it is only possible to create long-term sustainable value for our shareholders if our behaviour, strategies and operations are also creating value for the communities where we operate, for our business partners and, of course, for our consumers.’ For Nestlé, Creating Shared Value is a way of ensuring that its stakeholders see the pursuit of commercial success and corporate social responsibility (CSR), as well as environmental sustainability, going hand in hand: ‘We believe that we can create value for our shareholders and society by doing business in ways that specifically help address global and local issues in the areas of nutrition, water and rural development…We proactively identify opportunities to link our core business activities to action on related social issues…For Nestlé there is no higher priority than enhancing the quality of life of our consumers by providing tastier and healthier food and beverage choices. Consequently, we are acutely aware of the escalating food and nutrition crisis, which is closely linked to the global water crisis, amongst other things.’

Working in partnership with civil society‡ and the private sector, Nestlé aims to strengthen and speed up sustainable development, focusing on three key areas: nutrition, water and rural development, and responsible sourcing. By providing products that deliver real health benefits, and following a strategy of making products more affordable and accessible through science-based innovation and partnerships, the company is striving to create value for consumers and for society as a whole. By advocating the protection of scarce water resources and by using water more efficiently in its manufacturing and distribution processes in ways that also benefit others in its supply chain, the company aims to create shared value. Finally, supporting farmer development in rural areas where the raw materials it needs are grown helps the company to secure continued access to quality inputs and also strengthens and implements its CSR agenda. Issues like obesity, malnutrition and micronutrient deficiencies, product safety and quality, food security, product packaging, water usage and conservation, sourcing of raw materials, child labour and human rights, labour relations and fair taxes continue to rise in significance for a wide range of stakeholders, and are therefore critical to Nestlé’s business continuity and profitability in the future. Current and past marketing strategies Nestlé won a takeover battle in 2012 for Pfizer's baby food business, beating its French rival Danone with an agreed offer worth US$11.85 billion (£7.35 billion).

‡ Civil society’ refers to voluntary organisations and collective activities at a local, national or

international level, through which people aim to achieve change on a particular issue. The term

covers a wide range of organisations, including charities, neighbourhood self-help schemes and pressure groups, but excludes governmental bodies.

This was seen by analysts as a key battle to dominate the lucrative baby food market, allowing Nestlé to acquire brands such as S-26 Gold, SMA and Promil from the US drugmaker. Pfizer Nutrition operates in more than 60 countries and 85% of its sales are in emerging markets, many of them with large, rapidly growing populations. The powdered baby milk market is the fastest-growing packaged food category. The acquisition has helped Nestlé increase its foothold in China, where the Pfizer business had an 8% share and Nestlé only 4%. Nestlé had been losing market share in the country since 2005, when it was forced to withdraw two varieties of Nestlé milk powder because they were found to contain excessive iodine. The US$6 billion Chinese market is key, as it is set to double to US$12 billion by 2016 to feed 16 million new births a year. The Chinese market is led by Mead Johnson Nutrition followed by Danone. Marketing strategists at Nestlé and all the leading global brands know that parents are increasingly turning towards products that enhance the development of their babies throughout the early development stage. Parents with time constraints and concerned about their babies having adequate nutrition and all-round development are more demanding, and also seek clear and timely communication about baby food products. With birth rates declining in developed markets, new and emerging markets such as India, Brazil and the Middle East and African countries have opened up growth opportunities in the baby food market. The increased participation of woman in work and a fast-paced lifestyle have enhanced the adoption of packaged baby food in these regions. Moreover, high competition and growing challenges are also pushing parents to look for highly nutritional food for their babies, to support their early-stage growth. Status symbols are also becoming one of the major causes of the adoption of packaged baby food in developing nations. Over the last 30 years, Nestlé has had to manage pressure from consumers globally, who have accused the company of ‘aggressive marketing’ of breast milk substitutes, particularly in less economically developed countries. Campaigners have claimed this has contributed to the unnecessary suffering and deaths of babies, largely among the poor. The accusation has been that water quality (formula powdered milks usually need to be mixed with water) and other sanitary standards are not sufficiently high in developing countries to support the safe use of breast milk substitutes. Campaigners claim baby food substitutes contribute to the unnecessary suffering and deaths of babies, largely among the poor. Writing in The Guardian in 2013, the author of The Baby Killer – the original report for War on Want, first published in 1974 – claimed ‘the Nestlé baby milk scandal has grown up but not gone away’. Despite the International Code of Marketing of Breast Milk Substitutes being adopted as far back as 1981 by the World Health Assembly, Nestlé still suffers from consumer boycotts over the issue. As of 2013, the Nestlé boycott is coordinated by the International Nestlé Boycott Committee, the secretariat for which is the UK group Baby Milk Action. Company practices are monitored by the International Baby Food Action Network (IBFAN), which consists of more than 200 groups in over 100 countries. In parallel with the boycott, campaigners work for implementation of the Code and Resolutions in legislation, and claim that 60 countries have now introduced laws implementing most or all of the provisions. Some universities, colleges and schools have banned the sale of Nestlé products from their shops and vending machines in the period since the revelations. In the UK, 73 student unions, 102 businesses, 30 faith groups, 20 health groups, 33 consumer groups, 18 local authorities, 12 trade unions, 31 Members of Parliament, and many celebrities support the Nestlé boycott.

