---
title: "What Can We Learn from Old Consumer Giants | The Ambition of the Century-Old Nestlé Empire: Breaking Free from Historical Cycles"
description: "This article examines Nestlé's 155-year history, highlighting its acquisition strategy and internal growth tactics as key to its resilience. It also analyzes Nestlé's localized supply chain and marketing battles in China, offering lessons for new consumer brands."
author: "愈嘉"
publisher: "New Distribution"
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published: "2022-02-09"
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# What Can We Learn from Old Consumer Giants | The Ambition of the Century-Old Nestlé Empire: Breaking Free from Historical Cycles

> This article examines Nestlé's 155-year history, highlighting its acquisition strategy and internal growth tactics as key to its resilience. It also analyzes Nestlé's localized supply chain and marketing battles in China, offering lessons for new consumer brands.

Source: Marketing Beauty (ID: yingxiaozhimei)
Today, when we observe the business world, we often fall into a misconception—that business innovation in the internet age is sexy, trendy, and high-tech, as if with just a model or technological innovation, you can immediately summon massive venture capital and quickly create a business empire.
In contrast, when we mention past business giants, the first things that come to mind are Nokia and Kodak, which were ruthlessly eliminated by the times. They are ancient, decaying; they are dinosaurs—no matter how powerful they seem, they cannot escape the fate of being replaced.
In this mindset, everyone flocks to new business species, while the successful giants are ignored.
However, once we break down the walls in our thinking and look at things from a different perspective, we are surprised to find that many giants have forged strong moats over the past century, giving them the ability to traverse long historical cycles.
This fundamental skill is precisely what many new business species lack. Therefore, learning from established giants is an unavoidable required course for emerging companies. Today, many entrepreneurs are thinking:
**How to find a breakthrough in unfamiliar environments?** **How to compete with opponents much stronger than yourself?** **How to achieve astonishing expansion?** **...**
Today, this article will focus on a global giant that has weathered a century of storms—an established consumer company—Nestlé. With a history of 155 years, Nestlé is recognized as a giant in the world food industry, owning 2,000 brands, with products selling well worldwide. In 2021, it ranked 79th on the Fortune Global 500 list.
Having experienced nearly two centuries of ups and downs, it remains strong and not to be underestimated.
**Nestlé, Started with Milk Powder**
In 1867, Nestlé was founded. Its first product—infant formula—was the first cornerstone of Nestlé's growth into a global empire.
In the 19th century, the infant mortality rate in Switzerland was very high, with 20% of children not reaching their first birthday. Even Nestlé's founder, Henri Nestlé, lost 5 of his 13 siblings in childhood. Saving the children was perhaps the original intention behind Nestlé's entrepreneurship.
The high infant mortality rate was due to mothers not wanting to breastfeed, instead giving children porridge and animal milk that caused severe intestinal diseases.
In 1867, Henri Nestlé developed a formula suitable for infants. Infants who consumed Nestlé's formula were in very good health. From 1867 to 1875, annual sales of infant formula rose from 8,600 cans to over 1 million cans, making Nestlé famous overnight.
Afterwards, Nestlé, leveraging the success of dairy products, rode the wave of World War I, with products selling well across Europe.
Business stories cannot always be smooth sailing.
Soon, Nestlé encountered the "ceiling" of the milk powder market. In 1921, due to declining post-war demand, Nestlé's milk powder prices fell and inventories piled up. This became the first and only loss in Nestlé's history.
What to do next? Continue to vigorously market milk powder? Nestlé's approach was to abandon the attempt to break through the "milk powder market" ceiling and choose to break out. Nestlé successively launched innovative products such as Nescafé, whole milk powder, chocolate malt beverage, and white chocolate. In addition, it continuously acquired seasoning companies, canned food companies, and yogurt producers to broaden its product range.
From then on, Nestlé went on an acquisition spree, with an average of one acquisition per month and good post-merger integration and digestion capabilities, creating the current Nestlé empire of 2,000 brands in consumer goods.
In the industry, there is even a saying that to this day, Nestlé's board of directors has set its development strategy as "2/3 through acquisitions, 1/3 through internal growth."
In the next two sections, we will break down and analyze Nestlé's "acquisition strategy" and "internal growth strategy."
**Nestlé is a History of Acquisitions**
Without understanding acquisitions, you cannot fully understand Nestlé.
For a food company, no matter how successful a category is, it will eventually hit a "ceiling" and fall into stagnation and involution. Then there are only two paths: either stick to one category or continuously acquire and expand. Nestlé's choice is clearly the latter.
