How Nestlé India is Transforming Itself (2024)

After putting the Maggi crisis behind it, Nestlé India placed itself on a high growth path and is now on track to transform into a wholesome goods and services company

Till a few years ago, the low-profile, media-shy company had built its India business at an unremarkable pace, ensconced in the comfort of near-monopolistic market shares in key categories. But in 2015, Nestlé’s placid journey was shattered by a countrywide ban on its popular Maggi noodles, following allegations of contamination, resulting in hundreds of crores in losses. Facing an existential crisis, the top management at Vevey, Switzerland flew in Narayanan, who had steered its business during the Arab Spring crises in North Africa, to rescue the local unit. Since then, the first Indian honcho of Nestlé has steered the company through its crises and struggles, and delivered top-line growth of 10.3 per cent CAGR from Rs 8,180 crore in 2015 to Rs 14,710 crore in 2021. In the same period, net profit has risen 12.3 per cent.

That growth came through a sea change in Nestlé’s go-to-market strategy that was aimed first at handling the Maggi crisis, and thereafter to keep pace with more aggressive competitors in the market. And by the looks of it, the pace of growth appears unlikely to slow down in the future. Unlike most multinationals, Nestlé’s business strategy was focussed more on healthy margins and bottom lines than on growing its sales or widening its retail footprint beyond the large metros packed with consumers who can afford its premium offerings. Since 2016, though, it has adopted a growth-led strategy that involves frequent launches to expand its portfolio and going deeper into untapped markets. According to Abhijit Kundu, Senior Vice President at Antique Stock Broking, unlike earlier, the management is now focussed on growing sales aggressively. “The recent attempts in new product development and increasing its reach in the rural markets are a reflection of that,” he says.

Traditionally an urban-centric company, Nestlé India begun pushing the throttle on rural expansion only in late-2017. It divided the markets under 15 clusters based on consumer profile like demography, income levels, size of the market and penetration of brands. The plan was to cater to diverse consumer needs across the country with customised products and promotions. These clusters are equipped with teams that focus on the defined territories, gather consumer data, devise region-specific market strategies, and offer feedback on new product development and campaigns specific to the clusters. That is the direct opposite of the earlier approach, where uniform products and promotional campaigns for all of India were finalised in the conference rooms of Nestlé House.

Adoption of a “strong rural-focussed strategy” meant increasing distribution points, expanding its product reach to more villages, a larger on-ground sales force, and identifying micro-markets to boost sales of specific products or brands. “The infrastructure had to be built [for sustained growth]. There are some four or five things that a company needs to get right and it is not a short-term plan but may take 10-15 years,” says Narayanan.

So, first, it increased distribution points (distributors and wholesalers) from 8,800 in 2017 to 13,500 by March 2022. Second, it backed them up with additional sales force that included sales executives, beat officers and managers. According to Narayanan, in the past five years, this number has gone up by 25 per cent. Third, the management adopted a micro-market approach and went for targeted product placements in specific hamlets. In partnership with the Ministry of Electronics and Information Technology (MeitY), Nestlé is placing its products in the common service centres set up by the ministry in villages. To align its products with the consumer base, it is pushing smaller packs such as Rs 5 Maggi noodles that are specifically produced for such markets. Soon, it will also start selling prepared Maggi noodles.

Unlike earlier, the Nestlé management is now focussed on growing sales aggressively. The recent attempts in new product development and increasing rural reach are a reflection of that.

Abhijeet Kundu
Vice-President
Antique Stock Broking

A pilot project is being tested in Varanasi—which involves turning rural women into entrepreneurs who can sell its products in the remotest of areas—and will be scaled up across the country soon. It is also foraying into branded retail through a project called One Nestlé, which involves setting up Maggi points across the country—kiosks that will not only serve hot Maggi noodles and Nescafé, but will also showcase the entire Nestlé portfolio.

The scale-up has been impressive. From 1,000 villages in 2017, Nestlé now places its products directly in 70,000 villages. By the end of 2022, it aims to reach 100,000 villages. Subsequently, rural sales’ share of total domestic sales has grown to around 22 per cent from a little over 10 per cent in 2017. To keep the momentum, Nestlé has revised its targets. In 2019, it had set a target of reaching any village with a population of over 5,000—translating into some 120,000 villages out of India’s 600,000-odd hamlets. It now aims to expand to 200,000 rural habitats within the next few years. Which means, Narayanan now wants to sell his Maggi instant noodles and KitKat wafers in any village that has a population of 2,000.