Nestlé claims that it is in full compliance with the International Code. On the Nestlé corporate website, under the title ‘Responsible infant food marketing’, the company states: ‘Breastfeeding is the best start a baby can have in life. We support the World Health Organisation’s (WHO) recommendation of exclusive breastfeeding for the first six months of life, followed by continued breastfeeding along with the introduction of complementary foods as advised by health care professionals. For infants who are not breastfed, infant formula is a vital product. However, its availability in the market place must not undermine breastfeeding.’ Nestlé’s ambition is to be the world’s recognised leading nutrition, health and wellness company, trusted by all stakeholders and its nutrition, health and wellness agenda drives everything Nestlé does. By focusing on ‘Good Food, Good Life’ the company is able to offer consumers products with the best nutritional profile in their categories. At the end of 2014, 98% of its children’s products met all of the criteria for children set out by its own Nutritional Foundation. By continuously innovating and renovating its food and beverages portfolio, Nestlé is able to offer consumers healthier and tastier choices at every stage of their life, at any time of the day. Nestlé expanded the boundaries of nutrition, health and wellness with the creation of Nestlé Health Science (NHSc) and the Nestlé Institute of Health Sciences in 2012, and the creation of Nestlé Skin Health in 2014. By following a science-based innovation strategy, Nestlé is able to enhance the quality of people’s diets, using insights from its research and development (R&D) capability and making a positive contribution to society. Building on the strengths of its food and beverage business and guided by science-based innovations, the company is aiming to expand its portfolio and explore new venues for growth in line with the strategy of nutrition, health and wellness. Since 2014, Nestlé has been focusing on three areas: simplifying, standardising and sharing as part of Nestlé Business Excellence at Executive Board Level. The aim has been to decrease structural costs and operational expenses and to free up resources to support growth. Since the 1990s, Nestlé has decided to lessen its focus on developed markets like North America and the western European economies around its home base, and concentrate more on expansion and claiming market share in emerging economies like India and China. The driving force behind this strategic shift is simple: their populations are growing more strongly and government decisions favouring market economies bring attractive business opportunities for consumers living on intermediate incomes or higher. While operating in emerging markets, the company tends to invest in local infrastructure like building and strengthening its distribution networks. The company also tends to capture niche markets and adopts a customisation strategy which means it can use its global brand identity but from a local perspective. Nestlé uses the strategy which correlates the ratio of increase in income to use of branded food products. This means that as a person earns more and has less time for making food in their home, they will automatically purchase branded products as substitutes.

Internal and external factors affecting changes in value proposition One of the major external factors influencing the baby foods market is the issue of trust. Two thirds of parents trust homemade baby/toddler food more than manufacturers’ variants, with the percentage peaking among higher earners. This low level of trust in manufactured baby food products is likely to stem from parents’ lack of control over the healthiness of the recipes used in the UK; 35% worry about the sugar/salt level in manufactured baby/toddler food, rising to just over half of AB parents, reflecting higher earners being more likely to cook baby/toddler food from scratch. The quality of meat in baby and toddler food is also a worry for one in four parents of 0-4-year-olds, rising to 38% of ABs and 53% of high earners. Demand for higher-priced meat-based products may be suffering owing to this concern among higher income parents. Ensuring parents have access to information about the meat content of these foods, both on-pack and on-line, may help to restore trust levels. Baby and toddler brands could take inspiration from the ready-meal market following the horsemeat scandal (the discovery in 2013 of undeclared horse meat in burgers and other meat products) and place greater emphasis on the traceability of their meats. Variety is important for parents too, both in formats and flavours. 43% of parents agree that it is important to provide a variety of food for babies and toddlers, rising to 62% of higher earners. This interest in variety is a good opportunity for brands in the market, as it reflects a willingness to experiment with new and unfamiliar foods, as well as more ‘exotic’ flavours. Baby-led weaning is a growing phenomenon, whereby parents provide small amounts of a variety of normal foods for their child – allowing them to select, eat when they are hungry and learn appetite control. Parents are often keen to provide this choice, yet often lack the time or the confidence to prepare such selections from scratch. Products offering a selection of sample-sized foods in the same pack, tapas-style, giving a variety of textures and flavours, may be appealing. In the UK, research shows that significant numbers of parents find it difficult to ensure their child receives their ‘five-a-day’ servings of fruit and vegetables. Three in ten parents overall say this is a problem, rising to nearly two-fifths (37%) of AB parents. Official messages and guidelines are obviously not present on home-cooked food, as opposed to the legal requirement to provide such information on packaged foods. However, only 10% of parents agree that it is hard to know if homemade baby or toddler food is nutritionally balanced, suggesting parents are generally confident in the nutrient profile of their home-cooked baby food. ‘Stealth health’ tactics have been used by some brands to target children put off by the sight (and thought) of vegetables, such as hiding powdered fruit and vegetables in products like pasta and rice cakes. External global issues One of the biggest global issues to continue affecting the baby food market is the rise in popularity amongst consumers and governments of all things organic. This is a fast-growing industry, even in mature markets for baby food. Of the top ten markets for organic baby food in 2012, nine were developed – ranging from the US, Germany and the UK in the top three, to others including France, Austria and Australia. The tenth market – sixth in the list – was Russia. On the face of it, the global

market for organic baby food is, at present, based in mature, developed economies, where birthrates are, at best, stagnant. While these are hardly macro-economic conditions conducive to growing demand, sales are still on the rise, perhaps largely because consumers perceive organic food to be healthier for their children. Organic baby foods, for example, are seen as a way of avoiding pesticides and other additives. Research suggests that even if consumers do not buy organic products for their own consumption, they may consider it a better option for their babies. In nine out of the top ten organic baby food markets, sales are expected to climb solidly until at least 2015, providing an attractive niche for those already in and new to the sector. Main competitors Danone Baby Nutrition Danone Baby Nutrition is a subsidiary of the French global dairy group Danone. Its primary brands in the UK include Aptamil and Cow & Gate. Infant milk brand Aptamil offers milk, porridges and cereals for newborns, babies and toddlers, and has a special milk range, Aptamil Pepti, suitable for babies with an allergy to cow’s milk. Cow & Gate sells milk and food for children aged 0-3. Its range also includes milk products such as Comfort milk, which helps with digestion, Anti-Reflux milk and Nutriprem milk for pre-term and low weight babies. Cow & Gate offers its milk powders in easy-to-use packs which can be opened and used with one hand, as well as featuring a ‘click and keep fresh’ closing mechanism. The brand’s baby food range includes breakfast cereals, savoury lunch and dinner meals, desserts and drinks, all designed to meet children’s nutritional needs at different stages of their development. Cow & Gate’s current strapline and major promotion is ‘Feed Their Personalities’, with the brand’s website saying ‘At Cow & Gate, we believe the best part of parenting is seeing your little baby become a little person.’ TV advertising is accompanied by a print campaign featuring the farmers who grow the fruit and vegetables that go into Cow & Gate’s products cradling their produce as if it was a child, to convey the care that goes into the ingredients. Ella’s Kitchen Ella’s Kitchen is a UK-based company specialising in organic baby and toddler food, founded in 2006. The company is a major player in the UK baby food market and exports to several countries, including Australia, the US, Norway, Sweden, Finland and Canada. Following the expansion of both its product range and global distribution network, overseas sales in the year to June 2013 jumped by 76% to £17.4 million. The company is currently strengthening its presence in the convenience sector. Ella’s Kitchen currently offers 17 food ranges for various stages, from new baby food to 12+ months. It also has a Big Little People range for toddlers. All products are organic, with dairy-free, gluten-free and vegetarian options all available. 2012 saw Ella’s Kitchen launch its second highest annual quota of new products since 2006. The company launched its first range of breakfast cereals in June 2012, comprising porridges and a multigrain cereal with lower salt and sugar content than adult recipes.

