Suresh Narayanan, Chairman & Managing Director, Nestle India Ltd, has just finished making a presentation on organised retail to over 1,000 students at the Madras Management Association’s 16th All-India Management Students’ Convention held recently here. Despite the brouhaha over modern trade and e-comm, Narayanan says that organised trade is still 8-9 per cent of overall trade. E-comm companies in the FMCG space enjoy 1-2 per cent in terms of overall contribution to sales. Brick-and-mortar retail is not going anywhere, says Narayanan in this interview, and will remain the bulwark of retail in India. “India is a market of many segments and layers,” says the Nestle Chief. Excerpts:
There is much talk of a slowdown in the context of demonetisation and GST. How has it impacted Nestle and the FMCG sector?
We did have an impact in June and that was because of the shifting behaviours as far as purchasing by the wholesale sector was concerned. Over July and August, we had done a lot of preparation as a company, both with suppliers and distributors, and our team worked hard to make the transition to GST as smooth as possible. While we had operating glitches, by and large, it has been fairly smooth into the GST regime.
Talking about the overall scenario, it is a very competitive market; I have not seen any secular shift downward, but we are not seeing the market pick up rapidly. The expectation on the monsoon and infusion of money into the economy through the Pay Commission’s adjustments and so on, are expected to improve things and I do hope that at least in the last quarter we start seeing some uptick.
In the FMCG sector there are mixed pockets, there are some segments which are holding up and some in which, post GST, the adjustments have still not been fully digested. My own sense is that it has broadly been on an even keel; no secular trend upwards or downwards. Organisations are coping with the new environment. Companies that have worked with partners have benefited as people have understood the change. Now that we are in the third month of GST, understanding, at least from our partners, is a lot better.
Nestle launched at least 40 products from its global brand portfolio, including variants of your existing brands; how have these launches been doing for you?
We launched across categories, not only looking at opportunities but also building a new platform for growth. Innovations will be a core piece of the penetrations and expansion strategy of Nestle in India.
We will review these 40-plus product launches and see which ones to put further energies into and which ones we believe have not lived up to expectations; that’s the way innovations work. We launched Maggi Atta and oats, the nutrilicious range of noodles.
There will be further launches coming up in the Maggi range and chocolates and confectionery, some of them in the coffee area.
How has growth been in the chocolates category?
Our chocolate segment is growing at a healthy clip. Our core brands are doing well and I am quite optimistic that the kind of initiatives we’ve taken will receive good response. This festival season will be a good indicator. It will be a good season for chocolates.
And is Maggi back as the market leader?
Maggi is firmly back in leadership. We are now at 61 per cent of the market; we exited the market at over 75 per cent so we are still not back to where we were. But it is a tribute to the consumer’s faith in the brand that we came back to leadership.
What are the big consumer trends you are seeing?
One is that the digital connect consumers are leveraging to make brand choices is clearly strong, and we have accelerated our digital capabilities quite a bit. We’re looking at orienting our ad and sales expenditure into the digital area.
The premiumisation space is getting more interesting, consumers are not looking at price points or purely price-related products. They are looking at better taste and value experiences. Today, the trend is towards healthier food and the ‘valourisation’ of nutrition as a key determinant of consumer choice. We earlier looked at metros as vanguards of consumer responsiveness, and demand generation and outlook; as marketers we are changing that view as there is a much broader India out there, thanks to a growing middle-class and also thanks to digital.
Organised retail and digital still remain a small part of the action for most companies. Is this true of Nestle too?
The organised trade part of it is still 8-9 per cent, that dial has not moved dramatically.
E-comm companies in the FMCG space enjoy 1-2 per cent in terms of overall contribution to sales. This has accelerated with the coming in of new players. But I still believe that this is going to be a brick-and-mortar retail environment for many years.
All the fears that e-comm would come and swamp the country and render completely irrelevant the existing retailing models are, I feel, in the realm of imagination. India is a market of many segments and layers.