Its been five years since Suresh Narayanan, Chairman and Managing Director, Nestle India, took over the Rs 12,000-crore food major. His report card speaks for itself. The company has achieved an organic CAGR growth of 11 per cent in the last five years, operating margins have increased at a CAGR of 18 per cent, and net profit has risen 36.7 per cent. "In terms of return on capital invested, we were at 31 per cent in 2016 and we closed last year at a little over 90 per cent," says Narayanan.
There is more to Narayanan's success story. Nestle is a market leader in seven out of the eight categories it operates in, its attrition rate is a mere 3.5 per cent compared to 15 per cent in 2015, and its gender diversity ratio is at 22 per cent against 11 per cent five years ago.
In August 2015, when Narayanan took over the Indian arm of the Swiss food giant, the company was at the risk of closing its century old operations. Its highest-selling brand, Maggi Noodles, was accused of feeding lead content beyond permissible levels, and the organisation was staring at an existential crisis. The Maggi crisis had crashed Nestle India's revenue in 2015 to Rs 8,175 crore from Rs 9,855 crore in 2014, while net profit dipped 53 per cent. That was not all. Narayanan also realised that the food company's market share had halved to 15 per cent in the previous four-five years, and it was perceived as being out of sync with the great Indian consumption story. Barring Maggi, the food company was struggling in every other category it was present in.
In the last two years, the company has launched 60 new products with a 70 per cent success rate. "We are innovating at a pace which is three times more than earlier," says Narayanan. The company has also announced an investment of Rs 2,600 crore, more than 90 per cent of which would go into capacity creation. Its ninth manufacturing facility at Sanand in Gujarat would be up and running in a few months from now. "It will be digitally enabled, paperless and environment friendly, and 50 per cent of the employees will be women. We will invest in the prepared dishes category, and in our coffee, chocolates and confectionary businesses through additional capacity creation," explains Narayanan.
While the second quarter of 2020 was muted for Nestle like most of its peers (the company follows a Januray-December financial year), it bounced back to its earlier growth trajectory in the third quarter. Narayanan attributes the turnaround to the resilience of his workforce. A salesman in Sikkim walked for three days, 14 km a day, to secure permission for starting distribution at the peak of the lockdown, a sales executive took stocks in his car and distributed it to local stores when the regular distribution mechanism came to a halt. "This is what people have done on their own, I haven't dictated them what to do sitting in Gurgaon," says Narayanan.
The pandemic led to structural changes in consumer behaviour and preferences, forcing the food major to redraw its strategy. With people being forced to largely stay indoors and with out-of-home food consumption no longer an option, in-home food consumption increased dramatically, and safety and hygiene concerns made consumers pick trusted brands. Nutritious and immunity building products were also in demand. All these led to Nestle India recalibrating its innovation pipeline.
The company refocussed its portfolio too. It has 400 stock-keeping units (SKUs) across categories, but it decided to produce only the top 100 SKUs that consumers needed. SKU is a unique code assigned to a product by a retail store for inventory management, flow, and sales tracking.
"We did so to simplify the technology, procurement and portfolio in order to meet peak demand. We said we will produce the rest of it when we have slack time," explains Narayanan. The company focussed on limited SKUs such as multi-packs of Maggi, 50-100 gm packs of Nescafe, 500-200 gm packs of Everyday Dairy Whitener, Milkmaid, KitKat and Munch.
Last year, the FMCG major had announced remapping India into 15 clusters on the basis of geography, psychographics and other purchasing habits. This year it has added a layer of decentralisation to it, by moving a lot of decision-making to factories and sales locations. Therefore, if a particular geography has greater demand for 500-gram packs of dairy whitener and 50 grams of Nescafe pouches, it is the local team that would decide what to produce and what not.
"We have invested a lot in analytics, empowered our business organisations with data and insights using the power of analytics. We call it the MIDAS (multi-disciplinary analytic system). This is helping us a lot in terms of granular data and in sharpening our plans. This will work only when we have decentralised decision-making. It will not work if you are sitting in Gurgaon and taking decisions for all parts of the country," says Narayanan.
The company has set up Covid crisis committees which take decisions locally. "If the number of Covid cases is going up in the North and there are 70 per cent people working in the market, the local team quickly decides to pull back 40-50 per cent staff from those areas. Similarly, in the factory if cases are going up and they have a shift of 500 people, they will cut the headcount, quarantine people, and at the same time manage output."
Like others, Nestle, too, had cut down its traditional advertising spends during the lockdown, and a lot of its focus moved to digital platforms. It reached out to consumers through its digital platforms Maggi.in and AskNestle.com, where it put out interesting recipes and health-related information. Narayanan says AskNestle, which recorded 300,000 visitors in April 2019, had 7.6 million visitors by October 2020. The company has also launched a Hindi version of the platform, which Narayanan claims got 300,000 visitors within the first one week of launch. "People's thirst for genuine knowledge, growth, nutrition and health has gone up, I feel heartened that the new digital age for the country has arrived... in some of my brands where digital media expenses used to be 10-15 per cent two years ago, they now spend half of their money on digital."
Nestle's digital-first strategy is not just limited to marketing and advertising, but encompasses all facets of its business. It has digitised its distribution and supply chain infrastructure. The company has also launched T-Hub, a digitised logistics platform to optimise the availability, despatch and resourcing of logistic movements. "During the pandemic there were blockages in certain areas and shut down in others. All that was built into the algorithm, which would come up with optimal routes that one could follow in order to make deliveries."
The food major plans to launch an app soon to enable kirana store owners order digitally.
Focus on Bharat
When Narayanan joined Nestle in the latter part of 2015, the company mainly catered to urban Indian consumers. There was not much for Tier-II and III buyers. Five years later, Nestle has seen higher growth in small towns. "For me places like Vizag, Bareilly and Gorakhpur are equally important and are not mere distribution points. In 2017, we had 9,000 distribution points, today, we are at 12,000. A year ago we were covering about 30,000-40,000 villages. Today, we are covering 90,000 villages and the vision is to take it up to 1,20,000," says Narayanan. The company has also tweaked its portfolio to stay relevant to those markets. "About two-three years ago, we had 8,000-9,000 feet on the ground, today we are closer to 11,000 people," he adds.
The past year hasn't been easy for the food major due to Covid challenges, but Narayanan is confident about the future. While the 60-year-old says that he has a limited runway in terms of his career, the Nestle board has extended his tenure by another five years.