Question

Is the food and beverage industry an attractive industry that Nestle competes in? Why?

Answer 1

At first glance, people may think that food and beverages industry is quite easy to enter. This is true if the consideration is only about the capital requirements. The capital requirement of entry is not high thus enable many parties to open their business in this industry. This opinion is also supported by the fact that many brands are occupying the shelves of supermarket or retailer.

But if more factors are taken into consideration, the threat of entry for food and beverages industry is moderately high (medium level). The threat of entry is affected by many factors which are economies of scale, capital requirements, access to supply or distribution channel, a customer of supplier loyalty, experience, expected retaliation, legislation or government action, and differentiation.

The big companies also have an advantage in term of achieving economies of scale.
They have more experiences to give them an advantage in terms of cost, customer and supplier loyalty.

Threat of Substitute

The threat of substitute is high in the food and beverages industry. There are many substitutes available that might reduce demands for a company in the food and beverages industry. To identify the threat of the industry, the company can't only look at a close substitute. For example, Nestle Koko Krunch Cereal can be the substitute for Nestle Nesvita cereal drink since both of them are intended for breakfast consumption.

If Nestle carefully takes care of these issues and wisely addresses them it can very well enter the food and beverages industry