Nestlé's acquisition history can be roughly divided into four stages.[1]
**1. Initial Development Period (1867–early 20th century)**
Nestlé's first acquisition was during its milk powder business, merging with competitor Anglo-Swiss Condensed Milk Company. After the merger, Nestlé began to establish sales networks across Africa, Asia, Latin America, and Australia through overseas subsidiaries.
**2. Rapid Growth Period (early 20th century–1973)**
After World War II, the economy prospered, and consumption upgrades drove the rise of convenience foods. Nestlé continuously expanded its product categories by acquiring seasoning companies, canned food companies, and yogurt producers. During this period, it launched products such as chocolate drinks, instant foods, rice flour, and dumplings.
**3. Maturity Period (1974–1990s)**
Starting in the 1970s, Nestlé not only expanded the global market share of its original products through acquisitions but also began diversified operations, entering the pharmaceutical and cosmetics fields.
**4. Stability Period (1990s–present)**
In the 1990s, Nestlé turned its attention to emerging Asian markets. Starting with the acquisition of Shanghai Fule Food, an ice cream producer, in 1997, it continuously acquired leading Chinese sub-industry companies such as Totole, Yinlu, and Hsu Fu Chi, leveraging local businesses to seize market share in China.
Of course, Nestlé's expansion is not blind acquisition; it always follows four clear principles:
**1. Never hostile takeovers; **2. The acquired company must combine with its own strengths; **3. Acquisitions within the framework of product-related diversification; **4. Only acquire companies that are financially healthy, innovative, and have a good brand image.**
Principles are abstract, but cases are concrete. Next, we take Nestlé's acquisition of Totole as an example.
Totole is a domestic seasoning industry player. In the 1990s, it overcame issues such as incomplete raw materials and substandard processing techniques, began large-scale production, and prepared for listing.
But unexpected events occurred: the Asian financial crisis broke out in 1997, and at the critical moment, the investment bank responsible for the listing project went bankrupt first. In times of crisis, Nestlé extended an olive branch. Nestlé is certainly not a charity; in fact, when Totole was in crisis, Nestlé was preparing to make a big move into the seasoning industry. Taking this opportunity, Nestlé acquired 80% of Totole's shares.
Over the years, the acquired Totole did not decline like other acquired domestic brands. On the contrary, Nestlé's return on investment in Totole reached an astonishing 23 times, which is undoubtedly a win-win result for both Nestlé and Totole's business development.
It is worth noting that during China's 40 years of reform and opening up, there have been tens of thousands of joint ventures and cooperative enterprises, but the average lifespan is only 2.6 years, and successful cooperation cases are rare. Nestlé's joint venture with Totole lasted more than 18 years, which is unique within Nestlé.
After acquiring Totole, Nestlé also acquired Sichuan Haoji, China's second-largest chicken essence brand. From then on, Nestlé, owning three brands—Totole, Haoji, and Maggi—formed a strong brand matrix and gained absolute say in China's chicken essence market.
Among them, Totole targets ordinary family consumers with nationwide channel coverage; Haoji is the leader in Sichuan flavor, with coverage limited to the southwestern market; Maggi focuses on seasoning sauces, mainly targeting high-end professional catering markets such as five-star hotels. This formed a benign development situation with market complementarity and brand complementarity, ensuring the industry's long-term prosperity.
In addition to Totole, Nestlé has successively acquired hundreds of companies, including Maggi soups, Nestea, capsule coffee, Perrier, KitKat, Polo mints, Hsu Fu Chi, and Purina cat food, owning more than 2,000 brands.
According to data, in 2018, due to continuous breakthroughs and expansion, the seemingly old Nestlé had revenue as high as 618.5 billion yuan, while the combined revenue of the three internet giants BAT was only 674.1 billion yuan.
After discussing Nestlé's acquisition logic, in the next section, we will expand on Nestlé's internal growth, whose core competitiveness is breaking through category constraints and forging a wide moat of "cross-regional, cross-category operations." We summarize this into three major tactics: "marketing that can catch every wave of dividends," "innovation that always leads trends," and "localization of the supply chain," and we will break them down one by one.
**Nestlé's Three Core Tactics for Endogenous Growth**
As a world-class food giant, Nestlé's "three core tactics" are the core competitive barriers ensuring continuous expansion, which still have great reference significance for today's new consumer brands in China.
**Tactic 1: Marketing can catch every wave of dividends.**
Looking at Nestlé's corporate history, it is not difficult to find that Nestlé's marketing promotions always catch every wave of dividends.
