Seeing traction in dairy, coffee biz; Q4 to be better: Nestle

While Nestle India is still reeling from the uncertainty over its Maggi noodles, Chairman & Managing Director of the company, Suresh Narayanan, is confident of regaining the growth traction and its market share.In an interview to CNBC-TV18’s Shereen Bhan, Narayanan says that the main focus is on building back trust, market share and traction in all categories. He expects better Q4 earning numbers than the last quarter. Narayanan says that the company is making progress in categories like chocolates and confectionaries, dairy and coffee business. The company will see sequentially better performance in these categories, he adds.The company plans to either re-launch some products or come out with new products in some categories, Narayanan says. Below is the verbatim transcript of Suresh Narayan‘s interview with Shereen Bhan on CNBC-TV18.Q: Let me start by asking you about where things currently stand on the Maggi turnaround story. It is back in the market, but you still have uncertainty because the matter continues to be in court. I understand that perhaps, we could be close to the final verdict because the Mysore Lab report has been submitted to the Supreme Court. How soon do you believe that that phase of uncertainty is likely to end?A: As you know, Maggi was put back into the market on November 9, 2015. I am happy to report that the feedback has been extremely positive. The consumer uptick has been very strong and in fact, as you might be aware, we have already reached the leadership position in the category. Of course, it is not as high as we were.Q: How much market share have you been able to eke out?A: We are at about 48 percent market share for the last Nielsen reports and clearly, we have now, as I speak to you, sold almost 450 million packs of Maggi in the market. We are now present in all the states of the country. We have reached almost two out of the three million outlets that we cover. We are actually now in almost all the towns – about 830 towns that we were in before, we are also now there in terms of distribution, but at the moment, we have only two of the variants, we have got masala and we have got chicken. And very soon, I hope to come out with some of the other variants that were there in the market place. As you know, there is a due diligence process that we follow post the Mumbai High Court directions of getting those variants also tested in the accredited laboratories before we put them into the market place.Q: So, what kind of broad timeline can we expect as far as those variants are concerned?A: I would really reckon that probably in the next 4-6 weeks, we will start seeing some of the variants coming into the market place.Q: Have they already been sent to the labs for testing?A: As I speak to you, the samples are actually with the laboratories and the testing process is on and I do hope that we will, in the relatively short time, hear from the laboratories on the results, post which we will come back.Q: How many variants are you hoping to launch?A: We are looking at at least two variants to come back into the market place. And as we move forward, there is a fair amount of development work that is also on in terms of new variants because the whole paradigm has changed. What we are trying to really do is to really valorise this category of noodles by also coming up with new taste experiences and that is part of the work that is currently on. So, there is feverish activity that is on in the foods group of the company. There is a lot of excitement.There is also a sense of quite achievement with humility at what we have achieved so far. And I believe that with the kind of support that we have had from the consumers has been overwhelming, so through your channel, I would like to thank every consumer for being with Maggi and for being with Nestle.Q: Let me then ask you what this could finally translate into as far as your financial performance is concerned, because if I were to look at your Q4 CY15 numbers, it was of course a weak quarter which was anticipated because of what happened with Maggi, but do you expect that sequentially, we can expect a significant pickup on the back of the relaunch of Maggi which is now going to be factored in?A: On the numbers front, as you are aware, I am currently in the closed period, so I really will not be able to share with you details of the kind of numbers that we will be presenting. However, suffice it to add that yes indeed, the numbers would be much better than what they were in the previous quarters. I have always said this that I do not have a magic wand. We have build back the trust, we have to build back the market shares, we have to build back the traction, not only into Maggi but also into the other categories of the company, that also had been affected during this period. And I am happy to state that yes, we are making progress in the other categories as well. And you will see gradually going forward a sequentially improved performance across the portfolio of the organisation.Q: Let me start by asking you to break that up for us across different categories and move away from Maggi for just a bit, because you are expecting an improvement sequentially. Our first conversation when you took over, you said that as part of this fight back plan, your endeavour is to get back to double digit kind of growth rates. As you sit here today, how far into the horizon should we expect that return?A: I am quite confident of the steps that we are taking in the other categories. One of the attributes of Nestle has been that we are blessed with fairly strong positions in some of our brands, whether it is brands like Nescafe or Kitkat, of course, Maggi, we