In the second quarter of FY20, Nestle India was a clear outlier in consumer goods. While peers such as Hindustan Unilever, Britannia and others reported a tepid single-digit growth in revenues, Nestle grew revenues by 10.5 per cent and profits by 33.5 per cent.
The company has come a long way from the Maggi crisis days. The Chairman and MD, Suresh Narayanan, sounds spiritual when he says, "The Maggi crisis reinforced my belief that if you do good karma, good karma happens to you. Numerous instances during the course of the crisis would show that there was a superior hand ensuring that we found the strength to come out of it." He says the goodwill the brand had generated over decades helped it the most then.
Maggi Noodles was unceremoniously ousted from the market in May 2015 when an official of the Food Safety and Drug Administration UP declared that it contained monosodium glutamate (a taste enhancer, better known as ajinomoto) beyond accepted levels. Brand Maggi was virtually dead for six months and the crisis pushed down Nestle India's 2015 revenue to Rs 8,175 crore from Rs 9,855 crore in 2014. The net profit dipped by 53 per cent. Five out of its eight manufacturing facilities had to be shut down. Narayanan was hastily brought in as Chairman and MD in July to save the then 104-year-old company from the crisis which threatened its very existence. The 59-year-old played not just the role of a saviour and pulled Nestle India out of the crisis but also ensured that the company emerged as one of the top valuable consumer goods companies. The Rs 12,000 crore company's share prices have trebled in the last four years.
The crisis gave Narayanan a purpose - to reinvent Nestle India. While Maggi may have been the immediate reason Narayanan was given charge, the problem was more deep-rooted. The food majors market share had halved to 15 per cent over the years and it was being written off as a company that had missed out on the Indian consumption story. "Globally, we are known for 2,000 brands; we have the largest number of consumer goods brands. But our footprint in India was much less than that," says Narayanan.
To bring Nestle back on track, he reinforced the basic principles of consumer goods business: increase penetration and grow volumes. He also strengthened the innovation pipeline. "The idea was to move from a regime of having a few brands and offerings to trying to increase salience with them, because that is the way the consumer is evolving," he says. The company has launched more than 60 new products since 2016; about 4 per cent of its revenues come from these new products.
Largely perceived as a company that mostly caters to urban India, in the last few years, Nestle India has also deepened its rural penetration. According to a report by ICICI Direct, the company directly distributes to over 52,000 villages. It has 29 centres through which it serves 1,700 distributors in 8,000 urban towns. The company currently distributes to 4.6 million outlets. The aim is to reach out to six million stores in the next few years.
One of the biggest mistakes that most global consumer goods companies make in India is to follow a single strategy for the entire country. Nestle India made the same mistake. But in the last four years, Narayanan has divided Nestle's operating model into 15 clusters. "This is to look at the country from the lens of the consumer rather than geography. Earlier, geography was defining the category, the brand and, finally, you touched upon the consumer somewhere. It was painting the country with one single plan. There was a Nescafe plan, a KitKat plan or a Maggi plan and those would get disaggregated into local plans," he explains. The idea now is to be identify needs and preferences of consumers in each geography and offer solutions accordingly. After all, consumption habits of Indians change every few kilometres.
Nestles instant coffee strategy in the South, for instance, was centred around Tamil Nadu. It used the same strategy for adjoining markets such as Andhra Pradesh and Karnataka, which are also coffee consuming markets, but that didn't work. By applying the cluster strategy, it adopted a different route to market, sampling and distribution strategies which were relevant to these markets. "My strategies now are more targeted and focused and that works," says Narayanan.
Narayan says the 7,200 employees of Nestle are his greatest strength. He says through the Maggi crisis all he did was support his people. "Each person in Nestle is unique and what this crisis afforded to them was an opportunity to put their best foot forward." He says corporates don't necessarily fail because of bad strategy or infrastructure, they fail because of poor leadership, less than adequate governance and not leveraging the power of the people. Narayanan calls himself an orchestra conductor. "I know the music but I dont make a sound, my people are making the right kind of music everyday to make the company successful."