Nestle India’s objective is clearly to accelerate volume growth
New Delhi: FMCG Major Nestle India will focus on volume growth going forward, in a market which is “still impacted by inflation”, to be in the top quartile performance, company Chairman and Managing Director Suresh Narayanan said on Monday.
The company, which will open the first boutique of its Nespresso premium range offering coffee and machines later this year in Delhi, is aiming for premium products, including those of health science, to account for 20 % of its sales in the long term.
Nestle India is also looking to increase its total touchpoints to 60 lakh across the country in the next 4-5 years, up from 51 lakh at present, Narayanan said while speaking to reporters here.
“The future of consumer goods companies will rest on their capability to penetrate more households, with more products for more occasions and usage,” he said, while stressing on the need to shore up volume.
Nestle India’s objective is clearly to accelerate volume growth, he said adding the company had “a volume growth of almost 8-9% of a total growth of 11-12 %” from 2016 to 2022.
In the quarter ended March 31, 2024, he said the company clocked “about 9% domestic sales growth. The underlying volume (growth) to that is about 4-5%”.
As part of the strategy to shore up volume growth, Narayanan said Nestle India would look at “reaching about 6 million” touch points in the next 4-5 years, up from the current 5.1 million.
“That’s when the rethink will happen whether we will need to expand further or we need to consolidate,” he said.
In terms of reach to villages, he said the company has reached 2 lakh villages currently, up from about 20,000 five years ago.
“Now we will start to stabilise because the incremental cost of distribution is to be met with incremental revenue. So, we will now focus more on depth of distribution rather than increasing the number of villages,” Narayanan said.
Commenting on the current market conditions, Narayanan said, “It is still a market that is being impacted by inflation. To that extent, there is some tendency to postpone discretionary purchases.”
While there were expectations of greater consumption during the ongoing general elections due to the hot weather conditions, he said, adding, “it might just turn out to be just another (normal) month”.
The market will be watching for a good monsoon and when the new government is formed, he added.
Asked about premium products, Narayanan said the “category is giving 12-13% of our sales. I would like to grow that number to 15-16% in the medium term and 20% in the longer term”.
Nespresso and health science products also fall in the premium products category, he added.
On Nespresso, he said, “We have a strong presence with Nescafe, Nescafe Sunrise and Nescafe Gold. Now we are going up the value chain. Nespresso will be one of the operating units of Nestle India and we hope that by the end of this year, we’ll be able to open our first boutique in Delhi and then subsequently open it in other cities as well.”
Globally, Nespresso is present in about 90 markets with almost 800 boutiques and is a deep premium coffee experience, he said.
“It has been in different forms, being presented India in some form or the other and we have decided to take the plunge,” he said, adding that the inclusion of “capsules” in the recently signed European Free Trade Agreement to bring down import duty to zero from the current 100% over the next 10-year period also favours the company’s move.
On the Nestle Health Science business, he said the recently signed joint venture with Dr Reddy’s will help it scale up volume growth through greater reach as the pharma major has a formidable presence in the segment.
“We found ourselves coming a little bit short in terms of the channel adequacy that we had to be able to tap into this large opportunity of more than Rs 23,000 crore-Rs 24,000 crore in the country,” he added.
In the JV, Dr Reddys will hold 51% stake and the rest 49% be Nestle and after a period of six years, there will be a call option to Nestle to enhance its stake from 49-60 % with a minimum of 40% being held by Dr Reddys, he added.
“That will depend on how the business evolves and how we take it forward,” Narayanan said, adding that for the moment the CEO of the JV will be appointed from Dr Reddys.