The Ella’s Kitchen brand, as reflected on its website, is of a homely, organic enterprise with humble origins. Promotions feature ‘My Story by Ella’s Dad’ where company founder Paul Lindley gives a personal message: ‘I set up Ella’s Kitchen because I passionately believe that Ella, my daughter, along with her generation, should have the opportunity to eat better food and also to discover that healthy food can be fun, tasty and cool.’ Heinz HeinzBaby is a brand from Heinz UK and Ireland, which itself is a subsidiary of US-global food company HJ Heinz Company Limited. Best known for products such as Heinz Ketchup and Heinz Baked Beans, the company now also has a significant presence in the UK baby food and drink market. Heinz offers food and drink products for babies from the age of four months onwards. Its range is made up of breakfast options, main meals, snacks and drinks. Gluten-free, vegetarian, and no-added-milk, egg and soya alternatives are available for babies with special dietary requirements. Squeezy pouches for babies were introduced in January 2013, with Heinz Breakfast Cereal Sachets following in January 2013. Heinz operates dedicated websites featuring expert advice, recipes and meal planners, all geared towards parents of babies and toddlers. The Heinz Baby Club also offers money-off vouchers and other benefits to members who register online. In ‘Our Promise To You’, the HeinzBaby website says: ‘Inspired by mums, we craft all our food to be as close to homemade as we can make it, using the same kind of ingredients you have at home. We think about every single carefully selected ingredient – its taste, texture and goodness. And because it's best for your baby's development, each meal contains essential vitamins, minerals and textures they need to grow happy™.’ HiPP Organic Founded in 1956 in Germany, HiPP GmbH & Co has traded as HiPP Organic in the UK since 1995. HiPP Organic’s range of baby food and drink includes wet meals in pots, pouches and jars, and snacks, including finger foods and fruit pots, as well as juice drinks, dried cereals and tray meals. In summer 2012, HiPP Organic introduced a new range of omega and calcium-rich products to target interest in products with added health benefits. The company also launched HiPP Organic Combiotic, a range of formula milks containing omega and friendly bacteria, promoted as ‘The Next Breast Thing’, designed to appeal to young mothers who for any reason do not breastfeed. HiPP Organic’s website says, ‘We are passionate about our belief in feeding organic foods to babies & toddlers…’ and goes on to promise ‘…our own organic fruits & vegetables are grown naturally on dedicated organic farms, where they are left to ripen naturally and harvested at their plumpest & sweetest. These extra special ingredients are then gently steam cooked to protect the nutrients and keep every ounce of flavour.’ HiPP partnered with baby product brand MAM in March 2013, offering members of its HiPP Baby Club a 25% discount off MAM’s feeding range and cups.

Little Dish Founded in 2006, UK-based company Little Dish specialises in selling chilled, hand-made ready meals targeted at toddlers. Its meals are available in supermarkets and selected convenience stores across the UK and Ireland. Little Dish’s toddler meals are positioned as healthy, natural and quick to prepare. The company sells an eight-strong range of relatively adult-style variants, such as chicken and butternut squash pie, beef lasagne and mild chicken korma. In 2012 the company updated its packaging to feature colour-coded designs denoting different meat contents. It also launched two types of fresh- filled pasta dishes targeting parents who were keen to do a little more cooking preparation than simply microwaving a ready meal. The company’s website says: ‘At Little Dish we know it’s not easy making good nutritious meals for your little ones day in and day out. So that’s what we do. Our food contains 100% natural ingredients and no added salt.’ Little Dish partnered with Legoland in 2013, with vouchers on its products offering free entry to the attraction for children. Organix UK baby food manufacturer Organix was founded in 1992. The company positions its products as healthy and nutritious alternatives to home cooking, with its ‘No Junk Promise’. Organix provides a wide range of organic meals and snacks for babies from 4 months to toddlers. Its product portfolio includes cereal bars, biscuits, rice cakes, infant cereals, fruit purees and savoury and steam-cooked meals, as well as the Mighty Meal range featuring chunkier ingredients. Similar to Ella’s Kitchen’s global expansion, Organix has made inroads into the Asian market, with sales in Malaysia and Taiwan growing by 26% and 22% respectively in 2012. The company also entered the market in Thailand and South Korea for the first time during 2012. Organix launched an online shop in 2012 to provide a home delivery function, which could help the brand achieve wider consumer coverage. Organix’s brand promotion centres on its No Junk Promise. According to the company website, this is a ‘stamp of reassurance that you’ll find on all our foods. It’s not a legal or food industry requirement, it’s a challenging set of rules we have created here at Organix. Our No Junk Promise is based on our mission to give little ones the best possible start in life. We believe in using only kitchen cupboard ingredients and we strive for excellent nutritional practices that challenge industry standards.’ Plum Inc First established in 2006, Plum Baby produces organic baby food as well as snacks for toddlers and older children. Plum Inc was formed following the merger of Plum Baby with American organic food supplier Plum Organics in 2013, reportedly creating a venture worth US$120 million in global sales.

