right road, wrong path! - sixth...
TRANSCRIPT
Nestle India
Right Road, Wrong Path!
Nikhil VoraSSKI Securities
(M) +91 –9821132471(Dir) [email protected]
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Nestle SA… Good Food, Good Life
Nestle SA – the largest foods player in the world, today CHF91bn business
Nestle SA – the largest foods player in the world, today CHF91bn business
Nescafe – world’s largest selling instant coffee brand - 3000 cups consumed every
second
Nescafe – world’s largest selling instant coffee brand - 3000 cups consumed every
second
World’s largest play in chocolates business with brands like Kit Kat, Smarties, Crunch
World’s largest play in chocolates business with brands like Kit Kat, Smarties, Crunch
One of the leading players in the dairy products and prepared dishes business
One of the leading players in the dairy products and prepared dishes business
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Nestle India… Good Food, Good Life
Largest Foods player and fourth
largest FMCG player in India
Grown at 8.8% CAGR since 1995 -
US$500m Revenues & US$2bn Market
Value
Maggi Noodles sales in India - largest selling Instant Noodles in the
world
Maggi, Nescafe, Kit Kat consistently
featuring amongst the Top 50 Consumer Brands in India
Has been a Category Creator in segments like Prepared Dishes
Not succumbing to…
…“Emperor’s New Clothes (ENC) Syndrome!
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Nestle - Brand Strength
>
9% CAGR
Revenues (Rs bn)
9.5
14.6
22.3
0
5
10
15
20
25
CY95 CY96 CY97 CY98 CY99 CY00 CY01 CY02 CY03 CY04
Possibly India’s Strongest Brand….
…and possibly the Weakest Brand performance
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Nestle – Are we Relevant to Parent?
Nestle India underperforming Nestle in other Asian emerging
markets
Indexed Sales
80
100
120
140
160
180
141
India
155
China
151
Indonesia
CY00 CY04
167
Pakistan
Nestle India - Contributing merely 0.7% in 2004 up from 0.4% in 1992,
HLL - contributes to 4.7% to Unilever as against 1.1% in 1992
% of the parent company
0
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HLL Nestle
1992 2004
Nestle & Competition Are we Teaching or are we Learning…
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Competition Today…
Perfetti enters India in 1994, today USD130m company, while Nestlé's chocolate and confectionery business is USD80m
Frito Lays entered India in 1990, is USD160m snack foods business, Nestlé's Maggi brand(launched in early 80s) less than USD100m
ITC doubling its sales in the foods business, to be USD160m business by FY06
Even domestic players like MTR, Haldiram’s, Bikanervalas, D S Group (Catch) picking pace
Now, fourth largest FMCG player, and the gap with Dabur, Marico,Godrej, etc. narrowing rapidly
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Nestle – No Reason To Smile!
5 year CAGR (%)
8.7%
11.8%
12.5% 12.9%
14.9%15.9%
4.0%
8.0%
12.0%
16.0%
Nestle Gillette Dabur Marico ITC GCPL
* GCPL since de-merger
Risk is the necessary part of success. If you are
not scaling you are not taking enough risk…
…and thereby not succeeding
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What’s Lacking?
Are we fully leveraging our brands?
Narrowly defined space
Just sell brands, not a category
play
Need to Indianize –people, process and
business
Lack of aggression
Under investment (distribution,
visibility, capex)
Not best in responding to the dynamic market
Nestle - Chinks in the Armour?
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Nestle – Redefine the Market
Nestle –Redefine the Market
Nestle –Redefine the Market
Narrowly defined positioning - Why is Maggi just a culinary and prepared dishes brand or Kit Kat a Wafer Chocolate brand?
Narrowly defined positioning - Why is Maggi just a culinary and prepared dishes brand or Kit Kat a Wafer Chocolate brand?
Are we a category play? – While we have basket of strong brands
in every SBU, in none of the categories are we fully presentAre we a category play? – While we have basket of strong brands
in every SBU, in none of the categories are we fully present
Why are we restricting to Rs6bn market of the Rs100bn processed foods market?
Why are we restricting to Rs6bn market of the Rs100bn processed foods market?
Are we playing in scalable space? - We don’t straddle every
segment of the business, even in an impulse purchase category like chocolate and confectionery
Are we playing in scalable space? - We don’t straddle every
segment of the business, even in an impulse purchase category like chocolate and confectionery
Are we missing out the large chunk of the market? - We have limited presence in below Rs10 SKU, where 47% of the foods in
rural is sold at below Rs10, while 25% of urban spend happens below that
Are we missing out the large chunk of the market? - We have limited presence in below Rs10 SKU, where 47% of the foods in
rural is sold at below Rs10, while 25% of urban spend happens below that
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Nestle - Narrowing Opportunity?
