Nestle India’s CEO of 10 years signs off on July 31st leaving behind a company with a slowing volume growth but a lot of hope. Suresh Narayanan is confident that the company’s recent embarking on premiumization coupled with its new founds love – pet-care – will power its growth back to double digits. As of course the recent foray into wellness.
Actually in the last couple of years multinational FMCG companies have come under criticism for losing their markets and their mojo. HUL, Nestle, Britannia, Marico, Dabur, Godrej have all been posting mid-to-low single-digit volume growth. A senior brand consultant, who didn't want to be named said, "MNCs have become way too cautious, almost like public sector companies, with little stomach for risk".
Yet another observer said that entrenched FMCG companies are now trying to play the volume game by penetrating the long Indian tail — the unpenetrated far-flung rural markets, where distribution costs are high, consumers are price conscious, even as they are losing their premium customers to small regional startups like a Blue Tokai or an Araku Coffee.
Narayanan defended his ilk: "In the life cycle of a sector, there is an occasional wobble," he said speaking on Moneycontrol's Latha & The Leaders.
"Multinationals have to walk this fine line between volume, value and profitability. And this, at certain periods of time, you tend to wobble a bit. And this is the wobbling of the market that you're seeing. There is no inherent loss of direction, but there is an interregnum where things are a little bit stressed. And these are those stress moments that we have passed."
India's FMCG companies will bounce back, he said, given the compelling Indian consumption story. "I think India is still a very strong consumption story. The juice is there in this market. That's why companies are making a beeline. There are investments coming in. We ourselves have been putting in between 2020 and 2026 almost Rs 6,500 crores in investments on the ground. So, therefore we have a clear strategy and a lot of faith in the Indian market. What we see are a few blips and if you look at our track record, in the last 32 quarters, 22 quarters have been double-digit growth."
Narayanan pointed out with justifiable pride that for Nestle SA India is the largest market for Maggie noodles and second-largest for Kitkat in the world.
"So it's not that we have lost the spin there. It is that we are facing this slightly difficult situation coming out of it and I think as the future dawns it will be much better than what we have seen in the past."
So, what are the specific challenges for FMCG companies like Nestle in India? Narayanan said food inflation was Nestle's biggest challenge, ingredients like wheat and edible oils have become expensive, as have spices, sugars, cocoa and coffee beans. Rural incomes didn't grow as fast as inflation. In urban areas, high rentals squeeze consumers.
And then there is the challenge from startups – Blue Tokai, Araku, Rage have all emerged in recent years and creamed away some premium customers.
Narayanan admitted that premiumization is clearly one big vertical of growth henceforth. "Post Covid, the Indian consumer has become brand and safety conscious and is willing to pay for quality," said Narayanan.
Did the multinational FMCGs miss the premiumization bus? No, said Narayanan. It's just a more complicated vertical he said. "Premiumisation is a more difficult journey. You know selling at price point is relatively straightforward. Because the consumer gets the proposition finds a price attractive and buys. Whereas a premium product if I'm pricing it at 30, 40, 50 percent higher, it also demands a sustainable capability that is better for the company and the consumer also is that much more careful. Why should I pay 50 percent more for this milk or why should I pay 50 percent more for this noodle as compared to what I'm paying for the other one because that is good enough anyway? So the premiumisation journey takes a bit of time," he explained, sharing a masterclass in FMCG marketing.
But he was clear that the Indian consumer has now become more aspirational and hence the company's task is easier. "There is an inflexion point of the consumer journey that companies have to ride on and punt their bets on putting in premium products at that point in time; I think this is that inflexion point that has come to India that is here to stay for a while," he added.
Besides premium, Nestle will bet on pet-care in a big way he said. "I think it's a very promising sector, the whole pet food category. There are about anywhere between 30 and 40 million pets in this country growing at double digit and also the younger generation of people, the couples choose to have pets rather than to have children. That's one of the phenomenon that's also taking over. Plus, the nutrition cover for pets in this country is extremely low at the moment," he argued.
That then appears to be Narayanan's handover list to his successor Manish Tiwari — to press the pedal on premiumization, pet-care and wellness products, while continuing with a steady hand on the still strongly growing coffee and milk business. Narayanan was confident that double-digit growth is just round the corner.
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