The maggi crisis of 2015, the nadir in Nestlé’s 110 years in India, was a turning point in its product strategy. Not only consumers’ trust, even Nestlé’s business was at stake. It particularly hurt as the category used to contribute 30 per cent to its top line and yielded steady volume growth for years, even as offtake in other categories dwindled. To hedge against such risks, the company adopted a carpet-bombing strategy to expand its portfolio. Following Maggi’s market comeback in late 2015, Nestlé spent the next six years launching around 100 new products across segments, nearly 25 under the Maggi brand. Apart from newer variants of instant noodles and pasta, it entered the ready-to-cook Indian snacks market with products like poha and upma.

According to K.S. Narayanan, former MD of McCain Foods India, its stature among millennials played a big role in its recovery. “For most millennials, Maggi is the first thing they have cooked in their lives. So, the emotional attachment and the familiarity of the taste of Maggi masalas is unmatched,” he says.

While brand Maggi remained under the spotlight, dozens of products in beverages (Nescafé) and chocolates & confectionery (KitKat and Munch) were introduced. To improve volume and value share from these segments that contribute 26 per cent to its sales, Nestlé launched premium offerings under established brands like KitKat and Munch, and ready-to-drink items under Nescafé and Milo, which had failed in its original powder form in India. It also forayed into the breakfast cereals market with Nestlé Breakfast, which it sells in 130 countries.

According to Shubhajit Sen, Founding Partner at A Priori Consultants, a marketing strategy solutions provider, while Nestlé surely has the capability to succeed in the breakfast cereals category, the potential of the local market is questionable. “Even upmarket Indians are yet to accept breakfast cereals as their core food, limiting the scope of the market,” he says. Sen, who had been a global executive at FMCG major GSK Consumer, is optimistic about Nestlé’s prospects. “Nestlé has one of the best portfolios in the local FMCG market. With such trusted and market-leading brands, it enjoys pricing power for most of its portfolio,” he says, adding that a strategic new products portfolio would be required to achieve scale without diluting its high margins.

To keep its new products targeted and cost prudent, Nestlé’s Narayanan says the company has integrated its market expansion drives with digital technology. During the pandemic, it tied up with a handful of digital analytics start-ups like Midas, which help it take decisions based on data collected from millions of retailers and consumers. It is also working with digital start-ups like ElasticRun that help in boosting rural penetration. Such measures have not only helped it launch customised products for micro-markets but also kept costs in check while adding market share. For instance, when the market share of its hot-selling Masala-ae-Magic faced pressure in south India, Nestlé launched a different variant Masala-vin-Magic based on analytics. Similarly, its instant coffee portfolio gained market share in Andhra Pradesh after it tweaked its offering by changing the mix of coffee and chicory.

According to Krishnan Sambamoorthy, Senior Vice President of Research at Motilal Oswal Financial Services, technology is playing a key role in the growth of large MNCs like Nestlé. “In India, food habits and preferences change every few hundred kilometres. So, use of technology in fine-tuning the go-to-market strategy with the right product mix and/or SKUs (stock-keeping units) is an advantage. There is a reason why larger players continue to grow faster, even on a huge base,” he says.

Nestlé’s product launches were backed by a big advertisem*nt & promotions (A&P) push. In 2018, the share of its A&P spend against domestic sales rose to 6.9 per cent—the highest in a decade—which coincided with the launch of some 15 products under Maggi in 24 months and its foray into the breakfast cereals market with NesPlus. And in 2019, when it launched 20 products—the maximum in a year—the A&P share was 6.7 per cent.

Yet, despite the volume push and the rise in A&P spends, Nestlé has managed to keep its margins intact. In fact, its Ebitda margin has improved by over 400 basis points in the past six years to 24.3 per cent in 2021. Additionally, the thrust on new launches has boosted its top line, as nearly 5 per cent of its domestic sales (which is over 95 per cent of Nestlé India’s total sales) now comes from the products that it introduced.

For most millennials, Maggi is the first thing they have cooked in their lives. So, the emotional attachment and the familiarity of the taste of Maggi masalas is unmatched.

K.S. Narayanan
Former MD
McCAIN Foods India