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Nestle – Local Routes to Global Presence

Technical Report · August 2014

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 Nestle – Local Routes to Global Presence1

Rahul Singh PhD

Associate Professor
Birla Institute of Management Technology
Greater Noida, INDIA

rahul.singh@bimtech.ac.in

1
This case has been written for a book in publication as an additional material.
Nestle began operations in India in 1912, when it started trading as The Nestle and
Anglo-Swiss Condensed Milk Company (Export) Limited, importing and selling
finished products in the Indian market. The ability to integrate itself with the
community as a partner in progress has continued to be an intrinsic aspect of Nestle
operations. In 1947, after India’s independence, the Government reviewed its
economic policies and emphasized the need for local production. Nestle
consequently set up its first factory in 1961 in Moga, Punjab where the Government
wanted Nestle to develop the milk economy. The region lacked basic infrastructure
for industrialization and the supply of milk was unpredictable. Nestle persevered,
remained committed in understanding the local community to build confidence,
help create economic progress and earned the trust of the community. The
company used its Agri-Services expertise at the ‘grass root’ to educate and help the
farmers in improved dairy farming methods, increasing milk yields, irrigation,
scientific crop management practices and other similar aspects. Investments in Milk
collection centres and fair and transparent practices encouraged confidence in the
dairy business amongst the local community and Nestle was able to make its
operations commercially viable.

Nestle has always emphasized long term profitable and sustainable growth. Even
before the economic liberalization process of the 1990’s Nestle was clear that it
intended to remain in India and made regular and substantial investments. In 1967 it
set up its second factory at Choladi. In the late 70’s even though changes in the laws
governing multinational companies necessitated it to reduce its equity holding from
69% to 40%, and many other companies left India, Nestle continued to steadily
increase capacity and continued to introduce products from its international
portfolio. In 1989 it set up another new factory in 1989 at Nanjangud.

With the commencement of the economic reforms in the 90s, the Indian economic
scenario began to change. Integration into the global economy helped to broaden
the economic and social thinking within the country. From an inward looking
economy, with strong traditional values that inhibited conspicuous consumption,
the focus started shifting from a savings orientation to one that encouraged
consumption and better quality of life. The new generation of sophisticated
consumers who were young, technology savvy and exposed to international cultures
were upwardly mobile. In this liberalized environment, the lifestyles began to
change. Nestle continued investing in understanding the changing trends and
strengthening its consumer insights to innovate and renovate its product portfolio
and began to introduce products of daily consumption such as Nestle Dahi that
suited the changing lifestyles. From manufacturing just MILKMAID in 1961, Nestle
was now manufacturing a large range of international brands and high quality
products and continued to invest in expanding its manufacturing capacities. The
portfolio now included LACTOGEN, CERELAC, NAN-PRO, NESCAFE, MAGGI, KITKAT,
BAR-ONE, NESTEA, MUNCH, A+ Milk and Curd. It set up new factories at Samalkha
in 1993, at Ponda in 1995 , at Bicholim in 1997, at Pantanagar in 2006 and at
Tahliwal in 2012 .
By the end of the century Nestlé India had become a vibrant company that provided
consumers in India with products of global standards and was acknowledged
amongst India’s “Most Respected Companies” and amongst the “Top Wealth
Creators of India”. The Company’s activities in India facilitated direct and indirect
employment and provided livelihood to millions of people including farmers,
suppliers of packaging materials, services and other goods. In 2012 Nestle
celebrated 100 years in India. A. Helio Waszyk, Chairman and Managing Director
said on the occasion “It is an affirmation that our ‘family roots’ in India are deep; we
have grown-up with India and we are an integral part of families. What an
achievement to have our earnings per share (EPS) touching 100 rupees at the time
Nestle is celebrating 100 years’. While India is expected to be the fourth largest
economy in the world by 2020, Nestle India would target to be the fourth largest
contributor in the Nestle global performance.

Marketing Insight
The huge and diverse Indian market was, however, a challenge. Traditional channels
accounted for over 97% of retail trading that stretched across urban, semi-urban
and rural markets and are not easy to manage. Effective distribution, where
freshness of the product can be maintained and quality is not compromised can be
tough. Extreme variations in the climate across locations and through the year can
severely affect the ability to retail food products. Nestlé India has to continuously
invest in training, monitoring and educating retailers in proper handling of the
products.

The objective was long term profitable sustainable growth and Nestle adopted a 4-
pillar strategy. Its ability to develop a strategy around each of the pillars enabled it
to grow its top-line and bottom-line, even as other companies in the FMCG
environment appeared to be slowing down in an uncertain and challenging
environment. The four priorities for the Company were
 Innovation and Renovation
 Efficient Operation
 Greater accessibility of Nestle products ‘Whenever, Wherever, However’.
 Better communication with consumers

The source of marketing strategy is in three pillar tactic Product, Affordability and
Branding, and three level actions. First, increase the penetration which is adding
new consumers; second, increase the frequency which is swelling the personal
purchase portfolio; and third, new product and business enhancement which is
selling new to both same and new.

