Have no magic wand; emerging stronger from Maggi crisis: Nestle

With net sales for the January-March quarter standing at Rs 23 billion, Nestle India's revenue is moving in the right direction on the back of Maggi's return, said Suresh Narayanan, CMD of the company.In an exclusive interview with CNBC-TV18's Latha Venkatesh, Narayanan termed the current phase as 'dawn after a dark night' for the company and said that the company is strongly emerging out of the noodle fiasco.Narayanan is of the view that with Maggi at the epicenter, there are numerous opportunities of growth for the company in coffee, beverages, chocolates, confectionary and milk products. Nestle has in place clear strategy to accelerate growth which involves volumes growth and innovation in all categories, he added. Further, he said that pricing is not going to be the centre of Nestle's strategic competencies. However, growth and penetration plans will involve higher spending in both advertising and promotions, particularly for its marquee product Maggi, Narayanan said.Below is the transcript of Suresh Narayanan’s interview with Latha Venkatesh on CNBC-TV18.Q: First up your numbers itself - to be fair - your revenues have clearly outstripped the streets performance. Can you give us some idea of whether you can maintain this kind of a run rate Rs 23 billion kind of a run rate pro-rata in the other quarters as well?A: For us, as Nestle, it has been like the dawn after a very dark night. So, we are seeing definitely improvement in our numbers. As you can see in the last three quarters from about Rs 17.5 billion, we took it to about Rs 19.5 billion of sales. And this quarter has been about Rs 23 billion of sales. So, clearly with the coming back of Maggi and also with the revival of the other businesses, it is clearly moving in the right direction. Now, I am very much of a pragmatist. I keep saying this. I do not have a magic wand, but I can tell you in all transparency that the coming quarters will definitely be better than what you have seen.And as I have said, this is a new dawn for Nestle coming out of this crisis. I believe we are coming out stronger as an organisation and I believe that this will be, I do hope with all the efforts from the team and from the partners beyond, it will translate into good numbers for the company.Q: I am asking you about a guidance for the future quarters also because there is a lot of space to grow. Your prepared food segment that is Maggi and such like are still contributing only about 15 percent to your revenues in CY15. They used to be, at one point in time, 30 percent. So, there is a headroom to grow. Therefore, should we expect that even if not revenues, your earnings before interest, taxes, depreciation and amortisation (EBITDA) will be even better than the current quarter's growth rate?A: One thing with all due respect is that really the purpose of my conversation with you is to not to really start giving you guidances. We do not give guidances for the forthcoming quarters.Q: No, qualitative. I am not trying tie you to a number. Qualitatively, can it be a better quarter?A: I will say that and this is not only applying to brand Maggi. While Maggi has been at the epicentre of all that we have been talking about in the last couple of months, but clearly, there are other categories of the company whether it is coffee and beverages, whether it is chocolates and confectionery, whether it is milks and nutrition, these are all clearly offering a potential for growth.And one of the strategies that I had articulated was that the growth will be across categories. It will not just be uni-dimensional on Maggi. So yes, there is a headroom to grow certainly on Maggi. We are back to leadership, as you are aware, but I think there is a long road ahead. So I do not sit complacent and neither is my organisation complacent with what we have achieved. We are humbly satisfied with where we have come. But I believe there is a long road ahead, not only for Maggi, but also there are numerous opportunities in some of the other segments as well which indeed. As you might have noticed, in the last couple of months, we have come out with new offerings as well, whether it is for example, Nestle a+ Greek yoghurts, whether it Nescafe Premium Insta-filter, whether it is KitKat Duo or Munch Nuts, there are new offerings and I can assure you that there is a lot of work on, on coming up with new offerings in the next 12-18 months.Q: I am coming to your milk and confectionery products in a minute. But before the specific products, just one more word on the overall numbers, financials. You have come back very nicely on margins, EBITDA margins are back to that plus 20 level: 23-24 percent. Is there still room to grow or will competitive pressures put a lid on margins at current levels.A: One of the clear strategies that I had articulated on behalf of the Nestle organisation was that growth will be privileged. So, clearly we have a strategy of accelerating growth and it is fair to see that with the changing India, with new exciting and emerging urban classes that we are having there is clearly an opportunity to accelerate growth. And I am a great believer in the fact that penetration and growing categories involves volume growth, it involves saliencies in terms of innovation, renovation capabilities, it involves being fast, focused and flexible and I believe that as a consequence of all this, we will be privileging our growth, but however, we are also a company that delivers both on topline and