have got Munch or any of other brands of the company, we have got a fairly strong position.Q: Which categories have you specifically seen some improvement because you have been facing trouble for instance as you have had to take price cuts in your dairy business. The coffee business is under pressure as well. So, where are you seeing that improvement coming in?A: I am seeing for example traction in the chocolates and confectionary business very clearly. I am seeing traction happening in the dairy business. I am also seeing improvements happening in the coffee and beverage business. As I speak to you, there are in fact, clear plans to either re-launch or to come up with new products in some of these categories. One of the things you had talked about earlier was the fact that Nestle has a pretty large portfolio of brands and categories and how can we selectively leverage those opportunities in India that we see today. And that is also something that we are working on fairly aggressively. And you will see traction building up.As I speak to you, anywhere between 20-25 projects are on in the company, looking at new products, restaging, re-launching, getting into new categories. So, there is a level of energy and enthusiasm getting built up in the organisation. All of it of course started with the comeback of Maggi.Q: The trend in the fast-moving consumer goods (FMCG) business now is towards premiumisation. Are you trying to say that you are trying to address perhaps a more mass market with the categories that you are either hoping to launch or re-launch?A: What I am trying to do is I am trying to do a dual game which is not just talking about affordability, and talking about popularly positioned products, but also to selectively premiumise in the categories in which I see those opportunities. I see those opportunities for example in our food category, I see that opportunity in our coffee category, I see that in our chocolates and confectionary category. So, these are categories where we will selectively premiumise and over a coming 12-18 months, you will see launches coming out where we are making those stories. This together with an increased focus on e-commerce and that is something that I had mentioned as well, the combination of geography, channel and portfolio is really what we will playing to in the coming months.Q: So, what is the impact going to be as far as this judicious mix of selective premiumisation as well as volume led growth, both on the bottomline as well as on the margins?A: One of the things that we are privileging in the strategy that I have the endorsement of the board of the company, we are privileging growth, so there is going to be a very strong focus on getting the growth engine of the company going.Q: Even if you have to sacrifice margins?A: No, obviously growth with sustained profitability is one of the core reasons why businesses continue to flourish. So, it is not that it is going to be sacrifice one for the other but if I were to look at classifying what would be the basis for looking at new opportunities, it would be where I see the size of the price, the growth vector, the sustainable growth vector improving over a period of time. If that happens, and if I see category level profitabilities which are decent or which are acceptable for me in the short to medium term, we will be working with that.Q: Give us a sense of what we should expect then as far as your EBITDA margins are concerned. Of course this has been an aberration because of what has happened as far as Maggi is concerned. But do you believe that given the strategy that you intend to roll out you could expect EBITDA margins in the 20 or 20 plus sort of range, what should we typically expect?A: All I can tell you at this stage is that fundamentally in some of our core categories we will continue to enjoy the benefits of strong profitabilities and also we are looking at opportunities of growth in those categories. There are some categories where I believe the level of investments will be fairly high. As I mentioned the last time bringing back Maggi and getting back to the leadership position in Maggi is very clearly on my mandate.Q: Which means more advertising expense so on and so forth?A: Which means I would advertise more, I would look at sharper innovations, I would look at sharper channel strategies, geography strategies and therefore greater activation and investment.Q: So, what kind of investments are we then talking about?A: You can expect that in some of these categories the levels of investments would be at least 30-40 percent higher than what we have invested in the past.Q: So, what is the kind of expectation or the target that you have set yourself as far as volume growth is concerned and since you were talking about deeper penetration as well as distribution what changes can we expect? You talked about e-commerce, you successfully did that as far as Maggi relaunch was concerned. What more can we expect on the e-commerce front as well?A: You would see leveraging these opportunities a lot more across all categories. Obviously it was a first for us when we relanuched Maggi to come with Snapdeal. As I speak to you there are active plans on for some of our other categories as well to leverage both the e-commerce opportunities.Q: Are you talking to other players or will it continue to be a relationship with Snapdeal? Your competitor is talking to Amazon as well and I mean Patanjali, I don't mean HUL.A: There is a plethora of players there. Where we try and focus on is really with players A, who have got some interest in the domain in which we are talking about and B, who have got an infrastructure that they are capable of investing in and being our partners for