Click the image for details Source: Lishi Business Think Tank (ID: lishizhiku)
Key Points:
Nestlé was founded in 1867 and has now passed 150 years of history. In fiscal 2018, the "time-honored brand" Nestlé's revenue reached RMB 620.1 billion, equivalent to the total 2017 revenue of Alibaba, Tencent, Baidu, Moutai, NetEase, Ctrip, and Toutiao (Alibaba: 158.273 billion, Tencent: 237.760 billion, Baidu: 84.8 billion, Moutai: 58.218 billion, NetEase: 54.102 billion, Ctrip: 26.8 billion, Toutiao: 15 billion).
Nestlé's development can be broadly divided into two parts: the first nearly hundred years accumulated momentum with the patience of dripping water, and the subsequent decades surged forward, launching a global expansion hegemony.
Nestlé has fully penetrated every aspect of our lives, but in such a gentle way that many people are unaware of it. Nestlé's silent, subtle approach reflects its wisdom in global expansion and localization.
In the 1980s, then-CEO Helmut Maucher's acquisition strategy of "specialization" and "big and beautiful" played a crucial guiding role in making Nestlé the world's largest food group.
Nestlé's growth has relied on a series of business acquisitions, but surprisingly, through "centralized and decentralized" management of thousands of brands worldwide, Nestlé's acquisitions have almost never failed—a miracle worth learning from for other companies.
In the small territory of Switzerland, Nestlé and other excellent enterprises have been nurtured. The success factors of these companies can all be traced back to Switzerland's geographical conditions.
1 In many people's eyes, Nestlé is just a foreign company selling water, coffee, and milk powder. Moreover, quite a few people do not know which country it originates from, often mistakenly thinking it is an American company. But when opening the Fortune Global 500 list, many who are not familiar with Nestlé are surprised. The list shows that Nestlé's revenue in 2017 reached $91.2 billion, equivalent to RMB 620.1 billion, ranking 69th in the Fortune Global 500. This revenue is equivalent to the total 2017 revenue of Alibaba, Tencent, Baidu, Moutai, NetEase, Ctrip, and Toutiao. In fact, this food industry giant, which has been operating steadily for over 150 years, has a product range that exceeds many people's imagination. Currently, Nestlé's 2,000+ brands cover almost all food sectors, including beverages like coffee and tea, nutrition and health products, dairy and ice cream, prepared foods and cooking products, pet food, chocolate and candy, and bottled water. Among them, more than 20 brands have annual revenues exceeding RMB 7 billion. As the world's largest food consumer goods company, its revenue is nearly twice that of PepsiCo, which ranks second. Nestlé has quietly penetrated every aspect of our daily lives, but most people are unaware of it. If you stroll through the food section of a large or medium-sized supermarket, you will see Nestlé coffee, Nestea, mineral water, Perrier, Milo, Cheerios, KitKat, and other products. Even well-known Chinese brands like Totole, Haoji Chicken Essence, Hsu Fu Chi, and Yinlu have long been acquired by Nestlé and are no longer purely domestic brands. Some netizens have posted a list of Nestlé products used from waking up to sleeping, and you would be amazed at how frequently these products appear in daily life. Besides numbers, one thing is particularly noteworthy: this international "time-honored brand" that has existed for over 150 years still does not show any sign of aging in its brand image. In contrast, our "century-old brands" like Tongrentang (1669), Ruifuxiang (1862), and Quanjude (1864) now exude a sense of "worship from afar, but reluctance to approach." Their selling points, apart from "relying on old age," rarely offer a sense of freshness.
2 In the mid-19th century, Europe was still in a period of turmoil and frequent wars. Prussia, to unify Germany, defeated Denmark and Austria in 1864 and 1866, but France was still manipulating behind the scenes, hindering German unification. Under the instigation of Prussian Chancellor Bismarck, a dispute was created over the Spanish succession issue, leading French Emperor Napoleon III to declare war on Prussia. Prussia used this to unite the German people and attack France, sparking the Franco-Prussian War. Amid continuous warfare, sanitary conditions in Europe deteriorated, and infant mortality rates remained high. Data showed that the mortality rate for infants under one year old in Switzerland at that time was as high as 20%. Facing this situation, a pharmacist began his experiments alone in a dim room. Eventually, he mixed fructose, flour, and milk powder in a certain proportion to create a mixed infant dairy product. It was said that a lady, unable to breastfeed her premature baby due to illness, happened to learn about this product and tried feeding it to the infant. The child loved it and thrived on it, growing up healthily. This case spread widely among parents, and many began ordering the product. The inventor was Henri Nestlé, the founder of Nestlé. Henri Nestlé After learning that his product was accepted by the public, Mr. Nestlé decided to establish a company for large-scale production so that more families could purchase it. In 1867, a company named after him, "Nestlé," was born as an infant food production company. However, Mr. Nestlé was not very commercially minded, so production remained limited. He spent most of his time on scientific research; his goal in founding the company was simply to benefit more ordinary families' infants. To this end, he adopted a low-price strategy to reach more people and went to rural areas to serve the poor. By 1875, at over 60 years old, Mr. Nestlé sold the company and factory in Vevey, Switzerland, to local businessmen, who then hired chemists and technical workers to expand production and sales. During the same period, another company, Anglo-Swiss, was competing with Nestlé. By 1878, both companies began selling each other's original products—condensed milk and infant cereal—leading to fierce competition. After weighing options, the two companies merged in 1905 to form the Nestlé and Anglo-Swiss Condensed Milk Co. The founding year of Anglo-Swiss, 1866, was adopted as Nestlé's founding year.