on bottom line. So, there will be a healthy mix of the two.Q: So, the Rs 23 billion number is going to be more important than the Rs 5 billion number which is you EBITDA number, but both are going to be important. It is only a priority issue. With that let me come to a strategy you will use even in terms of pricing and advertising. Maggi, so many people’s favourite, even in my newsroom. The product price has been cut. So, what is the strategy there? What kind of a volume are you preparing for? What is the strategy behind this price cut?A: Fundamentally, our offerings especially the masala was on the same price that we had had it at the time when it was taken off the market. So, there has been no dramatic change in that. In atta, of course, we have come in at keener price point. Now, what is important to us as an organisation is the quality of the offering and the value of the offering.And I believe that price is not the strategy that is going to be at the centre of the Nestle competencies. I believe that as a nutrition, health and wellness company, we have a lot of other forces at play, be it in terms of market segmentation, be it in terms of existing categories, more offerings. You know as a company, we have a global cache of over 2,000 brands and therefore, an enormous opportunity to play and leverage on those offerings rather than purely having a tactical price play which after a point in time will not translate into augmented growth because the consumer will stop seeing value in the brand. It is one vector of the marketing dimension that we have, but it is not the only dimension.Q: Again, it is not just me, a lot of people have been very surprised by your extraordinary margin performance and especially, the sharp decline in other expenses. Would we now see pressure because of higher advertising? This place has become so competitive, so what kind of an advertising scale up can you share with us?A: That is a very good question. I believe that a growth strategy and a penetration strategy will clearly involve a significant uplift, not only in competencies in execution, but also definitely in competencies as far as advertising spends are concerned. Now, clearly Maggi to take one example is a brand that has come back, but it has got a long way to grow.So clearly, on brand Maggi, there will be acceleration in terms of the monies that we put behind advertising and sales promotion. In all the other categories where I am looking at new product launches, re-launches, re-stages, again, there will be, quite clearly, extra resources that will be put behind accelerating trials and accelerating the saliencies of those brands as we move forward.So overall terms, you can see a far more aggressive, a far more accelerated pace of advertising and promotions from the company.Q: You wouldn’t want to share a number or a percentage on your A&M spends?A: Well, I mention for example for brand Maggi it will be anywhere up to 30-40 percent increase definitely in what we spend. Of course other categories would depend on what is the kind of competitive intensity and what is the size of the ambition that we have as an organisation.Q: Actually you start with a bit of a disadvantage because I can see that your chocolate and confectionary numbers revenues are actually down ticking a bit, they are plateauing at, say about, 12 million or thereabouts, 12 million became 11.5 million or thereabouts. I heard you say that you are coming up with better products there Kit Kat Duo, Munch Nuts all that, so will you be able to turn the corner over there. Over there you have clearly plateaued lower, so will you be able to increase revenues over there, any targets you are working with and over there will there be more advertising firepower?A: Again I think the doors of pragmatism in me tell you that look there is no magic wand in these categories. Quite clearly the offerings, the introductions that we do today will become hopefully the oak trees of tomorrow therefore there is a lot of building that it involves. We will be seeding these products either on a regional basis or on a national basis. We will be supporting them and we will be looking at building up the next vectors of growth going forwards, so there will be no magic that will suddenly happen, but quite clearly the ambitions across categories are strong, are concerted and are determined and you will see those efforts translating themselves into reality going forward.Q: There are lot of cow milk and cow related products, there are IPOs also that have listed in that space. You all are doing very well in milk products as opposed to chocolates and confectionaries where perhaps there is a plateauing off. In milk products you all have been doing very well. Will that be very big growth area or even over there are you seeing plateauing?A: In the milks area honestly there is still room for growth and it is an area that involves the core competency of the Nestle organisation, be it in terms of our milk sourcing, we have got one of the largest private sector sourcing of milk in the country and I think there are also value added products that we are talking about in the milks category, so I will chose the domain in which to play. It will not be the simply because milk is a large category therefore we come up with a huge blend of us of launches. We will segment those categories, look at the value propositions that Nestle can offer and indeed there is work on in those and as you see going forward there will be launches in this category as well which will be a