extended period of time and C, where there is something in it for them and something in it for me as a company.Q: What about pricing? We have seen what Patanjali has been able to do with disruptive pricing. You have been forced to cut prices in certain categories as well. Do you believe that that will be a casualty that you will be forced to cut prices across different categories to take on competition?A: Firstly I would really like to clear this misconception. I don't think we are being dictated on price cuts simply because of a player in the market. What we are looking at is what is the best value delivery that we can give to the consumer with our portfolio. So, pricing is just one of the vectors. Ultimately it is price value, that is what matters.Q: But do you believe that you can exercise that pricing power given the competitive landscape and the kind of disruption that we have seen in several of your key categories from the likes of Patanjali?A: The issue for us is ultimately the kind of brand value and the kind of utility that it offers to consumers and it believes that there is a merit in that, we can charge the price for it but ultimately it is what the consumer's pick of the brand in the basket is. Now if there is a competitor who is able to do that better than you then obviously you will have to take a call because ultimately for me as I told you growth is a key dimension of the strategy for Nestle. So, I will have to get back to them.Q: Who is worrying you more today, are you more worried about what the likes of HUL are doing or are you more concerned about what Baba Ramdev is doing at Patanjali? Who is causing more disruption in your life?A: To me personally and as a team I always believe that the paranoid survives and the question for me is not just addressing one competitor. All the competitors that you talked about are veritably strong competitors. Now the question for me is in a highly competitive environment what kind of sustainable strategies are going to work for me. So, honestly it is not any one player that I look to because I am a multiple category player in the foods and beverages segment and clearly there are players in each one of them from whom I learn. So, I learn a bit form the Levers, I learn equivalent from people like Patanjali or from ITC or from any of the other players.Q: What is the key learning from Patanjali at this point of time because that seems to be the flavour of the season. So, what is the key learning from Patanjali?A: As I always maintained I respect every competitor. So, I look at the inroads being made by competitors as really redefining the landscape in terms of how strong your offering is, how sustainable your offering is and what is the size of the pie that they are able to do as a consequence of their entry. Each of those entries are obviously in some cases going to take away share but in some cases they have actually gone to expand the size of the pie. So, it is going to be a very good kind of battleground for companies to exercise their muscles to get the consumers choice.Q: But how challenging is it also going to be for people like you because as you take on - and I am specifically talking about one competitors because as I said that Patanjali does seem to be the most aggressive at this point in time because it is a heady mix of commerce, spirituality and nationality and they are playing that card, painting the MNC companies worser than Indian home-grown brands. How do you take on that from a strategic perspective?A: To me Nestlé's history is a 104 years history in India, 150 years globally. We have been in India for 104 years, my employee strength starting from me down is entirely Indian. We have 99.7 percent of our employee strength is Indian. My partners are Indian, my suppliers are Indian, my vendors are Indian, my consumers are Indian. Now, I may have a Swiss nationality in terms of the heritage of the company but for all practical purposes I am very much a part of India.Q: But do you see this playing out as a disadvantage at least from a perception point of view and specifically as you try and address growth in the sort of volume market so to speak?A: Ultimately consumers buy brands, consumers buy propositions and if that was really the case a brand like Maggi won't get back to leadership. If the question was if consumers didn't really love brand Maggi and they attached other attributes to it to get a choice it won't come back to leadership. So, I firmly believe that so long as marketers and commercial people learn to respect the consumer the choice of brands, the offering and the sustainability of this offering I don't think there is any need to worry about other factors that might start influencing the decision making.Q: Let me ask you about the current state of affairs with the FSSAI. We do now have a new leadership at the FSSAI and I understand that they have been holding consultative meetings with industry. The essence of the regulations seem to be more now on good manufacturing practices (GMP), there have been clarifications as far as MSG is concerned which should be good news for companies like yourself. What is the current status of the relationship, is industry feeling less vulnerable because it was public knowledge, all of you went to town saying that the current regulatory environment was not conducive for business?A: The first thing I would like to say is, I think the current leadership that we have, the chairman and the CEO of FSSAI are very positive, top notch bureaucrats who I think have given a breath of fresh air into the organisation. A couple of initiatives that they have taken I believe are significant. What I would really like to note, the first one, they have got today a