3 Although Switzerland declared neutrality in both World War I and II, the impact of the world wars was ubiquitous. If you study many old European companies, you will deeply feel that they were all influenced by the two world wars. The outbreak of World War I in 1914 left many Europeans homeless, directly increasing demand for convenience foods. For Nestlé, as military and civilian demand for canned milk powder increased, a stable supply of raw materials became a major issue. To address this, Nestlé looked to the United States and Australia, far from the war, and began acquiring processing factories there. After World War I ended, demand for canned milk from the military and civilians declined, leading to a major crisis for Nestlé and Anglo-Swiss. In 1921, due to falling prices and high inventories, Nestlé recorded its first and only loss in history. At this critical moment, banker Louis Dapples joined as chairman of the group. He decided to separate business from research, with all research work centralized in the Vevey laboratory. This laid an important organizational foundation for Nestlé's future R&D system and management model. In 1929, Nestlé and Anglo-Swiss acquired Switzerland's largest chocolate company, Peter, Cailler, Kohler, making chocolate an important part of the business. However, it was instant coffee that truly established Nestlé's food empire status. In 1930, the Brazilian Coffee Institute approached Nestlé, requesting a dry coffee that could be turned into a beverage by adding hot water and stirring. Chemist Max Morgenthaler joined the Nestlé team to develop instant coffee. After eight years of repeated experiments, Nescafé was successfully launched. The team used a hot air injector to spray concentrated coffee extract, forming coffee powder. This powder dissolved easily in boiling water and quickly became a popular beverage, giving birth to a world-famous brand. During World War II, demand for Nestlé products soared for the same reasons, especially instant coffee, which sold remarkably well. Nestlé's instant coffee even became a ration item for the U.S. military. By the end of World War II, Nestlé had grown into a global company with factories on five continents. After World War II, the global economy gradually recovered, and Nestlé entered a period of steady development. In 1947, Nestlé acquired Alimentana, a company popular during the war, adding cooking products to its range. The following year, Nestlé launched Nestea. However, for the next decade or so, Nestlé remained unusually quiet, with no acquisitions, which was surprisingly calm. Yet, it was during this period of still waters and patient preparation that the foundation for the next phase of large-scale expansion was laid.
4 In the 1960s, after 13 years of quiet, Nestlé began to surge. Throughout the 1960s, Nestlé entered new fields such as ice cream and frozen foods through acquisitions, expanded traditional businesses like dairy and coffee, and rapidly expanded its territory. In 1969, the company also entered the water business by acquiring the French mineral water brand Vittel. Additionally, Nestlé acquired some non-food businesses globally, such as mining, hotels, and eye care companies. For example, Nestlé became a shareholder in the cosmetics company L'Oréal in 1974 and acquired the American pharmaceutical and ophthalmic products manufacturer Alcon in 1977. This was the first major development period in Nestlé's history. This surge came more than 90 years after the company's founding. However, affected by the first oil crisis in the mid-to-late 1970s, Nestlé's overall performance growth began to slow during this period. In the 1980s, CEO Helmut Maucher, who had a significant impact on Nestlé, took office. He clearly recognized that Nestlé needed to be more focused in its business and stop uncontrolled diversification. He decided to steer the company toward more specialized food, planning to achieve scale effects through large-scale acquisitions of food companies, aiming to become the world's largest food enterprise. After taking office, Maucher immediately began to streamline internal operations, quickly divesting non-core assets and loss-making areas, and identified mineral water, ice cream, and pet food as the company's future core businesses. Subsequently, Helmut Maucher implemented this strategy. During the 20 years from his appointment in 1981 to his departure from the board in 2001, Nestlé acquired 250 companies globally, averaging one per month. Astonishingly, under Maucher's leadership, none of the 250 acquisitions failed. With successful mergers, Nestlé's net profit increased fivefold during this period, and its market value grew 15-fold. Major acquisitions during this period included: in 1985, the acquisition of the American company Carnation and the Friskies brand; in 1988, the acquisition of British confectionery company Rowntree Mackintosh and the Italian pasta, sauce, and confectionery group Buitoni-Perugina. In 1991, Nestlé also established a joint venture with General Mills and Worldwide Cereals to produce and sell breakfast cereals globally, and a joint venture with Coca-Cola to produce and sell brands including Nestea. In 1992, Nestlé acquired the French Perrier group, and