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“We do have local competition in coffee and noodles, and only where there is acute price competition, we have seen some loss of volume,” Suresh Narayanan, chairman and managing director at Nestle India, said during an investor meet in New Delhi on Wednesday. “But we are trying to respond fast enough, by way of tailoring our price points, to mitigate any losses.”
Nestle, however, is not considering reducing product prices at this point in time. Even though inflation in its commodity basket has eased a bit, the prices of a few key inputs, such as green coffee, cocoa, wheat and milk, are still high. Packaging costs are stable, yet uncertainties in the Middle East and their impact on oil prices remain, according to Narayanan. Nestle, he said, is focusing on bridge packs to combat persistent inflation as consumers continue to downtrade across price points and categories.
Peers at ITC Ltd. and Hindustan Unilever Ltd. have also said that competition has intensified as local players make a comeback in a deflationary environment. HUL, for instance, said it has lost some market share in its mass segment—comprising lower-priced products—due to competition.
Nestle India’s entry-level Maggi noodles are now available in packs of 7, 10, and 14. “We have to be very careful with the price points and make trade-offs between downtrading and premiumisation,” said Narayanan.
Inorganic growth opportunities remain an “area of interest” for Nestle India, said Narayanan.
“So far, we have focused on 100% organic growth. So, I think our quest for M&A continues,” he said. “But the acquisition will need to meet our criteria in terms of the right fit, capability to add value, and valuations. Our eyes and ears are open, and hopefully something will come up in the future.”
The packaged goods maker had been among the top contenders to acquire Capital Foods Pvt., the maker of Ching’s Secret and Smith & Jones. It is competing with the likes of Tata Consumer Products Ltd. and The Kraft Heinz Co., according to people with knowledge of the matter, who spoke on condition of anonymity.
In the period from 2018 to 2022, the packaged food major recorded volume growth at a CAGR of about 7% and value growth at a CAGR of 11%.
Nestle will see higher volume growth in the coming years, Narayanan said.
“In the future, I would like us to grow faster than 7%; it’s not an impossibility,” he said. “But launching products or getting into categories that are deeply dilutive to margins will not really be our focus. The company will target higher growth through infrastructure expansion.”
Nestle is expanding its reach in small towns and villages, a strategy it terms “rurban,” by more than doubling the distribution points, increasing sales teams on the ground, in-store visibility and scaling up activations at village fairs (called haats).
At the end of September, the maker of Kitkat chocolates said its distribution reach stood at 5.2 million outlets, including direct reach to about 1.6 million outlets. By 2024, it aims to grow its rural distribution reach to 1.2 lakh villages, with a population of over 20,000.
“It is only a question of sweating the assets, and we expect to see significant growth in the coming year,” said Narayanan.
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