Plum offers baby food in the breakfast, dairy, desserts, meals and finger foods categories, in pots and pouches. The company uses organic ingredients and most of its recipes contain the nutritionally dense grain quinoa. In 2012 Plum launched free ‘Weaning for Life’ apps to help parents wean their babies from milk onto solid food. Plum offered digital vouchers to its Facebook fans, who could print off a voucher for a free pouch of baby food. The Plum brand has invested significantly in The Full Effect, a social justice programme whereby every purchase through Plum’s online store sees the company donate one of its Super Smoothies to a disadvantaged US child. Risks to Nestlé and competitors’ future performance Aside from the potential for volatility in commodity prices – an issue common to the food industry in general – many of the risks to key players’ future performance can be easily summarised: consumer trust. Consumer trends, for example a significant majority of parents feeding their young children homemade food, also point to a growing threat to companies like Nestlé. Moreover, two-thirds of parents trust homemade baby or toddler food more than manufactured variants, reflecting the 35% who worry about sugar and salt levels in manufactured baby or toddler food. More than a quarter of parents are concerned about the quality of meat in baby and toddler food, suggesting brands need to apply greater focus on package information regarding the traceability of meat used. As an example of consumers’ wariness of the wider organic market, just three in ten parents trust organic baby food over non-organic, falling to 24% of parents with a youngest child aged under six months. Basic internet research can discover websites and blogs that are highly sceptical, if not downright critical, of the health and nutrition qualities of manufactured baby food. There are plenty of examples that bring into question the nutritional value of manufactured baby food and milk. This is in terms of providing essential minerals in the right quantities needed for a baby’s development, growth and protection against illness. The number of new baby food products featuring reduced or no sugar and sodium claims was markedly lower in 2012 than 2011, so perhaps reversing this trend is just one way for manufacturers to start inspiring a sceptical consumer’s trust. On-pack information could clearly communicate the no-additives claims, to emphasise the naturalness of the recipe. Natural alternatives to sugar, such as syrup or unsweetened orange juice may also appeal. Information about the traceability of meat, similar to work undertaken in the prepared meats market, may help reassure parents about quality and provenance.

APPENDIX 1 Frequency of usage of baby food, by type, March 2013 Base: 754 parents with a child/children aged 0-4-years-old

24

3

44

8

16

12

4

7

1

7

0

10

20

30

40

50

60

70

80

90

100

1 2

%

Once a week or less

2-3 times a week

Once a day

2-3 times a day

4 times a day or more

Source: Redacted from Mintel Report – Baby Food and Drink – UK, May 2013

Homemade food Baby/toddler food products (in cartons, pouches, jars etc)

Once a week or less

2-3 times a week

Once a day

2-3 times a day

4 times a day or more

7

10

18

20

27

29

35

43

66

0 10 20 30 40 50 60 70

None of these

It's hard to know if homemade baby/toddler food isnutritionally-balanced

Manufactured baby/toddler food lacks natural flavour

I let my baby choose what he/she wants to eat (eg baby-led weaning)

I am concerned about the quality of meat in baby/toddlerfood

Ensuring my child receives their 5-a-day can be difficult

I worry about the sugar/salt level in manufacturedbaby/toddler food

It's important to provide a variety of food tobabies/toddlers

I trust homemade baby/toddler food over manufacturedbaby food

%

APPENDIX 2 Attitudes towards baby food and drink, March 2013 Base: 754 parents with a child/children aged 0-4-years-old Source: Mintel Report – Baby Food and Drink – UK, May 2013

22

9

10

11

11

13

14

18

20

21

30

0 5 10 15 20 25 30 35

None of these

Chilled ready meals are healthier than non-chilled readymeals

I'd like to see more follow-on/growing up milk in differentflavours

Baby/toddler food in jars is lower quality than baby food inpouches

I would like to visibly see the food in baby/toddler foodpouches

I look to buy formula milk that is sourced and packaged inthe UK

Packaging for ready to drink formula milk should be easier touse

I'd like to see more varieties of supermarket own-labelbaby/toddler food

I would buy baby juices/flavoured water containing addedvitamins and nutrients

I would be interested in buying non-sweet drinks for babies(eg tea, vegetable drinks etc)

I trust organic baby food over non-organic

%

APPENDIX 3 Further attitudes towards baby food and drink, March 2013 Base: 754 parents with a child/children aged 0-4-years-old Source: Mintel Report – Baby Food and Drink – UK, May 2013

APPENDIX 4 Forecast number of live births in the UK, 2010-17

Source: Mintel Report – Baby Food and Drink – UK, May 2013

APPENDIX 5 Population forecasts, by infant age group, England, 2011-17

2011 2012 2013 2014 2015 2016 2017 Change 2011-17

‘000s ‘000s ‘000s ‘000s ‘000s ‘000s ‘000s %

Under 12 months 679 727 737 741 739 736 732 +7.8

1-year-olds 670 679 727 737 741 739 736 +9.9

2-year-olds 662 671 680 727 737 741 740 +11.8

3-year-olds 669 663 671 681 728 738 742 +10.9

4-year-olds 648 670 663 672 681 728 738 +13.9

Total 3,328 3,409 3,478 3,558 3,627 3,683 3,688 +10.8


811 829 840 845 844 843 839 835

0

100

200

300

400

500

600

700

800

900

2010 2011(fore)

2012(fore)

2013(fore)

2014(fore)

2015(fore)

2016(fore)

2017(fore)

Num

ber

of

birhts

('0

00s)

APPENDIX 6 Leading brands' sales and shares in the UK baby food and snacks market, by value and volume, 2012* and 2013** Value

2012 Share 2013 Share Change 2012-13

£m % £m % %

Cow & Gate (Danone) 52.2 21 47.5 19 -9.0

Hipp Organic (Hipp UK) 40.8 17 41.5 17 +1.7

Organix (Organix Brands) 42.4 17 41.3 17 -2.6

Heinz (Heinz) 37.2 15 38.9 16 +4.6

Ella's Kitchen (Ella's Kitchen) 24.4 10 34.3 14 +40.6

Farley's (Heinz) 17.4 7 16.9 7 -2.9

Plum Baby (Plum Inc) 9.3 4 7.8 3 -16.1

Annabel Karmel (Annabel Karmel Group) 3.9 2 3.2 1 -17.9

Kiddylicious (The Kids Food Company) 1.6 1 2.6 1 +62.5

Other 9.6 4 10.2 4 +6.3

Own-Label 4 2 4.1 2 +2.5

Total 242.8 100 248.2 100 +2.2

Volume

2012 Share 2013 Share Change 2012-13

m kg % m kg % %

Cow & Gate (Danone) 11.7 30 10.6 28 -9.4

Hipp Organic (Hipp UK) 9.4 24 9.6 26 +2.1

Organix (Organix Brands) 2.7 7 2.0 5 -25.9

Heinz (Heinz) 8.2 21 8.2 22 -

Ella's Kitchen (Ella's Kitchen) 2.6 7 3.6 10 +38.5

Farley's (Heinz) 0.7 2 0.7 2 -

Plum Baby (Plum Inc) 1.0 3 1 3 -

Annabel Karmel (Annabel Karmel Group) 0.2 1 0.2 1 -

Kiddylicious (The Kids Food Company) - - - -

Other 1.1 3 1.0 3 -9.1

Own-Label 0.7 2 0.5 1 -28.6

Total 38.4 100 37.4 100 -2.6

*52 w/e 24 March 2012 **52 w/e 23 March 2013


APPENDIX 7 Leading brands' sales and share in the UK baby milk market, by value and volume, 2012* and 2013** Value