Nestle’s vision was to be the recognized Nutrition, Health and Wellness Company
providing ‘Good Food, Good life’. Its products were constantly benchmarked on the
60:40 + concept. They had to achieve at least 60 % consumer taste preference with
the added ‘plus’ of nutritional advantage. While bringing together taste and
nutrition in the same product is not easy, Nestle leverages its extensive global
network of R&D to combine its strength in the science and technology of foods with
expertise in taste and texture to provide science based nutrition. Marketing strategy
has adopted a product focused strategy in the value chain which is heavily
supported by the market research. Slowly but consistently, PPP and the
Indianisation of products started to become integral to its strategy and based on
strong consumer insights it kept innovating and renovating its product portfolio. In
addition, Nestle is one of the first movers in affordability of the products and it has
priced its BoP market products with precise calculation.

Nestle business philosophy of Creating Shared Value stated that if business is to be

successful in the long run, it must consider the needs of society and the
shareholders. As the Indian economy began opening up, Nestle actively supported
the concept of ‘Inclusive Growth’.

Research for example was beginning to reveal that as responsibilities increased with
changing lifestyles, housewives wanted to reduce their time in the kitchen. They
want products that can help reduce time in the kitchen, while retaining the taste,
consistency and nutritional content of their cooking. The consumer insights team
indicated that preparing the base/ gravy is at the heart of Indian cooking and for
this, cutting and chopping of onions, tomatoes, ginger and garlic, and the slow
process of roasting or 'bhunana' to get the right colour and taste takes a lot of time.
Using its knowledge of culinary art in India Nestle worked closely with the R&D
Centre in Singapore and developed an innovative product MAGGI Bhuna Masala
(spices) that enabled the housewife to bypass the tiresome process of preparing the
base/ gravy without compromising on the fresh taste, nutrition and health aspects
of the cooking.

Consumer research and published data also brought out the insight that the meals
that a large number of consumers could afford did not provide all the relevant
nutrients. Using this insight, Nestle developed and launched MAGGI MASALA-ae-
Magic. Shivani Hegde, General Manager [Foods] states ‘There is greater
understanding and widespread concern today about micronutrient malnutrition in
India. Finding convenient and affordable approaches to address this was a challenge
and we worked on various product concepts with our Nestlé R&D. MAGGI MASALA-
ae-MAGIC is a unique fortified taste enhancer with nutritional value and will be
useful across kitchens, especially so for lower income families who are unable to
afford meals that can give them balanced nutrition’. Besides the requirement for
affordable solutions, there is also a strong need to educate the consumer about the
importance of nutrition. Having successfully developed and launched products as an
affordable option that even low income families can use, it prepares now to provide
nutrition education to the base of the pyramid, and will soon launch the first
programme in Dharavi, in Mumbai.
 While product innovation has been strength, Nestle has leveraged it smartly. The
product positioning has been a great expertise with the company, for example
Maggi responding less with the working mothers, backed by its research Nestle
switched to children and home maker moms. The product line has been stretched to
other culinary products on successful branding. Nestle commands a huge brand
equity, its rural marketing has been tremendous in India. The recent market trends
indicate that a homemade 10 cent coffee is also sold at USD 2 in the market in
emerging market, such a stretched value. Somehow it delayed the launch of
premium products which are offered in few markets globally. The marketing
strategy involves individual strategies i.e. pricing, product development, promotion
and distribution, and gets all supports of technology and research. Technology
manages the micronutrient fortification without comprising the taste and research
offers the right product need based on consumers’ habits and aspirations. So
consumers get the health benefits almost without realizing. Packaging is equally
important concern, sizes play a key role; and if that means that at some point
company should not sell a large pack size, that’s executed with immediate effect.

Amidst several achievements and milestones, most significant one is the immense
trust that consumers, business partners and the communities have shown. Nestle
India has been recognized amongst the top wealth creators and the most trusted
companies. It has now also been rated amongst the best companies to work for and
amongst Fortune India’s most admired companies. Business standard has declared it
STAR MNC, for the second time in three years. Over the last four years, Nestle CAGR
(compounded annual growth rate) has been growing at 17.7%, ITC at 18.8%,
Britannia 15.3% and HUL (Hindustan Unilever Ltd) at 13%. “The award that took the
least time to be decided was the STAR MNC of the year and everyone agreed the
best part of Nestle was its ability to localize brands’ said CMD Antonio Helio Waszyk
of India’s largest food company.

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