Strategy remains focused on volume-led penetration growth: Nestle India CMD

At this point, two channels are growing faster for us: quick commerce and rural, says Manish Tiwary

Nestle India delivered double-digit volume growth and its highest-ever domestic sales in the January-March quarter, and the packaged foods major will continue to focus on driving volume-led penetration growth. In an exclusive interview, Manish Tiwary, chairman and managing director at Nestle India, talks to Sharleen D'Souza about focusing on innovation and pushing for higher rural reach. Edited excerpts:

 

Nestle India has delivered double-digit volume growth. How sustainable is this, especially given the high base, and what is your strategy to continue driving growth?

 

The last few quarters have been good, but we should remember that several developments over the past three quarters changed market momentum. The income tax benefits announced in the last Budget, along with the GST benefits passed on to consumers, clearly lifted demand, and that has been an important reason for the volume growth we are seeing.

 

Our strategy has always been to focus on volume-led penetration growth. In businesses such as noodles and coffee, excluding confectionery where we are not the largest player, when it is more of a share game, we are the market leaders. We help define those categories, so it is important that we keep driving penetration. For instance, the monthly penetration for noodles is around 20 per cent, compared with biscuits at about 90 per cent, so we need to make sure that the penetration grows and that volume-led penetration growth happens.

 

To achieve this, we also continued investing behind our brands. Advertising grew by more than 50 per cent in Q4 and by more than 40 per cent in Q3. One of the things we control, and which has helped us grow faster, is brand investment. This investment is built on a few pillars.

 

First, across the organisation, irrespective of function, we always keep the consumer at the centre. The consumer truth will always beat any internal opinion. Too often, companies do financial planning first and then try to fit the consumer proposition around it. I believe it should be done the other way around. 

 

Second, the level of investment we are talking about requires discipline in process and execution. Great discipline creates a compounding impact on results, and in a CPG (consumer packaged goods) business, discipline really compounds results. The team has done a fabulous job on this front.

 

Last financial year, we achieved one of our best savings ever. We did this by leveraging technology across the organisation, whether in forecasting, replenishment, sales, supply chain, or advertising. So, there was market momentum because of government action on taxation, but we also executed very well, and I am proud of how the team handled major transitions such as GST. We invested behind our brands without doing it at the cost of our shareholders. We generated the money by making ourselves more efficient, by not doing things that are not important to our consumers, and by clearly deciding what we choose not to do. Those two vectors — what we did and what the government did — resulted in the kind of growth we saw.

 

Going forward, the same two factors remain relevant. One is the macroeconomic environment, which we do not control. There is a lot of volatility in the market right now because of the Middle East conflict, inflation, weak monsoons, and fertiliser costs. If inflation rises — whether in fuel, packaging material, or commodities — and if the monsoon is weak, it becomes harder for our consumers. We therefore have to work harder to protect that value. We will continue to invest in our approach. It is difficult to forecast how long double-digit growth will continue, but I would rather focus on the things we can control. Market momentum and the macro environment are not fully in our control, but the way we run the business will not change: we will keep the consumer at the centre, use technology to optimise, and continue investing behind brands to drive volume-led penetration.

 

In the last quarter, what was the balance between price growth and volume growth?

 

We do not give a separate volume-price split. Directionally, when the year started, our view was that growth would be more volume-led than price-led.

 

There were two main reasons for this. First, two important commodities we use heavily, coffee and cocoa, were softening. But now, when we look at the environment, milk prices are rising, wheat could become a challenge, and fuel, packaging material, and logistics — that is something we have to plan for.

 

At the same time, we will always try to hold pricing as much as possible because, in a volatile situation, the consumer’s wallet gets impacted. So, our first preference would continue to be to drive our programmes in a way that we can protect pricing. However, at some point, we may have to take a price increase depending on the environment.

 

Since you are investing continuously behind your brands, should we expect advertising spends to remain high? Will that strategy continue?

 

Yes, it will continue. The challenge is that penetration in our categories is still very low. Sometimes people ask whether we should stop innovation or reduce brand spending, but that can create a virtuous circle. If you reduce innovation pace and brand investment in a slowing market, you can de-accelerate further.