And even here, our product portfolio and distribution is urban focused
10743423Total
1351100Branded processed Foods
200550Chocolate & Confectionery
85750Beverages
91235Health Beverages
425650Milk and Milk Products
138138Baby foods
USD MUSD M
Market that Nestle operates inTotal Market Size
“They (HLL) have to throw money with sensible products and sensible pricing to get customer hooked on - the
patience Nestle showed in 80's with Maggi is what HLL needs to show”
- SSKI Report
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Nestle - Forgetting its own Learning's?
Water - 3 years to market entry
- 2 years to exit
Withdrawal - Excelsia (Biscuits) - Butter
- Dust tea
Low Brand, Distribution and Asset Investment
Are we doing what we were known for (patience and investment)
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Nestle – Underinvesting…in Brands
…when the onus is (on us) to grow the category?
Brand investment sub industry
Ad Spend / Sales (%)
7.0
10.8
12.013.0
13.5
16.0
0.0
4.0
8.0
12.0
16.0
Nestle HLL Cadbury GSK
Consumer
Dabur Colgate
Urban focus, albeit being in impulse purchase category and having launched Rs5 Maggi.
Nestle - 1m outlets
Marico - 1.5m
Dabur - 1.7m
HLL - 2.5m
Distribution reach / Visibility
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Nestle – Underinvesting…in Assets
Asset investment Nestle has also been last to make capex in tax holiday zones, even after players like GSK (traditionally known to be docile)
2005Colgate
2006 later halfNestle
2004Marico
2004GSK Consumer
2004Godrej Consumer
2004HLL
2003Dabur
Start of operationsCompany
Capex in tax holiday zone
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Nestle – Unresponsive to Dynamic Markets
In India - Water is water – What’s so premium
about it?
While the whole market was operating in below
Rs10 price points, what prompted us to enter the
premium segment?
Nestle launched premium brand of Water - Perrierat Rs55 for 330ml,
while competition started from price point of Rs5
Rs55 for 330mlRs90 for 750ml
Erroneous Market
Entry
Rs10 per litre
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Nestle – Unresponsive to Dynamic Markets
Unlike developed markets, India is emerging and highly diversified,
one needs to think Local, be Quick, Flexible and Dynamic
And surprisingly all these errors even after 3 years of
market entry decision making process
Nestle pondering over launch of Ice Cream brand
since 2003
Indians don’t consume bottled water at home nor do they stock
In the mass segment, Nestle (Pure Life) adopted normal
grocer distribution like any other FMCG category
While rest of the players realized that opportunity was in
“On The Go” Consumption and bulk market
Erroneous Execution
Slow on Response
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“Nestle has best of the brands and good systems. But, there is no two way communication from Nestle, everything just flows from the top to the sales team. Distributor’s feedback not sought”
- Nestlé's distributor
Nestle - an Eye Opener…
“I would not like to join Nestle, as there is nothing challenging”
- Management Graduate undergoing placement process
“Nestle is a company for stability and a place to work after 35 years of age”
- Nestlé's ex-employee
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Nestle - Today
StrengthStrengthBRAND – Strong brand
equity and stable of global brands that can be
introduced
BRAND – Strong brand equity and stable of
global brands that can be introduced
OpportunityOpportunity
Rs1500bn processed foods business and only
10% branded. Upbeat consumerism and changing retail landscape
to drive the industry (25%+ growth)
Rs1500bn processed foods business and only
10% branded. Upbeat consumerism and changing retail landscape
to drive the industry (25%+ growth)
WeaknessesWeaknesses
Narrowly defined positioning and categoryLow visibility and availabilityLack of aggression & Laidback approach
Narrowly defined positioning and categoryLow visibility and availabilityLack of aggression & Laidback approach
ThreatThreat
Competition getting more aggressive in each of the segment – Frito Lays, Perfetti, ITC, Dabur, Haldirams, etc.
Competition getting more aggressive in each of the segment – Frito Lays, Perfetti, ITC, Dabur, Haldirams, etc.
