Nestlé - Infinite Outside, Infinitesimal Inside!!

Being a Giant gives one the luxury to be powerful. But in spite of being the world’s largest Food Company, Nestlé is struggling to make a mark in the world’s second most populous country, India. Nestlé owns a whopping 2000 brands [1] globally. But in India it has not more than fifteen active brands. Barring the few blockbusters like MAGGI, NESCAFE, KITKAT, CERELAC all other brands of Nestlé are in peril. Nestlé India is currently contributing a mere 1.5 per cent to its global sales [2]. It is a matter of concern for Nestlé, considering the fact that India is one of the rapidly developing economies with increased purchasing power and disposable incomes of the people. It is a well known fact that global FMCG behemoths like Unilever, Coca-Cola, Proctor & Gamble, PepsiCo etc., are considering India as one of the largest consumer markets and carving out their strategies to make the most out of Indian markets. However, Nestlé is yet to get its equation right.

So, what went wrong with Nestlé India? Why the company, which made MAGGI the synonym for noodles has single digit volume growth for the past five consecutive quarters. Why the growth indicators of Nestlé India are flashing wrong colors? How a Lion outside became a Cat inside? These are questions pondering in the minds of Marketing gurus, Industry analysts, and B-School students.

Well it’s a long story but the answer is short and simple - the company made a mistake in India!! Nestlé India basically focused on driving the mass market and ignored the emerging affluent segment. Nestlé’s philosophy of “preference for margins over volumes” has spoiled the game. At the time when inflation ducked the consumption, the company was busy in protecting the margins instead of pushing the volumes.

Branding woes and missing wow factors . . .

Somewhere down the line, Nestlé had missed the branding equation of India. In confectioneries category, Nestlé has brands like KITKAT, Munch, BarOne, Milkybar and Eclairs mostly catering to middle class and lower middle class groups. There isn’t a top-of-mind brand from Nestlé for the elite group of India. The brands ‘Alpino’ and ‘Classic’ are not that successful, thanks to the poor marketing strategy of Nestlé – there isn’t an inspiring promotion or innovative campaigning. Today in India, brands like ‘Cadbury Dairy Milk’ are giving Nestlé a run for its money in almost all income segments – one can get Dairy Milk for five rupees and 150 rupees as well!!

In the case of Rs 2,200 crore[3] instant noodles market, Nestlé still rules the roost with its super brand Maggi. Nevertheless, one should not forget that nearly four years ago the market share of Maggi was more than 90%, which gradually shrunk and today that value stands way below 70%, mainly because of the tough fight given by Hindustan Unilever's Knorr and ITC's Yippie.

To sum it up, the only way to leverage the increased disposable income levels of Indian consumers is through proper positioning. You lack in the branding and you are lost. Nestle could have been bit more aggressive and innovative in promoting its brands. Because in FMCG space, profits come only through volumes; and volumes in turn come from well-orchestrated marketing campaigns.

Some right moves means merry . . .

As they say, it is difficult to be safe in the safer zone. Most of the wiser companies on the planet have realized the fact that “faster they come out of their comfort zone, the better it is for the health and growth of the company”. Nestlé rightly understood the need to improve the number of categories and varieties it operates in – It is trying to get its hands dirty through variants such as wheat-flour and multigrain noodles. It is interesting to note that Maggi was able to create the waves in the Instant Noodles segment for the simple reason that Indians preferred taste over health. But future picture would be completely different. People already started embracing Oats, cereals as their break-fast. Nestlé’s decision to enter the health segment and its strategy to position Maggi Oats Noodles as a breakfast item seems to be a right move.

Rationalizing non-performing and low-margin products from its portfolio is one of the great moves from Nestlé – the company has withdrawn Nestle Eclairs, Nescafe Mild and milk sachets. But at the same time Nestlé is expected to balance the equation by improving the number of categories, especially in the affluent segments, which are insensitive to price fluctuations.

India – a different ball game !

When compared to the world economies, the categories in which Nestlé operates (instant noodles, packaged milk, chocolates) have comparatively lower penetration in India, thanks to India’s giant rural demography. Till now Nestlé’s focus has been largely on urban markets. And it’s time for NIL (Nestlé India Ltd.) to come up with some game changing ideas and diverse product portfolios, in order to drive growth in the untapped rural markets. Nestlé’s categories have huge scope for volume growth provided it takes its eyes off the margins (sustained price increases).

As far as leadership at NIL is concerned, it is surprising to note the absence of Indian CEO since 1998. India just like its traditions, languages and people is a diverse country and the ball-game here is completely different when compared to the global landscape. One can’t apply the same offshore strategies in India. You just have to customize as and when required – customization in terms of taste, size, price points, marketing, distribution and what not. Capturing Indian perspectives during the board room discussions would certainly help Nestlé to revive its fortunes in India.

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[1] http://www.nestle.com/media/facts-figures

[2] http://www.ft.com/cms/s/0/acd089da-7c2b-11e3-b514-00144feabdc0.html#axzz3Hsx2Ss6X

[3] http://articles.economictimes.indiatimes.com/2014-06-26/news/50884791_1_quaker-oats-nestle-india-maggi

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