the following year established a separately operated water business company. In 1997, Nestlé acquired the Italian San Pellegrino mineral water company. The subsequent two CEOs, Peter Brabeck-Letmathe and Paul Bulcke, continued Maucher's strategy. Successor Brabeck-Letmathe, in particular, acquired the American pet food manufacturer Ralston Purina for $10.3 billion in 2001, further strengthening Nestlé's position in that market. In 2003, under CEO Brabeck-Letmathe, Nestlé acquired the ice cream brands Mövenpick and Dreyer's, and purchased Chef America's frozen food business for $2.6 billion. A special case worth mentioning during this period is Nestlé's sale of 77% of Alcon to Swiss company Novartis for $39 billion in June 2007. At that time, Alcon was the world's largest and most profitable eye care company, with 15,000 employees globally, annual sales of $5.6 billion, and ranked first in the global eye care market. Many believed Alcon should not be sold, as it was a star company and a "cash cow." This is a classic case of Nestlé's painful "subtraction" in its history, reflecting its determination to focus on food specialization. In the following decades, Nestlé leveraged its advantages in the food industry to expand rapidly, quickly extending its market to European countries, British territories, North America, and Latin America, capturing the world market.
5 In the food and consumer goods industry, large-scale mergers and acquisitions are actually a core method for any company aiming to become a global giant. Not only Nestlé, but also food giants like Kraft, General Mills, and Danone have histories accompanied by various acquisitions. The world's largest beer brewer, Anheuser-Busch InBev, as well as Procter & Gamble and Unilever, have all achieved rapid global expansion through acquisitions. The logic behind these food and FMCG companies' acquisitions is simple: due to low unit prices and intense competition, but with enormous market capacity, they need a strong product network to "attack" all aspects of consumer demand and maintain survival in fierce competition. Moreover, once these companies occupy food and FMCG channels, acquiring other brands means they can sell more products through one channel, thereby significantly reducing channel costs. In addition to channel advantages, mergers can also create synergies in procurement, production, marketing, and even share internal IT and HR systems. At this point, we should discuss an important question: How does Nestlé ensure that large-scale acquisitions do not fail? And how does it manage these diverse product brands distributed globally? First, let's look at how Nestlé makes acquisitions. As mentioned earlier, during the Helmut Maucher era, the acquisition strategy of "specialization" and "big and beautiful" was established. Here, specialization means focusing on the food industry and divesting non-core areas, while "big and beautiful" emphasizes scale effects. During Maucher's era, Nestlé's board had established an important expansion principle: one-third from internal growth, one-third from acquisitions—the former to ensure the company's own vitality, and the latter to shorten the time to enter a market or own a product line. Additionally, the board established its core acquisition guiding principle: focus on customer value and competitive advantage rather than short-to-medium-term market value management. Nestlé's global acquisition storm can be summarized with several important lessons: first, the target brand must have a good brand reputation and influence; second, acquiring the brand should enable control over core technologies in the food industry; third, Nestlé prefers companies with recognized management methods, which saves significant costs in later management. Fourth, the acquired brand should effectively improve market share in that country or even globally in that category. For example, before acquiring Hsu Fu Chi in China, Nestlé's market share in the Chinese confectionery industry was far lower than Mars, Kraft, and Unilever. Acquiring Hsu Fu Chi not only directly increased market share but also leveraged Hsu Fu Chi's sales network to penetrate China's second- and third-tier markets. Additionally, one easily overlooked point: in Nestlé's acquisitions, they almost never use investment bankers. Nestlé's management requires itself to be clear about what it wants to do, rather than being led by capital. Moreover, in Maucher's view, decision-making should rely on a small amount of documents and research reports. He believed that the world changes differently than people think, and too much research provides an illusion of precision. However, Nestlé does not underestimate capital operations; on the contrary, they are masters at it. For example, in India, to ensure sufficient and reliable quality for its dairy factory, Nestlé lent money to local farmers to dig wells and plant grass, and provided free veterinary medicine and veterinary technology. When first entering China, Nestlé not only sent expert teams from Europe to teach farmers cow care and milking techniques but also paid interest on farmers' loans. Through such capital operations, the local supply of quality food raw materials was greatly accelerated.