2012 Share 2013 Share Change

£m % £m % 2012-13

Milupa Aptamil First Infant Milk (Danone) 54 16 65 18 +20.4

Cow & Gate (Danone) 51 16 59 16 +15.7

SMA (Nestlé) 60 18 53 14 -11.7

Milupa Aptamil (Danone) 34 10 40 11 +17.6

Cow & Gate Premium First Milk (Danone) 30 9 35 9 +16.7

Milupa Forward (Danone) 29 9 35 9 +20.7

SMA First Infant Milk (Nestlé) 28 9 29 8 +3.6

Cow & Gate Step Up (Danone) 26 8 28 8 +7.7

Aptamil (Danone) 5 2 13 4 +160.0

Hipp Organic (Hipp Organic) 7 2 8 2 +14.3

Other 4 1 4 1 0.0

Total 328 100 369 100 +12.5

Volume

2012 Share 2013 Share Change

m kg % m kg % 2012-13

Milupa Aptamil First Infant Milk (Danone) 7 14 8 15 +14.3

Cow & Gate (Danone) 8 16 9 17 +12.5

SMA (Nestlé) 11 22 8 15 -27.3

Milupa Aptamil (Danone) 5 10 5 9 -

Cow & Gate Premium First Milk (Danone) 4 8 5 9 +25.0

Milupa Forward (Danone) 4 8 4 8 -

SMA First Infant Milk (Nestlé) 4 8 4 8 -

Cow & Gate Step Up (Danone) 4 8 4 8 -

Aptamil (Danone) 1 2 3 6 +200.0

Hipp Organic (Hipp Organic) 1 2 1 2 -

Other 2 4 2 4 -

Total 51 100 53 100 +3.9

*52 w/e 24 March 2012 **52 w/e 23 March 2013


10

16

17

24

25

32

34

35

44

48

49

53

32

59

70

0 10 20 30 40 50 60 70 80

None of these

Ready meals and desserts in trays

Canned ready meals and desserts

Pouch ready meals and desserts

Plastic tub ready meals and desserts (incl. fruit puree)

Baby juice drinks

Jar ready meals and desserts

Growing up/follow on milk

Chilled desserts (incl. yogurt)

Baby snacks (incl. finger foods, biscuits)

Infant/formula milk

Breakfast cereals (eg rice, porridge)

All baby drink

All baby milk

All babyfood (incl. snacks)

%

APPENDIX 8 Types of baby food, milk and drink purchased, March 2013 Base: 754 parents with a child/children aged 0-4-years-old Source: Mintel Report – Baby Food and Drink – UK, May 2013

APPENDIX 9 Types of baby food, drink and milk purchased, by socio-economic groups, March 2013 Base: 754 parents with a child/children aged 0-4-years-old

Key terms:

A – Upper middle class B – Middle class

C1 – Lower middle class C2 – Skilled working class

D – Working class

E – Non-working

Source: Adapted from Mintel Report – Baby Food and Drink – UK, May 2013

6054

42

3137 35

28

18

0

10

20

30

40

50

60

70

Baby snacks(including finger

foods, biscuits, rusks)

Chilled desserts(including yogurt,

fromage frais)

Growing up/follow onmilk

Pouch ready mealsand desserts

%

ABC1 C2DE

APPENDIX 10 Types of baby milk purchased, by age and ACORN groups, March 2013 Base : 754 parents with a child/children aged 0-4-years-old


5449 47

40 38

60

52

46

28

35 3740

31

3834

29

0

10

20

30

40

50

60

70

16-2

4

25-3

4

35+

Wealthy A

chie

vers

Urb

an P

rosp

erity

Com

fort

ably

Off

Modera

te M

eans

Hard

Pre

ssed

%

Infant/formula milk Growing up/follow on milk

1314

1819

16

21

24

21

0

5

10

15

20

25

30

I would be interested in buying non-sweetdrinks for babies (e.g. tea, vegetable drinks

etc)

I would buy baby juices/flavoured watercontaining added vitamins and nutrients

%

Less than 6 months old* 6 - 12 months old

13 - 18 months old* Over 18 months old

APPENDIX 11 Agreement with statements ‘I would be interested in buying non-sweet drinks for babies,’ and ‘I would buy baby juices/flavoured water containing added vitamins and nutrients,’ by age of youngest child, March 2013 Base: 754 parents with a child/children aged 0-4-years-old

*small sub-sample (75-100)


Less than 6 months old*

13 - 18 months old*

6 - 12 months old

Over 18 months old

APPENDIX 12 Agreement with attitudes towards baby milk, by age of youngest child, March 2013

*small sub-sample (75-100)


19

17

7

24

1817

14

6

8

10

12

10

0

5

10

15

20

25

30

Packaging for ready to drinkformula milk should be

easier to use

I look to buy formula milkthat is sourced and

packaged in the UK**

I'd like to see more follow-on/growing up milk in

different flavours

%

Less than 6 months old* 6 - 12 months old

13 - 18 months old* Over 18 months old

Less than 6 months old*

13 - 18 months old*

6 - 12 months old

Over 18 months old

APPENDIX 13 Australia – Baby Food: Company retail market share by value (%)