mobile application on food safety which they are working with food business operators in the out of home segment where Nestle has offered that we can be part of that initiative.Number two, they have said very clearly that glutamate occurs in natural form. It is found in various sources of proteins and cereals.Number three, only when you add MSG as defined and don't disclose it then here a violation of it.So, I am glad that these clarifications have been done. Incidentally this is exactly what Nestle has held all along. The plea that we have taken on the naturally occurring Glutamate, the plea that we have taken on the usage of MSG have all been exactly on the lines of what the clarification now has been.Q: Could I also ask you to clarify on the recent reports that seem to suggest that the ash content, it started with Nestle but now just about everybody and it comes in from UP FDA as well that the ash content is higher. Can you explain this to us as well?A: In Maggi I want to say categorically that we don't add any ash. There is clearly a problem and the problem that we have said and we have requested the FSSAI for support on this, is to define the standards for noodles as far as ash content is concerned. Why is it important? Because today there are standards for macaroni but macaroni is not the same as noodles. The reason is because macaroni is an extruded product. In an extruded product the level of mineral addition that you do is lower as compared to a noodle which has got a process of steaming and light frying that it goes through.Q: My understanding is and this is of course from sources that I have been speaking to that while the FSSAI can come out and put out clarifications or regulations, it finally boils down to what state regulators are doing, what the food safety officer is doing on the ground. There seems to be an issue that is creeping up with UP, this is now the nth time that companies like you have been pulled up by the UP FDA. Have you been issued a notice now, what is your likely response going to be on this issue?A: We have not received any formal notice as yet. The information that we have got is information from the media sources. I don't wish to comment on why in UP these cases are coming.Q: Have you tried to engage with either the government or the regulator in UP?A: We have definitely made our calls in terms of addressing this issue and the responsiveness has been quite positive. People at very senior levels do understand that there is some element of confusion that is taking place. The fact of the matter is that once again if a standard is defined then at least companies can take recourse. It is bit like the MSG story or a bit like the lead story. If a standard is defined I can go and say look what your measuring is different from what it should be and we take some recourse, either a recourse in terms of a correction or in terms of legal or whatever. Today I think the request has been to the FSSAI and I believe that this is being very actively considered to define the standards as far as the ash content is concerned on noodles so that these kind of unfortunate incidents don't keep again to us. Every time this happens it is a question of our trust and reputation. As I keep maintaining it, food quality and safety is central to the Nestle promise.Q: But let me go back to talk to you about what you were talking about that you have currently 25 projects that are being looked at, both from the possibility of re-launching products or introducing new products into the market. Are you also looking at sacrificing categories of products that perhaps haven't done anything for you.A. We do look at that quite systematically. So obviously it means that we would be examining parts of our portfolio, but I have a fundamental philosophy. My fundamental philosophy is you subtract one only when you add one. So bring something to the table as an offering to the consumer and then you look at what you can rationalise.Q: So what is the timeline then for these 25.  How soon do we see you bringing new products to the table.A: If you ask my team, I am probably one of the more difficult guys to work with. Because probably I would like to have them like tomorrow. I sincerely believe that that is an opportunity and that is the kind of competence that this company has got. But I am putting myself into as I always say a pragmatic realistic framework. I would really say in the next 12 to 18 months you will see these products coming out in a phase manner, because the question is not just coming out with the products but also having the capability as an organisation to digest it and to ensure that we do a great job and that's really what we are all about.Q: So that's what we can expect over the next 12 to 18 months, but if I were ask you in terms of the internal targets that you may have set yourself as far as market share in an individual categories are concerned or volume growth is concerned and again I am not asking you this about the next quarter so you don't have to worry about that. What is the expectations that you have set for the organisation.A: I am transparent in  what I say and what I share. The expectation from the organisation is clearly double-digit. I said we have to go for double-digit growth. Q: 2017-2018.A: I certainly believe that 2017-2018, my internal goal would be to track double-digit growth.Q: Back in 2017.A: Yes.Q: So you are saying calendar year 2017 back to double-digit.A: 2017, 2018 and 2019 I am saying going forward I think on average this company should be targeting double-digit growth, because if you look at the overall growth of the fast moving consumer good (FMCG) category so far it's been about 12 to 13 percent, it has been double-digit.