A tale of two companies: Britannia, Nestle draw up contrasting strategies

Topics Britannia | nestle | FMCG

Two of the country’s top food companies — Nestlé and Britannia —have taken contrasting positions. While the Bengaluru-based Britannia Industries is scaling down launches, Nestlé India has no plans to do so, saying it will continue to maintain its pace on that front.

On an average, Nestlé has been launching two products a month across categories such as chocolates and confectionary (KitKat), prepared dishes (Maggi), beverages (Nescafe) and milk-based products.

“We have brought innovations and launches into the market in the December quarter and will continue to do so across our brands,” said Suresh Narayanan, chairman and managing director (MD), Nestlé India.

Britannia’s MD Varun Berry, however, is cautious on launches, saying consumers experiment less during a slowdown. “Croissants and salty snacks, which are new launches, are in the test market phase currently. We haven’t moved beyond that because these are not probably the times to take these projects nationally,” he said in an investor call this week.

“When the economy is a little slow, consumers tend to go back to their favourite brand. That gives them more comfort and they are not as experimentative as they would be in good times,” he said.

The maker of Good Day cookies and Marie Gold biscuits has also reduced capital expenditure for FY20 by 24 per cent over the previous year to around Rs 190 crore. Last year, its capex was around Rs 250 crore.

Much of the capex for FY20, Berry said, would go into enhancing its Ranjangaon plant in Pune and the rest would be utilised to improve the back-end information technology system. The company, he said, would not add new plants for now, choosing to extract more from its existing capacities. 

Nestlé, on the other hand, plans to increase capital expenditure by 34 per cent for 2020, taking it to Rs 207 crore from Rs 155 crore in the previous year, sector experts said. The company follows a January-December accounting year.

While much of this will go into adding new lines in its existing units, Nestlé is also setting up its ninth Maggi plant in India at Sanand in Gujarat. 

This plant, coming up at an initial investment of Rs 700 crore, will be ready in the next two years and would be a “significant step” in increasing Nestle’s manufacturing footprint in the country. 

Narayanan said he remains bullish about the Indian market despite near-term challenges such as input cost pressures and weak consumer sentiment.

On Thursday, ratings agency CRISIL said it saw milk prices stabilising after back-to-back hikes that have made the commodity dearer by Rs 4-5 per litre over the past nine months.

“In FY21, milk production is expected to pick up, given the abundant water in reservoirs and the expectation of a normal monsoon. That should arrest any further rise in milk procurement and retail prices,” the ratings agency said.

Wheat prices have also been falling over the last one month, data from the National Commodity Exchange shows, after rising consistently between April and December 2019. It now stands at Rs 2,200 per quintal, down 6.6 per cent from last month.

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