fairly interested.Q: Yes, I can imagine. Flavoured yoghurt is one of your prime products. So, why should you get into cow milk and ghee, I can see the preference that you have?A: Exactly, for example you have the Greek Yoghurt launch, obviously the concept is not just to launch another yoghurt but it is a high protein product, there is a product promise, technology to it, etc. So, that is where Nestle can play.Q: What is the capital orientation of your parent, is it that they are wanting to increase stake, is it that they want to diversify and have more Indian ownership, anything on the capital rejig that you want to share with us?A: Nothing at the moment. It will be in the realm of speculation, any kind of statement on this. At the moment the mandate that I have from the board of directors and also from the parent is very clearly get back Nestle on track and accelerate the pace of growth that we are witnessing in the country. The commitment to India, the kind of focus that we have on India continues relentlessly, we have been here for 104 years and that will not change.Q: There has been a substantial growth in the competition from the ethnic guys, the likes of Patanjali for instance, you are seeing them in ready to made foods, you are also seeing them in whole host of dairy products. How are you going to tackle this competition, will you go ethnic yourself or will you just avoid and stick to the non-ethnic products? You don't have too many ethnic products actually?A: Each organisation and I believe in the Nestle organisation we will play to our strengths. So, while I am energised by what competition is doing and what kind of offerings they have got, I will play to my strength.My strengths are around nutrition based, science based nutrition health and wellness products. If that is my core competence I will play to those. If they in some sense have got a local ethnic elements to it then it will certainly be part of that mix. However it won't be that I will react to launches simply because they happen to be by a competitor in a  particular space.I believe with all my years in business that you have to play to your strengths.Q: What about Maggi itself,  by when do you see your flagship product coming back to the pre-distressed levels?      A: I would not like to speculate. I think the run on brand Maggi has been terrific. Through your channel I would like to thank most humbly all our consumers for the kind of trust and the kind of love that they have for the brand, where else would you have a case of a brand that was declared dead that has come back and that has come back to the kind of strength that it has shown in the marketplace. I think it is because of consumers  and their love for the brand. So, we are energise by it and we would participate whole heartedly going forward. I do hope in the coming quarters we will see even greater traction. There will be more offerings as well and we will do the best that we can to serve the consumers well. Q: It is only in the thick of that controversy that we realised that India is actually an outsourcing destination for the manufacture of some of your products which is shipped abroad. What is the contribution of that export market if you please and do you see that increasing? Will you be doing more of Make in India?A: Most certainly, the fact of the matter is that Make in India has been a core part of the Nestle organisation. We have 8 factories, we have an R&D centre, my employee base is all Indian, my all consumers are Indian, my suppliers are Indian, just about every element of the eco-system that we have is Indian.Clearly there are markets which have got ethnic Indian populations or South Asian populations to whom we export our Maggi range of products, that continues.Even during the height of the storm, countries like the US, UK and Singapore and others did not find any problem with the product. So, that continues and we will be back in the game as far as those countries as well are concerned.Q: Three years down the line or five years down the line how do you see the Nestle basket, will there be many more products, will your thrust be ready to eat foods, will it be confectionaries, will it be milk, will it be beverages, what will be the comparative strength of all these pillars on which you are growing?A: Three things I do hope to see and that is a dream that I have. It is a passionate hope that I have in my heart, that we will see number one, we will definitely have many more new products and categories as far as Nestle is concerned. We will participate more strongly in the growth dimension that India seeks to offer. Number two, we will play our responsible role and even more increasing role as far as areas like quality and safety is concerned because that is again a core strength of our company and we will be playing to those strengths as well.Third part would be that I think some of the new emergent categories that are coming into the country would be areas where Nestle would play with. We have businesses in health science, we have businesses in skin health, we have businesses which are still not present in any significant manner in this country. Clearly as India grows prosperous, but as India starts having issues in terms of nutrition and in terms of health parameters Nestle is here to participate in its own humble way in ensuring that we are able to mitigate some of these. I think that is the vision that we have. This is a company that has had 104 year in India, it will be in India and it will contribute to India.