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Last Updated : Nov 21, 2014 09:57 PM IST | Source: CNBC-TV18

Why Nestle is losing flavour in India

After enjoying decades of monopoly across different categories in the food market with it its flagship brand Maggi, dairy whiteners and coffee Nestle India seems to have lost its mojo.


Nestle India, the local unit of the world's biggest food company, is facing tough times. Not only has the company lost valuable market share to competition across key categories, volume growth is at a decade low and analysts say it's a long road back to full recovery reports CNBC-TV18s Zahra Khan.

After enjoying decades of monopoly across different categories in the food market with it its flagship brand Maggi, dairy whiteners and coffee Nestle India seems to have lost its mojo.

The company that used to enjoy double digit volume growth across categories between 2007and 2010 has been struggling with a 3.2 percent volume growth for the last three years. Moreover, volume growth for the last couple of quarters has been negative, and fallen to a meagre -1.6 percent. And market share for key brands like Maggi, and categories like dairy products, chocolates have succumbed to more aggressive competition.

Amnish Aggarwal, Sr VP - Research (FMCG), Prabhudas Lilladher says, “the important thing is that in terms of tonnage 60-70 percent of volume growth is driven by one category; Proprietary dishes, Maggi noodles. That particular category has seen significant slowdown for Nestle because of ITC's entry. going forward there is very poor visibility that Maggi would grow volumes again to 18-20 percent per annum.

Recent management commentary indicates a shift of focus from pricing to volume growth. Analysts however say, the company has been looking to spur volume growth for a year now but has been unsuccessful. So where is the company going wrong? To begin with, it has one of the lowest Advertising & Promotion (A&P) expenditures in the sector and needs to be more aggressive.

While Nestle sets aside 5-8 percent on A&P, other Fast Moving Consumer Goods (FMCG) players such as HUL, Dabur, Colgate and Gillette invest 14 percent, 13 percent, 16 percent and 20 percent in A&P respectively. Analysts also say Nestle has been cutting out products from its portfolio too soon and the company should have stayed put with launches like, Nestle Éclairs for longer, as brands take time to build.

He also adds, "What they need to do is focus on their existing large brands. They need to rejuvenate their brands and launch more variants there. So once the demand in the economy starts recovering they should be able to gain from it."

There is no easy solution to Nestlé's problems. The company needs to do a lot more than just re-launch products and rationalize its portfolio. Analysts say key businesses like chocolates, dairy products and its brand- Maggi are areas that need reworking in the coming months. The company also needs to be more aggressive with launches and promotions if it wants to spur volume growth.



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First Published on Nov 21, 2014 09:50 pm
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