Nescafé SWOT Analysis / Matrix

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SWOT analysis is a vital strategic planning tool that can be used by Nescafé managers to do a situational analysis of the organization . It is an important technique to understand the present Strengths (S), Weakness (W), Opportunities (O) & Threats (T) Nescafé is facing in its current business environment.

The Nescafé is one of the leading companies in its industry. Nescafé maintains its prominent position in market by critically analyzing and reviewing the SWOT analysis.  SWOT analysis a highly interactive process and requires effective coordination among various departments within the organization such as – marketing, finance, operations, management information systems and strategic planning.

The SWOT Analysis framework enables an organization to identify the internal strategic factors such as -strengths and weaknesses, & external strategic factors such as - opportunities and threats. It leads to a 2X2 matrix – also known as SWOT Matrix.

The Strengths-Weaknesses-Opportunities-Threats (SWOT) Analysis / Matrix enables the managers of the Nescafé to develop four types of strategies:

• SO (strengths-opportunities) Strategies
• WO (weaknesses-opportunities) Strategies
• ST (strengths-threats) Strategies
•  WT (weaknesses-threats) Strategies

SWOT Matrix Strategies Objective

The central purpose of SWOT matrix is to identify the strategies that a firm can utilize to exploit external opportunities, counter threats, and build on & protect Nescafé strengths, and eradicate its weaknesses.

Step by Step Guide to Nescafé SWOT Analysis

Strengths of Nescafé – Internal Strategic Factors

As one of the leading companies in its industry, Nescafé has numerous strengths that enable it to thrive in the market place. These strengths not only help it to protect the market share in existing markets but also help in penetrating new markets. Based on Fern Fort University extensive research – some of the strengths of Nescafé are –

• Strong Brand Portfolio – Over the years Nescafé has invested in building a strong brand portfolio. The SWOT analysis of Nescafé just underlines this fact. This brand portfolio can be extremely useful if the organization wants to expand into new product categories.
• Highly successful at Go To Market strategies for its products.
• Automation of activities brought consistency of quality to Nescafé products and has enabled the company to scale up and scale down based on the demand conditions in the market.
• Highly skilled workforce through successful training and learning programs. Nescafé is investing huge resources in training and development of its employees resulting in a workforce that is not only highly skilled but also motivated to achieve more.
• Successful track record of integrating complimentary firms through mergers & acquisition. It has successfully integrated number of technology companies in the past few years to streamline its operations and to build a reliable supply chain.
• High level of customer satisfaction – the company with its dedicated customer relationship management department has able to achieve a high level of customer satisfaction among present customers and good brand equity among the potential customers.
• Good Returns on Capital Expenditure – Nescafé is relatively successful at execution of new projects and generated good returns on capital expenditure by building new revenue streams.
• Successful track record of developing new products – product innovation.

Weakness of Nescafé – Internal Strategic Factors

Weakness are the areas where Nescafé can improve upon. Strategy is about making choices and weakness are the areas where a firm can improve using SWOT analysis and build on its competitive advantage and strategic positioning.

• Days inventory is high compare to the competitors – making the company raise more capital to invest in the channel. This can impact the long term growth of Nescafé
• Need more investment in new technologies. Given the scale of expansion and different geographies the company is planning to expand into, Nescafé needs to put more money in technology to integrate the processes across the board. Right now the investment in technologies is not at par with the vision of the company.
• Not very good at product demand forecasting leading to higher rate of missed opportunities compare to its competitors. One of the reason why the days inventory is high compare to its competitors is that Nescafé is not very good at demand forecasting thus end up keeping higher inventory both in-house and in channel.
• The marketing of the products left a lot to be desired. Even though the product is a success in terms of sale but its positioning and unique selling proposition is not clearly defined which can lead to the attacks in this segment from the competitors.
• Investment in Research and Development is below the fastest growing players in the industry. Even though Nescafé is spending above the industry average on Research and Development, it has not been able to compete with the leading players in the industry in terms of innovation. It has come across as a mature firm looking forward to bring out products based on tested features in the market.
• Financial planning is not done properly and efficiently. The current asset ratio and liquid asset ratios suggest that the company can use the cash more efficiently than what it is doing at present.
• There are gaps in the product range sold by the company. This lack of choice can give a new competitor a foothold in the market.