 

The growth numbers in Q3 and Q4 of the last financial year reflected a lot of the benefit of scale, size, and volume growth, which is why the bottom line still looks fine despite higher advertising. The strategy of investing behind the brand remains unchanged.

 

What kind of innovation are we seeing from Nestlé India? Innovation has long been a backbone for the company. Is that something you will continue to push?

 

Absolutely. I would break innovation into two parts: communication innovation and product/process innovation.

 

On the communication side, our investment is now more than 50 per cent on digital platforms, and we have run some very unique campaigns. These include work on Maggi, the KitKat collaboration with Spotify to “break the loop” and create customised playlists, and innovation around Nescafé and the master of grocery. These are communication innovations.

 

There is also a lot of process innovation happening, which is not consumer-facing but helps us become more cost-efficient. On the product side, we are seeing activity across the business. In Purina, our faster-growing smaller business, we launched the full Friskies range at the beginning of the year, then launched the full Pro Plan range for cats, and expanded the Pro Plan dog range.

 

In confectionery, there has been a series of innovations such as new KitKat flavours, KitKat Delight in the premium range, the Munch Choco Fills range, and KitKat Duo Lemon and Lime. Similarly, in Maggi, we launched the spicy range, including garlic, cheese, pepper, and Manchurian for urban consumers. We have just relaunched Maggi Atta Noodles, and we are also bringing the biggest relaunch of Nescafé Sunrise into the market.

 

There is a lot of work happening on innovation, and for a company like ours, innovation and the right investment behind it are at the heart of what we do.

 

Can you give an idea of how much is being invested in innovation?

 

It is difficult to give a number for innovation investment because we track the share of some of these areas within our new ventures, but there are many shared costs involved, so it is hard to isolate them precisely.

 

What I can say with confidence is that the trust in the brand and the quality of the brand has been built over years. I am very happy with how our innovations are tracking. We also evaluate them using different metrics. For some, we look at ecommerce share, because the overall general trade share takes a long time to establish due to the nature of the panel. Overall, we are happy with all four big businesses and the growth we are seeing from innovations.

 

How is your channel mix changing between general trade, modern trade, ecommerce, and quick commerce?

 

At this point, two channels are growing faster for us: quick commerce and rural.

 

Quick commerce is growing well partly because of supply-side expansion, including new drugstores and new players like Minutes and Amazon Now. There is a lot of increase on the supply side, and therefore the growth is strong. We are also seeing higher-than-overall growth in rural, which is a focus channel for us.

 

As part of our overall strategy, we are focusing on both ends of the market. General trade still remains the heart of our business in terms of contribution, and there too we are seeing strong traction. So right now, all channels are positive, but quick commerce and rural are growing faster than the rest.

 

Could any one channel become dominant, or do you see stagnation after a certain point?

 

No, I do not think so. If you look at us five years ago, we were largely an urban company. Then we started moving into smaller towns, and now we are building a rural presence. Each of these channels has an important role to play for different parts of the portfolio.

 

For example, Pro Plan dog food comes in large bags, which consumers find difficult to carry home, so ecommerce plays a huge role there. Most of our premium portfolio and most of our new innovations — whether it is KitKat share bags, the Phoenix new range of gravy products, or Nescafé Roastery — do very well.

 

At the same time, rural general trade is very important for smaller packs and penetration packs. Consumers now use multiple channels. It is not as though someone shops only on ecommerce; they also use quick commerce, offline, and online. As brand owners, our job is to work with channel partners to satisfy the needs of each channel.

 

For a product like ready-to-drink Nescafé cold coffee, the out-of-home channel is very important because that is where people consume it. Every channel has a role to play. In a market like India, I continue to believe it will remain a growth market for at least the next decade. If stagnation happens, it probably means one of the ecosystem players, including us, has not done a good job.

 

Nestlé India has been pushing rural penetration. Where do you stand today, and do you see the rural-urban split changing any time soon?

