posted strong volume growth in March quarter across categories. The company has also been focusing on bolstering rural reach. Infact, in the March quarter, India became the largest market for its global chocolate brand, Kitkat.
Manish Tiwary, Chairman and Managing Director, Nestle India spoke with on a range of issues including cost pressures arising out of the West Asia conflict, category growth drivers and growing rural sailence.
Edited Excerpts :
What helped Nestle India post strong volume growth in the March quarter ?
This is not a one quarter phenomenon, we had reported strong growth even in the December quarter. Even in Q2 we did not report any disruption despite the GST transition. The government’s incentives on taxation and the GST reforms worked well as macroeconomic tailwinds and there has been strong execution by the team.
What kind of cost pressures are you facing due to the West Asia conflict ? Has that changed your strategy going forward ?
Last year, we had faced headwinds in two of our biggest commodities, which was cocoa and coffee as the prices went through the roof. That has softened now. Unfortunately, now milk prices to some extent but more importantly, the rising packaging costs due to West Asia conflict has emerged as headwinds. There are also concerns around predictions of below normal monsoons and its impact on demand.
While we are managing the cost escalations, what is more challenging is the unpredictability of it. But there is no change in our strategy. We continue to focus on volume-led growth, driving cost efficiencies and leveraging technology while putting the consumer at the centre of it. We will need to focus on the disciplined execution and continue to invest behind brands and innovations.
At the beginning of the year, we had said that bulk of the growth will be volume-led. If inflation creeps, some of it could become pricing-led…… But I still want it to be volume-led. I mean, ideally post the GST reforms and if the West Asia situation had not happened, it would have been one of those really awesome years. Now, there are some question marks. But I’m still not writing off the year as it all depends on how long the West Asia crisis lasts. We will need to watch out for Q3 especially with the West Asia and monsoon impact.
Have you begun taking price hikes ?
Almost 100 per cent of our manufacturing is done in India and 97-98 per cent of our raw materials are also sourced locally. We are seeing inflation on packaging material and utilities. Till now, we’ve absorbed it. How long can we absorb it? I’m not sure, and that’s why we have to work harder to drive cost efficiencies. But till now, we have not passed anything on.
In the new fiscal year, which of the categories will be stronger growth drivers for Nestle India ?
We have huge headroom for growth in all our categories as they have lower penetrations. In terms of our established businesses, confectionery has been one of our fastest growing categories, while coffee and prepared dishes are pretty close to it in terms of growth rates.
Kitkat has emerged as one of our fast growing brands and infact India became the largest market for Kitkat in the March quarter, ahead of the UK. Coffee category has been doing consistently well for us over the past ten years as we have been driving penetration and gaining market share.
Noodles has been picking up strong momentum over the last few quarters. All of this is volume-driven growth and gives us confidence. Even the milk and nutrition segment has done much better in the last two quarters. Meanwhile, pet food and Nestle Professional are growing much faster than the established categories as they are still small businesses.
The company has been focusing on growing rural distribution. How has that grown rural contribution to sales ?
So if you go back five years, we were largely an urban company. Then we went to smaller towns. In the last one and a half year, we started going into rural. We are strongly focused on growing our rural business.
In the last one year, we have grown our retail distributor wholesale hubs to 45,000 from 25,000.We have achieved the highest reach increase in rural regions. And now we are ensuring that each of 220,000-odd villages we go to are on tech, so that we have a better control. So the rural contribution is between 22-27 per cent for us right now but its growing much faster.
We are fortunate that from the top-end the quick-commerce piece is growing, on the other end, rural is growing, and both of them are growing much faster than the company. So I’m equally excited by both the opportunities.