“Product distribution (or place) is one of the four elements of the marketing mix. An organization or set of organizations (go-between) involved in the process of making a product or service available for use or consumption by a consumer or business user” (wikipedia.org).
This blog post has been written analysing the approach the world’s leading food company Nestlé uses in distributing its products to its consumers. Within this post the lineage of Nestlé will be look at, the advantages and disadvantages of its distribution methods and if there is room for improvement in distribution so the organisation can maintain its dominance in the food market.
The Nestlé Effect
Nestlé was formed in 1868 by Henri Nestlé who set up a sales office and by 1901, Nestle opened its first UK factory. The organisation is renowned for producing some of Britain’s best loved brands such as Kit Kat, Nescafe and Smarties. With around 95% of UK households consuming Nestlé’s brands and more than 2 billion products sold in the UK each year, the organisations dominance is clear. The way Nestle distributes its products can be accountable for its success.
The Distribution Channel
“ The term ‘channel’ is used to symbolise the flow of goods and services around the network” (Cannon, 1996).When distributing a product there has to be careful consideration from an organisation in deciding what channels /networks of intermediaries to use as this should be cost-effective but also meet its customers needs. The distribution chart below illustrates what channels are used by Nestlé in distributing its products to get to its consumers.
“Manufacturing is the use of machines, tools and labor to produce goods for use or sale” (wikipedia.org)”. Manufacturers act as the catalyst in the distribution channel as they transform raw materials into finished goods – products. With Nestlé having 15 manufacturing sites in the UK, the organisation manufactures a wide range of brands such as Kit Kat and Nescafe. The manufacturers bring together the sugar, cocoa and other materials to produce the chocolate products. Cocoa beans are converted into chocolate bars and other finished products.
Intermediaries are “the link in the flow of goods from a supplier to a final customer” (Home Learning, 2009). When Nestlé’s products have been manufactured they are transported by truck (another intermediary) to retailers. Retailers help the manufacturer by making their products conveniently available to the consumer. As retailers act as “the middle men” in selling Nestlé’s products to the end customer, it is vital they are given support and Nestle provides this through the packaging, advertising and promotion of their products.
“Customers are the lifeblood of every company. A company that does not satisfy its customers needs will not stay in business over the long run” (Zikmund & d’Amico, 2001). As Nestlé buys in bulk from exporters and suppliers, retailers buy in bulk from Nestle. This is because Nestlé has a range of products and retailers can promote these ranges at different sizes and prices which enables customers to make a choice which suits their needs best. For example, on Tesco’s website there is currently a special offer on Kit Kat’s 2 finger milk chocolate biscuit – 21 pack for £2 when it was originally £3.49 saving the costumer £1.49.
Advantages of Nestlé distribution
The distribution channel Nestlé uses from manufacturer to retailer to consumer is successful. From the method used, the manufacturer benefits from a wide distribution it never owned thus making Nestlé’s products easily accessible to the consumer. With Nestlé having a fleet of trucks to transfer their products from the manufacturer straight to the retailer, it is the most efficient way of getting their products to the consumer and relatively low in cost.
Disadvantages of Nestlé distribution
“Globally, transport is responsible for approximately 20% of all CO2 missions” (www.nestle.co.uk). By Nestlé using trucks as a transport method to distribute its products, the organisation is helping to create more pollution from emissions not to mention more congestion on roads. However, Nestlé is fully aware of this and is committed to reducing the environmental impact of its transport and distribution activities. By maximising the number of pallets per load and the number of products per pallet, Nestlé has increased lorry loads to a total of 23 tonnes which has helped reduce the number of vehicles on road.
In conclusion, Nestlé’s distribution channel is effective and successful. However the organisation should look at other forms of distribution. Nestlé currently uses intensive distribution in every possible outlet so there is enough exposure for the consumer to buy the product, however using exclusive distribution could also be beneficial. By Nestlé having an exclusivity deal on some of its products with a retailer this may gauge new customers. However, there is also the risk of potentially alienating and losing existing customers.
For Nestlé to maintain its dominance in the food market the organisation has to focus on the logistics of distribution from customer service all the way to transport options and the only way this is achieved is through communication. Quarterly meetings with members of the distribution channel should be put in place. This will ensure everyone has the same objectives in distributing Nestlé products in a timely and efficient manner to the customer which will result in profit for the organisation and everyone within the distribution channel. “The creation of dialogue, communication as a two-way street, is the lifeblood of creating that vital strategic cohesion of the organisation, getting everyone on side” (Irons, 1997).