In the 1920s, the pace of life in developed countries accelerated, and convenient beverages became an upgrade trend. Nestlé quickly responded by launching malted milk beverages and instant coffee, entering the beverage market.
In the 1940s, with the development of infrastructure and cold chain technology in developed countries, seasonings and frozen foods became new favorites. Nestlé quickly acquired a large number of frozen canned and frozen pizza companies.
In 2001, when Maxwell's advertising was still stuck in "educating the market about the category," promoting how delicious coffee was, Nestlé had already begun to iterate, evolving from "educating the market" to focusing on "refreshing function," with the slogan "A Good Start."
On the one hand, Nestlé can grasp changes in market demand from the category perspective and lay out high-growth categories early. On the other hand, it can continuously promote product upgrades and iterations within categories. This precise judgment has become one of Nestlé's magic weapons for turning the tide.
**Tactic 2: Innovation always leads trends.**
We all know that Nestlé's first pot of gold came from the founder's development of infant formula that reduced infant mortality. It is evident that emphasizing R&D is one of Nestlé's genes.
Nestlé spent 9 years developing and improving "soluble solid coffee," incorporating milk and sugar into coffee, and then converting the mixed liquid into powder to maintain aroma for a longer period. This was a major innovation at the time.
Another example: in the 1970s, Nestlé bought a single-cup espresso brewing system and invested heavily over 10 years to turn it into the new Nespresso system, which has advantages of compact design, simple operation, and delicious brewing. This product became the pioneer for Nestlé's entry into the high-end coffee market.
Data shows that in 2018 alone, Nestlé invested approximately CHF 1.7 billion (about RMB 11.9 billion) in R&D, more than its global competitors in the same industry. Huge investment means a large number of results—in 2018, Nestlé launched about 1,500 new products globally.
Today, for any company to continue expanding, the ability to continuously launch hit products is indispensable. Without real investment in this area, it is likely impossible to produce good products.
**Tactic 3: Deeply cultivate supply chain localization and treat yourself as a local.**
Nestlé's emphasis on supply chain localization is completely different from other multinational food companies. The industry's common practice is to exploit the information asymmetry between farmers and multinational companies to purchase local crops at low prices.
In Yunnan, Nestlé brings various planting techniques and interest-free loans to local farmers, and signs purchase contracts with them for 10 years, 5,000 tons per year. No matter how international prices fall, Nestlé will purchase at the contract price. In addition, Nestlé provides scholarships for farmers' children and job opportunities.[2]
As the saying goes, "troops and horses move before grain and fodder." Nestlé's supply chain localization strategy completely solves its worries and becomes the cornerstone of the Nestlé empire's stability.
Business is not just abstract theories and tactics; behind it, there must be wonderful stories.
**Nestlé Coffee's Localization Journey in China**
In recent years, Chinese companies' "brands going global" often suffer from acclimatization, leading to frequent stories of failure. In this context, I believe Nestlé's localization experience in China still has strong reference significance today.
Due to space limitations, this section will focus on Nestlé Coffee's localization journey in China, focusing on the "Thirty Years' War" between Nestlé and Maxwell in the Chinese coffee market.[3]
Here, we break down this war into three major stages:
**1. How Nestlé and Maxwell opened the door to the Chinese coffee category. **2. Three marketing competitions between Nestlé and Maxwell. **3. How Nestlé defeated Maxwell.**
First, let's look at the first stage.
In the first decade of entering the Chinese market, Nestlé and Maxwell both faced a common enemy—how to get Chinese people, who had been drinking tea for thousands of years, to drink coffee?
To this end, Maxwell targeted the younger generation. It first opened several coffee shops at Peking University, offering coffee drinks brewed from coffee powder. Then it packaged coffee as gifts, selling gift boxes in department stores, with free cups and tote bags. As a result, Maxwell not only didn't make money but also lost millions.
Nestlé's situation was not much better. Nestlé first sponsored impoverished college students at Peking University in the form of naming rights, conducted marketing promotions at various universities, and gave students marketing materials for "Nescafé instant coffee." In addition, like Maxwell, Nestlé also tried to make coffee a high-end gift, launching premium gift boxes, but with little success.
Soon, both sides realized that in a market where even "what is coffee" had not been established, trying to create "high-end gifts" from the start was doomed to fail.
**Soon, the war entered the second stage, where Nestlé and Maxwell clashed at three crucial marketing nodes.**
**The first node: through TV advertising, open up the Chinese market's awareness of the coffee category.**
In 1988, the classic advertisement "Nescafé, tastes great" appeared on Chinese TV screens for the first time. At that time, Wu Wenfang, responsible for brand marketing in the Chinese market, recalled that the purpose of the advertisement was to make Chinese consumers accept bitter coffee, hence the slogan "tastes great."