 

What is important is that we are a foods company, so we want consumers to receive our products fresh and in good condition. That is why we have always believed in what I call controlled distribution. We try to use channels where we can directly control the quality and freshness of our products, because if products are allowed to flow through other systems, there could be expiry and other issues, which would be completely unacceptable for us.

 

Five years ago, we were largely urban. Then we moved into smaller cities, and now we are moving into rural markets. For me and the team, controlled distribution is very important. It is not a vanity number. It is not about saying we reach X million outlets, because I would not want my consumers to have a bad experience in a store, and in the foods business, you cannot afford that.

 

If you look at our distribution points — distributors, rural distributors, and wholesale hubs — they have moved from around 25,000 to 45,000 in the last 12 to 15 months. Think of them as spokes. We had 25,000 spokes all over the country; we now have 45,000 spokes. From there, we are pushing distribution further down. At this point, we are covering around 220,000 villages, up from more than 2,000 earlier.

 

What is exciting for me is that, using technology, I now have as good a view of freshness and product quality in rural as I do in urban markets. So the pieces are coming together: the right pack mix, the right marketing strategy, and the right route to market.

 

Going forward, I do see rural growing faster for us because penetration levels are still very low. I also see ecommerce growing faster because of the supply side. What is very important, however, is that when we speak of percentage contribution, there is a numerator and a denominator. I want the denominator to keep expanding. In other words, I do not want a situation where rural’s share rises only because urban is not growing. That does not serve any purpose. Rural should grow faster, but urban should also continue growing.

 

So I see faster growth from ecommerce, faster growth in rural, and general trade remaining the core of the market. We have focused shopper programmes to continue driving growth at the top end, while rural will be the faster-growing channel and its contribution will rise over time.

 

Where do you see your direct distribution reach by the end of FY27?

 

I would not go into a number. What is very important for me is that distribution should not become a vanity number. I am fully in favour of controlled distribution, and every store must meet a certain standard and frequency. What matters is not simply the count of outlets, but how well we serve them and how consistently we maintain quality.

 

Nestle India has delivered strong growth despite the challenges. How do you see demand panning out, and how do you think Nestlé India will handle issues that may arise in FY27?

 

Of course, there are ups and downs, and challenges will always come. But for a company like Nestlé India, I believe we will continue to flourish. We may have temporary setbacks, but given the quality of our brands, the quality of our people, and the clarity in our strategy, I would not worry beyond a certain point.

 

There are signs of slowdown being reported by Nielsen, but because the market is so complex and there is uncertainty around the Middle East situation and its downstream impact, along with monsoon uncertainty, it is hard to know the full effect. There are too many variables. However, as a company, it is not as if our categories have 100 per cent massive penetration; our job is to keep driving cost optimisation programmes.

 

Last financial year was one of our best-ever years. Despite rising commodity costs such as cocoa and coffee, we were able to protect consumers and grow volume. This year, those commodities have softened, but there is pressure on milk and wheat, and of course the side effects of the Middle East war and the monsoon have to be watched. I remain confident the team has the capability to manage this. 

 

Yes, there could be a couple of quarters of slower growth, but it would not change our strategy of volume-led growth and brand investment. I still see enough headroom to grow in a secular manner.

 

Do you have any greenfield expansion plans?

 

Yes, but a large part of our expansion is brownfield. We have just opened a new Maggi line in Sanand and a new Munch line. We also have work going on in Odisha, which is the greenfield site we are focusing on. The rest of the investment will largely be brownfield expansion.

 

Over what period are these investments planned?

 

I cannot get into numbers, but over the last two financial years, our investments have been close to Rs 2,000 crore. Given the volume demand we are seeing, I believe this investment cycle will continue. The volume growth is giving us the confidence to keep investing in infrastructure expansion and factory expansion.

 

Do you expect the current margin level to continue?

 

I cannot give a forward-looking view on margins, but the strategy behind the business will continue: volume-led growth and brand investment. You have seen that over the last three quarters, and there is no reason for us to change it.

 

We are in a growth market with a lot of headroom, and it is our job as CPG marketers and business leaders to keep investing behind the brand. I would never take a shortcut on brand investment or innovation investment, because that is at the heart of what we do.