CAN NESTLE CONQUER INDIA Can Nestle, one of the worlds biggest food companies, conquer India, one

of the worlds fastest-growing emerging markets? Its certainly been trying for 100 years. The company made its debut in the country in 1912; today, it has revenues of more than Rs 7,500 crore and market capitalisation of Rs 46,000 crore. Its Maggi and Nescafe brands have achieved almost near-ubiquitous fame. Yet competition is growing fierce, and the company may soon have to rethink its strategy if it aims to thrive for another 100 years.

As its quarterly results show, revenues grew by a mere 13 percent from a year ago, the slowest pace in the past five year

As its quarterly results (announced on Wednesday) show, revenues grew by a mere 13 percent from a year ago, the slowest pace in the past five years. More worryingly, volumes (unit sales) may have also contracted over the same period, according to brokerage MF Global. In other words, the increase in revenues can be primarily attributed to a hike in prices. The company said that the product portfolio mix and distribution channel problems also affected sales growth. Among its various popular brands, Nescafes performance is likely to come under the scanner. According to December data from market research consultancy Nielsen, rival Hindustan Unilevers (HUL) brand, Bru, surpassed Nescafe in volumes to become the No 1 player in the coffee market. Nielsen pegged Brus market share at 50.2 per cent compared with Nescafes 49.2 percent. While the gap might be extremely narrow, the point to note here is that Nescafes market position is not undisputed anymore. HUL seems to have scored a few extra brownie points among consumers for roping in Bollywood stars Shahid Kapoor and Priyanka Chopra as brand ambassadors for launching Bru Exotica, an expensive international coffee range targeting the premium consumer segment, and launching Bru cafes in various parts of the country. On its part, Nestle brought in actors Deepika Padukone and Purab Kohli for their own series of ads. Who will win the coffee wars? Well soon find out. In the prepared foods segment, Maggi also seems to be encountering increasing challenges. Some experts believe Nestles over-reliance on Maggi products (sauces, instant noodles and pasta) to drive revenue growth might not be a great idea for the future since competition is getting extremely fierce in the noodles and pasta segments. This segment, which accounts for 28.5 percent of revenues, looks ripe for a strategy rethink.

In other categories, Nestle has been openly making some attempts at holding off rivals. Recently, it snapped up Pfizers infant nutrition business, which, according to many experts, is aimed at keeping out competition in that segment in India. Even in dairy products, its not been able to make much headway. Nestle is still no match for Gujarat Co-operative Milk Marketing Federation (GCMMF), owner of the highly popular Amul brand, as an Economic Times report points out. Even today, Amuls share in the Indian butter market is a whopping 85 percent, while in cheese, its 70 percent. Nestle has historically traded at 1.5 times the price-earnings multiples (which are used to evaluate whether a companys shares are expensive or cheap) applied to the BSE FMCG (fast-moving consumer goods) index. Despite the hurdles it faces on the road ahead, most analysts believe that premium is justified. As ICICI Direct notes, the premium is well-deserved backed by the consistency in its earnings, strong free cash flows, high RoEs (return on equity), and opportunity size in its business. A strategy rethink to regain volume growth might help it to exploit that opportunity.