Then, in the 1990s, Nestlé advertisements featured many stories with the template "host invites guests to drink coffee, guests exclaim it tastes great." This wave of advertising marketing achieved huge success. In Shanghai alone, Nescafé sales surged to 500 tons.
After Nestlé's great victory, Maxwell was not to be outdone. Maxwell's TV slogan was "Dripping fragrance, endless aftertaste." It is said that this was the praise of former US President Theodore Roosevelt after tasting Maxwell coffee: "Every drop is fragrant to the last."
The positioning of "America's best-selling Maxwell coffee" plus the brand story of the US president personally endorsing it brought Maxwell great success.
Finally, in their competition, the door to the Chinese coffee market was pried open. By the mid-1990s, China had initially established a market dominated by instant coffee.
Subsequently, coffee's ecological niche in China was similar to that of Brain Gold as a gift. At that time, the best-selling products were gift boxes: a can of coffee with a can of coffee mate, cups and spoons were indispensable, making it very decent for visiting relatives and friends. Unexpectedly, because the coffee cans were of good quality, after drinking, they were even used by the elderly to store other things.
Due to the gift niche, Maxwell, which focused on high-end positioning, had a greater advantage. Therefore, Maxwell's sales were once almost twice that of Nestlé, and its profits exceeded Nestlé's by 20%. **At the first node, Maxwell took the lead.**
**Soon, the battle moved to the second node: the battle for sales channels.**
In 1995, international supermarket chains such as Carrefour and Walmart entered China. Facing the supermarket channel, Maxwell and Nestlé made different strategic choices.
**Maxwell chose to sell directly to supermarkets,** with the advantage of gaining first-hand market information, but the supermarkets' payment cycles were too slow, such as Walmart's 45 days and Carrefour's 90 days. This caused a large amount of capital to be tied up in the supermarkets' hands, making cash flow Maxwell's Achilles' heel.
**Nestlé's choice was the opposite: it chose to cooperate with distributors.** Distributors paid cash on delivery, which ensured cash flow, but profits were greatly reduced.
As a result, flexible distributors became Nestlé's most important allies, carrying out various promotional activities tailored to local conditions. It is worth mentioning that Nestlé, together with distributors, launched "hand-to-hand combat"—wherever Maxwell was sold, Nestlé would place more products to surround it.
In that era dominated by offline supermarket channels, distributors, with sufficient cash flow, rapid expansion, and strong brand operation capabilities, helped Nestlé continuously erode Maxwell's market share. By the time Maxwell reacted, Nestlé had already caught up.
To turn the tide, Maxwell launched wave after wave of marketing battles.
Maxwell, targeting the pain point that Chinese consumers do not drink black coffee, launched a series of products such as original flavor, extra strong, and coffee with sugar and milk. Through this move, Maxwell increased sales by over ten million. Nestlé quickly followed suit, launching classic products like "Nescafé 1+2" and other diversified products. This round of engagement was hard to distinguish.
Then, Maxwell launched another strong marketing campaign to fight a decisive battle with Nestlé.
In 2001, Maxwell collaborated with Su Yongkang on a coffee advertising song "Endless Aftertaste," focusing on taste.
In contrast, Nestlé switched its approach, making "what functions does coffee have" the focus of the next stage.
At that time, Nestlé found female singer Shun Zi and Da Zhangwei to create two advertising songs, "Open Up" and "Good Start," and proposed a new slogan "Good Start," focusing on the "refreshing" function. In this round of engagement, whether in terms of dissemination or brand sophistication, Nestlé completely defeated Maxwell.
After this round, data showed that in 2003, Nescafé's market share had reached 76.1%, while Maxwell's market share had fallen to 12.6%. It can be seen that although on the surface the two sides were repeatedly deadlocked, in reality, Nestlé was always on the offensive, while Maxwell was always on the defensive. All of Nestlé's brand marketing eventually became category marketing, that is, creating the brand mindset that "Nestlé equals coffee." Maxwell, in its repeated passive defense, lost all its advantages.
Having turned the situation around and taken the advantage, Nestlé only needed to wait for a fatal opportunity to defeat Maxwell.
**The third stage: the war was nearing its end, and unexpected events occurred. Nestlé delivered the final blow to Maxwell.**
In 2004, global drought caused a significant reduction in international coffee bean production, and prices subsequently soared. This sudden event led to Maxwell's complete collapse: the surge in raw material prices greatly compressed profits, causing Maxwell's capital chain to break and brand expansion to stall completely.