Market Player 2013 2014

Groupe Danone S.A. 28.9 31.6

Aspen Pharmacare Holdings Ltd. 18.1 16.7

H.J. Heinz Company 15.7 14.3

Nestlé S.A. 10.4 10.9

Rafferty's Garden Pty Ltd. 13.4 10.9

Bellamy's Australia Limited 4.5 7.1

Only Organic Pty Ltd. 3.5 3.7

Own Label 4.3 4.2

Others 1.1 0.6

Source: Mintel Market Sizes 2015

APPENDIX 14 China – Baby Food: Company retail market share by value (%)

Market Player 2010 2011 2012 2013

Nestlé S.A. 4.7 4.7 13.6 13.1

Mead Johnson Nutrition Co. 10.3 11.8 12.3 12.9

Groupe Danone S.A. 9.9 10.3 10.7 9.8

Beingmate Group Co., Ltd 8.5 8.7 7.5 7.8

Inner Mongolia Yili Industrial Group Co., Ltd. 10.7 10.8 7.5 7.0

Abbott Laboratories 6.8 6.9 7.1 6.8

Synutra Co., Ltd. 3.9 3.8 4.1 4.7

Biostime International Holdings Limited 1.8 3.2 3.5 4.4

Yashili Group 4.3 3.9 3.9 4.2

H. J. Heinz Company 2.6 2.7 2.9 3.2

Feihe International, Inc. 3.8 3.0 2.2 2.3

Pfizer, Inc. 8.5 8.5 0.0 0.0

Others 24.2 21.7 24.7 23.9


APPENDIX 15 UK – Baby Food: Company retail market share by value (%)

Market Player 2011 2012 2013

Groupe Danone 52.2 50.5 53.0

Nestlé S.A. 13.3 13.9 12.1

H. J. Heinz Company 9.0 10.2 9.2

HiPP UK Ltd. 8.0 7.8 7.5

Organix Brands Ltd. 6.7 6.8 6.4

Ella's Kitchen Ltd. 5.6 5.2 6.2

Plum Baby Ltd. 1.3 1.3 0.9

Others 3.9 4.3 4.7


APPENDIX 16 US – Baby Food: Company retail market share by value (%)

Market Player 2012 2013

Nestlé S.A. 32.6 33.9

Abbott Laboratories 29.6 28.1

Mead Johnson Nutrition 25.5 24.7

Own Label 5.7 6.1

Others 6.6 7.2


APPENDIX 17 Canada – Baby Food: Company retail market share by value (%)

Market Player 2011 2012 2013

Abbott Laboratories ltd. 28.5 28.8 29.1

Bristol-Myers Squibb 23.5 23.4 23.4

Nestlé S.A. 16.5 16.8 16.9

Own Label 13.0 13.3 13.4

Others 18.5 17.7 17.2


APPENDIX 18 Germany – Baby Food: Company retail market share by value (%)

Market Player 2011 2010 2013 2014

Hipp GmbH & Co. Vertrieb KG 50.4 51.1 51.3 53.0

Groupe Danone S.A. 19.4 20.4 20.7 23.6

Nestlé S.A. 19.9 17.9 17.7 13.8

Others 10.3 10.6 10.3 9.6


APPENDIX 19 Socio-economic grouping descriptions This is a system of demographic classification developed in the United Kingdom and now used widely throughout the world. It was originally developed by the National Readership Survey to classify readers, but is now used by many other organisations for wider applications, and has become a standard for market research. The definitions of the categories are now maintained by the Market Research Society. The distinguishing feature of social grade is that it is based on the occupation of the head of the household.

Grade Social class Chief income earner's occupation

A Upper middle class Higher managerial, administrative or professional

B Middle class Intermediate managerial, administrative or professional

C1 Lower middle class Supervisory or clerical and junior managerial, administrative or professional

C2 Skilled working class

Skilled manual workers

D Working class Semi and unskilled manual workers

E Non-working Casual or lowest grade workers, pensioners, and others who depend on the welfare state for their income. This also includes students

The grades are often grouped into ABC1 and C2DE, and these are taken to equate to middle class and working class respectively. In the UK, only around 2% of the population is identified as ‘Upper Class’, and this group is not included in the classification scheme. Source: Various

APPENDIX 20 Nestlé Key Financial figures (consolidated)

In millions of CHF 2013 2014

Sales 92,158 91,612

Trading operating profit 14,047 14,019

as % of sales 15.2% 15.3%

Profit for the period attributable to shareholders of the parent (Net profit)

10,015 14,456

as % of sales 10.9% 15.8%

Balance sheet and cash flow

Equity attributable to shareholders of the parent 62,575 70,130

Net financial debt 14,690 12,325

Ratio of net financial debt to equity (gearing) 23.5% 17.6%

Operating cash flow 14,992 14,700

as a % of net financial debt 102.1% 119.3%

Capital expenditure 4,928 3,914

Data per share

Basic earnings per share CHF3.14 CHF4.54

Dividend as proposed by Board of Directors CHF2.15 CHF2.20

Market capitalisation, end December 208,279 231,136

Number of employees 333,000 339,000

Source: Redacted from Nestlé Annual Report and Accounts 2014

APPENDIX 21 Nestle Baby Milk scandal has grown up but not gone away theguardian.com, 13 February 2013, by Mike Muller Obesity and diabetes show that better standards in the food industry must be enforced At the World Economic Forum in Davos, I gave Nestlé chair Peter Brabeck, a present – an original, signed copy of The Baby Killer, the 1974 report that I wrote for War on Want. The Baby Killer explained how multinational milk companies like his were causing infant illness and death in poor communities by promoting bottle feeding and discouraging breast feeding. Our Swiss associates were less subtle. They titled the report "Nestlé Toten Babies" (or Nestlé Kills Babies), which a Swiss court found was libelous. On the substance of the argument, however, the judge warned Nestlé that if the company did not want to face accusations of causing death and illness through sales practices such as using sales reps dressed in nurses' uniforms, they should change the way that they did business. That shocked the company and undermined its benevolent self-image. It also launched a long-running global campaign, proving that networked social action was possible even in snail mail days. Nestlé boycotts spread from Switzerland and Britain to the US, where shareholder activism and court challenges against other milk companies – led by the Sisters of the Precious Blood, a religious order working under the umbrella of the Interfaith Centre for Corporate Responsibility – achieved a fine balance between grassroots organising, legal process and catchy communication. The campaigns attracted wide-spread support from medical professionals, health authorities and civil society in developing countries. So in 1981, the UN World Health Assembly (the governing body of the World Health Organisation) recommended the adoption of an international code of conduct to govern the promotion and sale of breast milk substitutes. Global regulation of consumer industries was – and remains – a threat to business. UN resolutions are "soft law" that have little direct effect, yet often lead to hard national enforcement. Back then, Nestlé's response was that their critics should focus on doing something to improve unsafe water supplies, which contributed to the health problems associated with bottle feeding. I spent 30 years doing just that in Mozambique, South Africa and elsewhere. So it was appropriate that water brought me together with Brabeck. I don't like the way companies such as Nestlé promote bottled water, turning one of life's essentials into a brand that only the better-off can afford and undermining the value of public supplies in the process. But I have to acknowledge Brabeck's efforts to get business and governments to work together to manage and protect the world's vital water resources. However, for Nestlé and the rest of the global food industry, the baby milk scandal has grown up rather than gone away. The industry today stands accused of harming the health of whole nations, not just their babies. New York mayor Michael Bloomberg has committed

