Prior to the 2015 Maggi crisis, we would roll out two products a year. It is now two products a month. This is giving us a good 4 per cent in terms of sales growth. We are also investing behind our brands, reaching consumers across media, and taking a cluster-based distribution approach.
All this is helping us clock good growth despite an overall slowdown. We don’t see any reason why we need to change this for now.
But a category as basic as biscuits is barely growing, while processed foods from Nestlé’s portfolio is doing well. How is this happening?
At a certain level, consumers have made up their minds regarding what they want within their consumption baskets. The staples are there within their portfolio. However, there is a cap on how much they want to take of staples. At the same time, consumers have not totally abandoned seeking better-quality products that elevate their life experiences. Nestlé’s portfolio is in that realm. The consumer journey is changing and the strategy for us would be to participate in it and continue offering products that can help people improve their lifestyles. A consumption slowdown is an opportunity for engagement.
You are taking distribution into semi-urban and rural areas when other consumer goods companies are shifting their attention to urban areas because of the rural slowdown. Why are you doing this?
The proportion of sales we get from rural areas is about 20-25 per cent. This is lower than what some other companies
derive from rural areas, which is closer to 35-40 per cent of their overall sales. Having said that, it is wrong to completely assume that there is no consumption at all in rural areas. Yes, there is rural distress and rural growth rates are below that of urban growth rates. Yet, tier-II, -III and even -IV markets have been clipping well for us.
The rural consumer may not have the purchasing power like his urban counterpart but he does have an aspiration for a better life. Products that can help him get there is something that he does seek. Even if he tries one of our products at some stage that could give us an idea about what he likes or dislikes and how can we can reach him regularly.
The choice of brands will determine the individual fortunes of companies.
This is why we are expanding reach and improving distribution across India, including semi-urban and rural areas. This is giving us access, the opportunity to amplify our portfolio, and also helping us become accountable for our innovations.
Nestlé has been traditionally known for its pricing power than volume growth. With the emphasis now on volume growth, what happens to price-led growth?
There will be selective price hikes to mitigate input cost pressures. Commodity inflation has been high in milk and wheat and some of that has to be passed. There is no option there. However, between price-led growth and volume growth, we would privilege the latter. This is because you can’t let the growth engine (via volumes) to go off the track. If that happens, the long-term business model of the company could get affected. We can’t allow that. While selective price hikes will be there, some of the input cost pressures will also be mitigated through better procurement and improving efficiencies within the system.
Where do you see the consumer goods market headed? You mentioned that the choice of brands would determine the individual fortunes of companies. Isn’t that a big shift in consumption?
It is. Slowdown or no slowdown, there will be certain brands and categories that will do well. Companies will have to understand where that sweet spot for them is and what strategies have to be implemented to stay relevant to the consume there. Adversity is a great way for redefinition. Companies will have to make their brands robust, continue to innovate, and bring differentiation at a reasonable price to the consumer.