At this time, Nestlé made its move. Its decade-long supply chain layout in Yunnan showed its power.
As early as the 1980s, Nestlé had completed the localization of coffee bean procurement in Yunnan. Due to the brand's deep cultivation in the region, Yunnan had a good relationship with Nestlé. Yunnan's coffee beans were abundant, stable, and inexpensive. The low-cost advantage was enough to support Nestlé's large-scale expansion.
This layout might not have been known if not for the black swan event. Taking advantage of Maxwell's unexpected collapse, Nestlé expanded on a large scale with its raw material advantage. In 2004, Nestlé's sales surged fivefold, while Maxwell only had a pitiful growth rate of 3.2%. Nestlé finally overtook Maxwell in market share. In 2005, Nescafé's revenue in China reached 5 billion yuan, and Maxwell was completely overthrown.
In the final analysis, coffee is an agricultural product. Deep cultivation of the supply chain takes at least 8 to 10 years to stabilize production. It turns out that Nestlé had already realized this, and advertising wars and marketing battles are just fancy moves; the agricultural product supply chain is the foundation. Nestlé's strategic vision is evident.
**Nestlé's Crisis**
In 1867, when Nestlé was founded, it was just an unknown small Swiss company. 155 years have passed, and many companies that once competed with it have vanished. However, it has blossomed all over the world. For such an old enterprise, I think we should have more awe.
Of course, a company will always encounter various crises. Especially now, Nestlé is inevitably impacted by new consumption and the pandemic.
Affected by the COVID-19 pandemic, a large number of out-of-home consumption channels decreased, causing Nestlé's Chinese market to experience a high single-digit decline. According to Nestlé's 2020 performance report, Nestlé's revenue in 2020 was CHF 84.3 billion, a year-on-year decrease of 8.9%. Operating profit was CHF 14.9 billion, a year-on-year decrease of 8.3%.
This was the first time since 2012 that Nestlé's revenue fell below CHF 85 billion.
In addition to the pandemic, the impact of new consumption is even more severe. We all know that the key to Nestlé's global expansion lies in cross-border acquisitions. However, under the drive of new consumption, Nestlé's old methods are showing signs of fatigue.
Currently, competition in the premium instant coffee track is becoming increasingly fierce. In the past six months or so, there have been 28 financing deals related to new consumer coffee in China, totaling nearly 6 billion yuan. In addition to Three Squirrels and Yongpu, Luckin Coffee and KFC have also launched premium instant products, accelerating the fight for market share.
Under the impact of new consumption, Nestlé's actions in China are limited to conventional instant and ready-to-drink coffee. It is inevitable that Nestlé will show signs of decline.
In the "2021 Global Food and Beverage 100 Annual Ranking" published by Food Engineering, Nestlé (food and beverage business), which had topped the list for many years, lost its throne with revenue of $67.7 billion, overtaken by PepsiCo with $70.4 billion (a year-on-year increase of 4.7%).
Specifically in the Chinese market, Nestlé's Greater China annual revenue was CHF 5.986 billion, showing overall negative growth.
The competitive environment in the new consumption era also makes this industry leader anxious. Regarding Nestlé's performance decline, in addition to the direct reasons of exchange rates and business divestitures expressed by Nestlé, it is also closely related to the sluggish growth, or even crisis and decline, faced by some categories in its product matrix.
**Epilogue**
Now, having slipped from the top spot, whether Nestlé can return to the global number one position in the future can only be answered by time.
In fact, for China, a super-large market with the most vitality in the global economy and a population of 1.4 billion, the only constant is change.
In the new era of consumption upgrade in China, some past market consensus is collapsing comprehensively, and Chinese consumers' unique consumption needs will reconstruct new categories one by one.
This is the charm of business: there is no eternal business truth. We believe that for old giants like Nestlé, facing such huge changes, how to consolidate the foundation on their core capabilities, continuously iterate, and thus traverse cycles is a long and arduous road.
Therefore, we will continue to bring you content from the series "What Can We Learn from 'Old Consumption'." We hope you like it.
Some content references:
[1] "The Acquisition Growth Revelation of the Century-Old Nestlé Empire" - Li Jin
[2] "Creating Shared Value" - Wang Ruohan
[3] "First to Enter China, but Lost 80% of the Market to Nestlé, What Did Maxwell Do Wrong?" - Li Mingli
**__**-END-**_


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