http://www.google.co.uk/url?sa=t&rct=j&q=&esrc=s&source=web&cd=1&ved=0CDIQFjAA&url=http%3A%2F%2Fwww.babymilkaction.org%2Fpdfs%2Fbabykiller.pdf&ei=_PMLUevoGuK-0QX4uIDQBg&usg=AFQjCNHgAyc3fJihOscBRunqH1ADCKu4CA&bvm=bv.41867550,d.d2k&cad=rja

http://www.waronwant.org/

http://en.wikipedia.org/wiki/Nestl%C3%A9_boycott

http://www.who.int/mediacentre/events/governance/wha/en/index.html

his own money to a campaign against unhealthy food, comparing this to his fight against the tobacco industry. The WHO faces opposition to proposals from the NGO Global Action for Improved Nutrition to establish partnerships with industry. What started as skirmish in the nursery is turning into full-scale war on many fronts. While the diseases are now obesity, diabetes and heart disease, the issues about the food industry's responsibility remain the same: its huge marketing budgets clearly influence peoples' behaviour, even if direct causality can't be demonstrated. Children and young adults may get fat because they do not get enough exercise. But if they are offered and encouraged to "choose" super-saturated fat diets, dosed with excessive salt and drinks laced with multiple sugars, can the industries that produce and promote those products absolve themselves from the ugly outcomes? Back in the 1970s, the Swiss judge ruled to the contrary. Today public and political opinion is again swinging in that direction. Important questions are being raised in discussions about the new global development goals to be adopted when the UN's current Millennium Development Goals 'expire' in 2015. Should sustainable development goals focus on the unsustainable and unhealthy lifestyles of the rich as well as on the plight and basic needs of the poor? As the world searches for better measures of development than gross domestic product (GDP), counting dead babies remains an important indicator. But if infant mortality was a stark indicator of poor infant feeding practices in the 1970s, gross obesity is a parallel indicator of poor nutrition today. And action to control the products and marketing of large food companies are an obvious means to improve people's health. So the spectre of global regulation still looms, an existential issue for the global food companies. "Ethical investors" now turn for guidance to the FTSE 4 Good index, which screens company behaviour. But there will need to be more explicit codes of practice and the political will to enforce them if shareholder action is to be effective. If global companies are to produce and promote healthier food and treat their suppliers more fairly and remain market leaders, such standards must also be enforced or cheap unregulated competition will inevitably undermine those who comply. Critics of the global food business also face challenges. Realists know that a return to a bucolic world of trusted small-scale local food production cannot meet the needs of seven billion people today and more tomorrow. But should activists build on existing regulatory platforms by raising the bar, setting new standards and mobilising shareholders to promote a more responsible and accountable global food industry? Or should they take a more aggressive approach to monitoring and acting directly against damaging behaviour? We will probably see a mix of both strategies, making the food business a challenging place to be over the next few years. Back in Davos, my dedication to Brabeck was simple. Reading the Baby Killer report today showed that we had made progress since the 1970s, I said. I thanked him for his support on the global water agenda, and I meant it. Of course there are many places around the world where Nestlé's operations are challenged by workers and communities, for many valid reasons. But in an imperfect world, at least some of the immediate issues are now on the table for public discussion and he has helped to put them there. I could perhaps have added the Mozambican adaptation of that old revolutionary slogan: "Victory continues – the struggle is certain". But, however accurate, that would have spoilt the moment. Mike Muller is an engineer, writer and development specialist. Currently a member of South Africa's National Planning Commission, he is also a visiting professor of public and

http://www.gainhealth.org/

http://www.gainhealth.org/

http://www.ftse.co.uk/Indices/FTSE4Good_Index_Series/index.jsp

http://www.npconline.co.za/

development management at the University of the Witwatersrand University [sic] in Johannesburg. As director general of South Africa's Department of Water Affairs, he designed and led a programme that has brought safe water to over 16 million people since 1994. © Guardian Media Group