6 How does Nestlé manage thousands of brands globally in an orderly manner? This is the power of Nestlé's localization. Peter Brabeck-Letmathe Nestlé knows very well how to adapt its products to local markets while expanding its scale. People in different regions have different tastes due to different cultures and traditions. Peter Brabeck-Letmathe, a CEO who contributed significantly to Nestlé's development, even believed that there is no such thing as a global consumer; it is reasonable to conduct business independently. Any element that consumers can taste, see, feel, or even hear must be decided by local subsidiaries. Therefore, Nestlé delegates decision-making as much as possible, keeping every decision close to the local market. Nestlé understands that to establish a foothold in different countries, it must integrate its business into the local culture, consider local interests, and win their favor. To manage Nestlé products and employees speaking different languages and having different cultural backgrounds worldwide, Nestlé has emphasized equal opportunities for employees of acquired companies from day one, kept promises, and paid attention to gradual integration through psychological guidance, addressing employees' psychological issues, including management systems and leadership arrangements after takeover, employee motivation, sense of belonging, or feeling valued. Nestlé's localization management principles are embodied in the concepts of "centralization" and "decentralization." Centralization means that Nestlé's Swiss headquarters makes important strategic decisions and basic policies, while decentralization means that regional markets have significant autonomy at the execution level. Specifically, brand management, R&D, finance, and key talent management are centrally controlled by headquarters, while localized product development, market expansion, and advertising are decided by local companies. This management model is one of the reasons Nestlé can successfully integrate acquired companies and maintain the vitality of these external brands. On the basis of consensus on values and long-term strategy, Nestlé headquarters minimizes interference with local companies. Facing complex and changing local market environments, each Nestlé subsidiary has the authority to respond directly to consumer tastes and eating habits. For example, regarding coffee taste, different country subsidiaries can decide the local product taste according to local consumer preferences, as long as they adhere to the Nescafé product concept. To avoid disturbing local consumers' habits, Nestlé does not brand most acquired local brands with "Nestlé." This approach of not imposing the Nestlé brand on acquired companies can be called an "invisible" localization strategy. For products that have already formed their own unique, more suitable local tastes, there is indeed no need to add the Nestlé brand. If renamed hastily, it would lose the original brand's loyal customers. For Nestlé, it is through a large number of localized brands that it establishes emotional connections with every consumer globally.
7 Nestlé was born in Switzerland. Besides Nestlé, Switzerland is also renowned for precision manufacturing and finance. The success of these product brands is closely related to Switzerland's geographical conditions. Throughout the long history of European development, whether in wars or the expansion of civilization, the Alps, with an average altitude of about 3,000 meters and a total area of 220,000 square kilometers, have been an insurmountable barrier. France, Germany, and Italy have long been separated by the Alps, looking at each other from afar. Switzerland, known as the "roof of Europe," has most of its territory in the Alps. Due to harsh living conditions, Switzerland was primarily a small-scale agricultural economy before modern times. Apart from ice, snow, water, and mountain scenery, Switzerland has very limited natural resources for human survival. This natural state of Switzerland has naturally had a significant impact on commerce: First, because natural resources are limited, they are forced to think beyond environmental constraints. For Nestlé, from its inception, limited by Switzerland's small market size, it was destined to do business worldwide. Second, because of the many mountains and inconvenient transportation, the natural resources available for the population are very limited, which determines that Swiss people must maximize resource utilization. If Switzerland wants to trade externally, it must either localize resources in the other country or trade in precision-manufactured, high-value products. This explains why Nestlé places such importance on localization and why Switzerland's precision manufacturing industry is developed. Third, Switzerland's mountainous terrain also serves as an excellent barrier against wars and disasters. European immigrants forced to leave their homes for various reasons in different historical periods came to Switzerland, including Nestlé's founder's family, who moved from Germany to escape persecution. The most important result is that Switzerland formed a multicultural atmosphere that could accept European immigrants, which is also an important reason why Switzerland became the first European country to establish a democratic system in modern times. Switzerland has four official languages: French, German, Italian, and Romansh. From a historical perspective, Switzerland did not experience centralized rule; each canton retained its own political system and important independent decision-making power, allowing different political, cultural, religious beliefs, and histories to develop. This cultural and political background has, to some extent, shaped Nestlé's "decentralized" management model. This decentralization gene, which respects regional market differences at its core, is something that companies from many other countries cannot easily learn.
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