Nestle to keep focus on premium products

Food company Nestle India may continue taking tough calls as it keeps its eye on premium products. These observations were made by chairman Antonio Helio Waszyk and managing director Etienne Benet in the firm's recently released 2013-14 annual report.

After the culling exercise undertaken by the company last year, the statement by the two executives gains significance.

Last year, Nestle withdrew Nestle Eclairs, Nescafe Mild, and milk sachets for being low-margin and low-growth products. While Waszyk and Benet did not indicate which brands or stock-keeping units could face the axe this year, the two said it was necessary to ensure the company's product portfolio continued to evolve.

"We already have strong brands, a capable organisation, and immense trust and loyalty of our consumers. But we may need bold changes, swift adaptation, and tough decisions, especially for evolving to a product portfolio that is more focused on premium ranges," they said.

Analysts attributed Nestle's thrust on high-value products to slow volume growth in the last few quarters. Nestle's domestic net sales grew 8.2 per cent year-on-year to Rs 9,806 crore in 2014, led by price realisations. Volume growth declined 0.6 per cent year-on-year in 2014.

While Maggi, Kit Kat, Nescafe, Milkmaid, and Everyday did well for the company, analysts said challenges remain. "The year gone by has been challenging in many ways. Volatility in commodity prices, low consumer sentiment, food inflation, along with political and social turmoil, and uncertainty were some of the key concerns," Waszyk and Benet said.

In India, about 45 per cent of Nestle's revenue comes from milk products and nutrition, 30 per cent from prepared dishes and cooking aids, 13 per cent from chocolates, and the rest from beverages.

A tough market forced the company to exit the business-to-business segment, where it was supplying coffee and milk to offices.

In chocolates, a slowing of category growth and a steep increase in commodity prices have compelled Nestle to keep its focus on segments where it enjoys strong leadership.

These include the chocolate wafer biscuit category, where Munch and KitKat corner close to 63-65 per cent of the Rs 1,679-crore market.

Nestle introduced premium offerings such as KitKat Senses in dark and milk chocolate variants and a chocolate called Nestle Extra Smooth to compete with Cadbury Silk.

Analysts said the company was likely to keep Maggi out of the culling exercise and that healthful offerings in the franchise would increase.


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