http://www.wits.ac.za/

http://www.wits.ac.za/

APPENDIX 22 Nestlé beats Danone to Pfizer's baby food business theguardian.com, 23 April 2012, by Julia Kollewe The acquisition will help Nestlé, which is already the world's biggest seller of infant-nutrition products, increase its foothold in China, where the Pfizer business has a 7%§ share. Swiss food giant Nestlé has won a takeover battle for Pfizer's baby food business, beating its French rival Danone with an agreed offer worth US$11.85 billion (£7.35 billion). In the battle to dominate the lucrative baby food market, Nestlé is to acquire brands such as S-26 Gold, SMA and Promil from the US drugmaker, adding them to a portfolio that already includes Nan, Gerber, Lactogen, Nestogen and Cerelac infant cereal. Pfizer Nutrition operates in more than 60 countries and 85% of its sales are in emerging markets, many of them with large, rapidly growing populations. The powdered baby milk market is the fastest-growing packaged food category. The bid battle for Pfizer Nutrition heated up last week when the price escalated from $10bn after Danone reportedly raised its offer. The acquisition will help Nestlé, which is already the world's biggest seller of infant-nutrition products, increase its foothold in China, where the Pfizer business has an 8%** share and Nestlé 4%. The Swiss group has been losing market share in the country since 2005 when it was forced to withdraw two varieties of Neslac milk powder because they were found to contain excessive iodine. The US$6 billion Chinese market is key as it is set to double to US$12 billion by 2016 to feed 16 million new births a year. Mead leads the Chinese market followed by Danone. Kurt Schmidt, head of Nestlé Nutrition and former chief executive of the US baby food group Gerber, which Nestlé bought in a US$5.5 billion deal in 2007, said the global infant nutrition market was worth US$30 billion. He said the market is growing 10% annually, with emerging markets accounting for 73% of sales and with a 13% growth rate due to increasing births and affluence there. Nestlé's roots go back to the 1860s when pharmacist Henri Nestlé came up with the first infant formula for babies whose mothers could not breast-feed. A boycott of the company was started more than three decades ago over a baby milk scandal in Africa. Nestlé shares, which hit a record of SFr57.50 ahead of robust first-quarter figures last week, lost 3% to SFr55.35 on Monday morning. Danone shares rose 2.1% as investors expressed relief that the French group would not have to borrow heavily to pay for Pfizer.

§ This is as it appears in the original article ** This is as it appears in the original article

http://www.theguardian.com/business/nestle

http://www.guardian.co.uk/business/2006/nov/24/2

http://www.guardian.co.uk/business/2006/nov/24/2

Analysts said the deal made sense strategically, but noted that the Swiss group was paying a high price. Vontobel analyst Jean-Philippe Bertschy said: "The price tag is high, however Nestlé is securing a high growth/margin business with high exposure in emerging markets. China will become the number three market for Nestlé overall." Citi analyst Robert Dickinson said: "Although the growth profile, attractive margins and emerging market exposure make this a compelling asset, we believe that the multiples being some way ahead of market expectations may dampen near-term enthusiasm for the deal." Nestlé said it was premature to comment on whether the deal would face regulatory hurdles. It is expected to take up to a year to go through. The Pfizer business is forecast to generate sales of US$2.4 billion this year. Pfizer wants to focus on its core pharmaceuticals business and it put its infant nutrition and animal health operations up for sale last July. The sale is Pfizer's largest since the US$16.6 billion sale of consumer health brands including Sudafed cold medicine to Johnson & Johnson in 2006. "Infant nutrition has been at the heart of our company since it was founded in 1866," said Paul Bulcke, Nestlé's chief executive. "Pfizer Nutrition is an excellent strategic fit. Its strong brands and product portfolio, its talented people dedicated to the success of its business, together with its geographic presence will complement our existing infant nutrition business perfectly." According to Euromonitor, the Pfizer business's market positions are strongest in the Middle East and Africa as well as Asia-Pacific, where it is the third and fourth-largest baby food maker respectively. © Guardian Media Group

Chartered Postgraduate Diploma: Grade Descriptors

Level 7

Concept 15%

Application 30%

Evaluation 45%

Presentation 10%

Grade A

This grade is given for work that meets all of the assessment criteria to secure at least 70% and demonstrates a candidate’s ability to:

identify relevant theoretical principles commensurate with postgraduate level and critically apply and evaluate these within a senior marketing management context using originality of thought

critically analyse complex, incomplete or contradictory areas of knowledge of a strategic nature and communicate the outcome effectively synthesise information, with critical awareness, in a manner which is innovative and original utilise knowledge, theories and concepts from the forefront of the discipline/practice, demonstrating a mature and analytical understanding and awareness of managing and working at a strategic level

produce reliable, valid and incisive conclusions and strategic recommendations based on findings critically evaluate marketing concepts, theories and methodologies, arguing alternative approaches, with evidence of an exceptional level of conceptual understanding of strategic issues apply initiative and originality of thought in problem solving and make decisions in complex and unpredictable situations

engage confidently in academic and professional communication, reporting on actions clearly, autonomously and competently

Grade B

This grade is given for work that meets all of the assessment criteria to secure at least 60% and demonstrates a candidate’s ability to:

identify relevant theoretical principles commensurate with postgraduate level and critically apply and evaluate these within a senior marketing management context

analyse complex, incomplete or contradictory areas of knowledge of a strategic nature and communicate the outcome appropriately synthesise information in an effective manner, utilising appropriate knowledge, theories and concepts apply relevant contemporary issues demonstrating a detailed understanding and awareness of managing and working at a strategic level

produce reliable and informative conclusions and strategic recommendations based on findings evaluate marketing concepts, theories and methodologies, arguing a range of approaches, with evidence of a high level of conceptual understanding of strategic issues apply initiative in problem solving and decision making

engage in academic and professional communication, reporting on actions clearly, autonomously and competently

Grade C

This grade is given for work that meets enough of the assessment criteria to secure at least 50% and demonstrates a candidate’s ability to:

identify relevant theoretical principles commensurate with postgraduate level and apply these within a senior marketing management context

analyse areas of knowledge of a strategic nature and communicate the outcome satisfactorily analyse information in an appropriate manner, utilising knowledge of theories and concepts include some contemporary issues demonstrating an awareness of managing and working at a strategic level

produce reliable conclusions and strategic recommendations based on findings evaluate marketing concepts, theories and methodologies, with evidence of a competent level of understanding of strategic issues apply techniques of problem solving and decision making

engage in academic and professional communication, reporting on actions clearly, autonomously and competently

Grade D

This grade is given for borderline work that does not meet enough of the assessment criteria to secure a pass and is within the band 45-49%. This may be due to:

repeating case material rather than evidencing knowledge of the marketing discipline at Postgraduate Diploma level

a lack of knowledge and understanding of a strategic nature limited analysis of information with limited reference to theories and concepts limited inclusion of contemporary issues and limited awareness or understanding of managing and working at a strategic level

superficial conclusions and strategic recommendations which lack depth insufficient evaluation of marketing concepts, theories and methodologies, evidencing a lack of understanding of strategic issues an inability to apply appropriate techniques for problem solving and decision making

inappropriate use of academic and professional communication

Moor Hall Cookham Maidenhead Berkshire, SL6 9QH, UK Telephone: 01628 427120 Facsimile: 01628 427399 Website: www.cim.co.uk

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