Opportunities for Nescafé – External Strategic Factors

• Lower inflation rate – The low inflation rate bring more stability in the market, enable credit at lower interest rate to the customers of Nescafé.
• The new technology provides an opportunity to Nescafé to practices differentiated pricing strategy in the new market. It will enable the firm to maintain its loyal customers with great service and lure new customers through other value oriented propositions.
• The market development will lead to dilution of competitor’s advantage and enable Nescafé to increase its competitiveness compare to the other competitors.
• Government green drive also opens an opportunity for procurement of Nescafé products by the state as well as federal government contractors.
• Organization’s core competencies can be a success in similar other products field. A comparative example could be - GE healthcare research helped it in developing better Oil drilling machines.
• Decreasing cost of transportation because of lower shipping prices can also bring down the cost of Nescafé’s products thus providing an opportunity to the company - either to boost its profitability or pass on the benefits to the customers to gain market share.
• New customers from online channel – Over the past few years the company has invested vast sum of money into the online platform. This investment has opened new sales channel for Nescafé. In the next few years the company can leverage this opportunity by knowing its customer better and serving their needs using big data analytics.
• Opening up of new markets because of government agreement – the adoption of new technology standard and government free trade agreement has provided Nescafé an opportunity to enter a new emerging market.

Threats Nescafé Facing - External Strategic Factors

• Rising pay level especially movements such as $15 an hour and increasing prices in the China can lead to serious pressure on profitability of Nescafé
• Imitation of the counterfeit and low quality product is also a threat to Nescafé’s product especially in the emerging markets and low income markets.
• Growing strengths of local distributors also presents a threat in some markets as the competition is paying higher margins to the local distributors.
• The demand of the highly profitable products is seasonal in nature and any unlikely event during the peak season may impact the profitability of the company in short to medium term.
• No regular supply of innovative products – Over the years the company has developed numerous products but those are often response to the development by other players. Secondly the supply of new products is not regular thus leading to high and low swings in the sales number over period of time.
• Liability laws in different countries are different and Nescafé may be exposed to various liability claims given change in policies in those markets.
• New environment regulations under Paris agreement (2016) could be a threat to certain existing product categories .
• Changing consumer buying behavior from online channel could be a threat to the existing physical infrastructure driven supply chain model.

Limitations of SWOT Analysis for Nescafé

Although the SWOT analysis is widely used as a strategic planning tool, the analysis does have its share of limitations.

• Certain capabilities or factors of an organization can be both a strength and weakness at the same time. This is one of the major limitations of SWOT analysis . For example changing environmental regulations can be both a threat to company it can also be an opportunity in a sense that it will enable the company to be on a level playing field or at advantage to competitors if it able to develop the products faster than the competitors.
• SWOT does not show how to achieve a competitive advantage, so it must not be an end in itself.
• The matrix is only a starting point for a discussion on how proposed strategies could be implemented. It provided an evaluation window but not an implementation plan based on strategic competitiveness of Nescafé
• SWOT is a static assessment - analysis of status quo with few prospective changes. As circumstances, capabilities, threats, and strategies change, the dynamics of a competitive environment may not be revealed in a single matrix.
• SWOT analysis may lead the firm to overemphasize a single internal or external factor in formulating strategies. There are interrelationships among the key internal and external factors that SWOT does not reveal that may be important in devising strategies.

Weighted SWOT Analysis of Nescafé

In light of the above mentioned limitations of the SWOT analysis / matrix, corporate managers decided to provide weightage to each internal strength and weakness of the firm. Organizations also assess the likelihood of events taking place in the coming future and how strong their impact could be on company's performance.

This method is called Weighted SWOT analysis. It is better than doing simplistic SWOT analysis because with Weighted SWOT Analysis Nescafé managers can focus on the most critical factors and discount the non-important one. It also solves the long list problem where organizations ends up making a long list but none of the factors deemed too critical.

Limitation of Weighted SWOT analysis of Nescafé

This approach also suffers from one major drawback - it focus on individual importance of factor rather than how they are collectively important and impact the business holistically.

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Example of Weighted SWOT Analysis

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SWOT Worksheet & Template

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References / Citations & Bibliography

• M. E. Porter, Competitive Strategy(New York: Free Press, 1980)
• A. D. Chandler, Strategy and Structure (Cambridge, Mass.: MIT Press, 1962)
• O. E. Williamson, Markets and Hierarchies(New York: Free Press, 1975);
• L. Wrigley, Divisional Autonomy and Diversification (PhD, Harvard Business School, 1970)
• R. E. White, Generic Business Strategies, Organizational Context and Performance: An Empirical Investigation, Strategic Management Journal7 (1986)