Right time to capture the potential in processed foods
business
Competition this time will be unlike in 80s, Nestle needs to be
really quick and aggressive
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Growth for Nestle is not about taking on competition, but is more to do with growing
a category
Challenge…
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Nestle - Do What The Peers Did…
Redefine
GSK Consumer - Malted Beverage Business – Back To Growth pathGSK Consumer - Malted Beverage Business – Back To Growth path
Repositioning of Horlicks in 2002
Extend Entry into Choco based drink - Boost
Reach Entry into out of home consumption
Visibility Has stepped up brand spend
Indianize
Frito Lays – Snack foods – Rs8bn brandFrito Lays – Snack foods – Rs8bn brand
From salted international products to Indianisation of product portfolio – Namkeens, Chaats, Kurkures, etc.
Go Mass Launched Kurkures at Rs10 for 60gm
Penetrate Aggressively penetrated the rural market, change in distribution network to reach 5000+ population markets
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Nestle – Do What The Peers Did…
Cadbury – Chocolates & ConfectioneryCadbury – Chocolates & Confectionery
From chocolate for kids to “there is kid in every one of us” to “you don’t need excuse to eat Chocolate, and Chocolate = CDM”
“Pappu Pass ho Gaya, Kuch Meetha Ho Jaaye” –Broadening the target market to sweets consumers (Rs110bn opportunity)
Straddling every segment and every price points
Repositioning
Redefining the market
Go all out
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Basics - Brand Is The Core…
Redefine category (play in broader category)
Extend existing brands in new category
Launch new brands from global kitty
Launch India specific brands
Launch mass market brand
Aggressively penetrate markets
Institutional Sales
Out of home market
Low value SKUs
Reach
Product
Price points
Brand&
Category
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Redefine - Brand Position
“Bic has defined its business not as pens but as disposability”
“We’re not in hamburgers, we’re in fast food!” – McDonalds
Mont Blanc is not about pen, but is a exclusivity and status symbol
GUCCI conjures a vibe of exclusivity and prestige, and much more than just shoes and suits
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Kit Kat is not just Wafer Chocolate, it is Premium Chocolate
Maggi is not just Culinary & Prepared Dishes brand, Maggi = Fun food + healthy food
Extend the equity of Maggi to other fun foods items like Chips, Pastas, Vermicelli and other Indian Snack Foods and Jams
Nestle - Redefine The Brand
MAGGI – a Culinary & Noodles
brand
MAGGI Healthy and Fun
Foods brand-Chips-Pastas
-Noodles-Snack Foods
- JamsRs6bn business space
Rs50bn business space
Broaden scope from product line to target consumer / brand character
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Extend The Brand Equity
Parachute
SoapMarico - Parachute
Moved from Rs10bn category to Rs100bn business
Hair Oil Hair Care Personal care
Dabur Vatika
ITC
"If you can run one business well you can run any
business. There just needs to be a crying-out need
for you to enter the marketplace. "
- Richard Branson
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India is a sum total of 27 countries where dialect & habits change every few kms
Unlike developed markets, every category can be further subdivided in multiple segments
Every single segment and every price point has vast opportunity to offer
You cannot cater Indian market with single brand or presence in single segment
Nestle - Be A Category Player…
What Nestle should do is “Flanking”
We got one great brand in every category, make it a flagship brand and introduce brands surrounding to capture the category
For instance Nescafe for Instant Coffee – flank it by being in Malted Beverages or Munch into Snacking Foods or Kit Kat into Bakery, etc.
Nestle has got great brands in the international markets, worth being launched in India - Buitoni, Smarties, Crunch, Dreyers, etc.
Being a category player offers strategic as also operational edge
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Nestle - Be A Category Player…
ITC
ITC has presence in foods through three brands – Aashirwaad, Sunfeast and Kitchens of India
ITC is present in biscuits, branded staple, fun foods, RTE and is also present in every price points
Cadburys
Cadburys is a strong play in Chocolate and operates through its brands CDM, Perk, Gems, 5 Star
Has presence in Flavoured, crunchy crispies, wafer, milk chocolate, lozenges, exotics and is available from 50p onwards
HLLStraddles in every segment and at every price points of the personal care and home care segment (oral, skin, hair, fabric wash, personal wash, dish cleaning, etc.)
While Nestle is broadly playing in the category, it needs to straddle every segment and every price points
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Actual Statistics
17% of the FMCG sales in India happens at price point < Rs5
47% of the Foods sales in rural areas and 25% in urban areas occur at the price point < Rs10
68% of the population continues to stay in hinterland
Nestle - Go Mass (Does Never Mean Never?)
Launch mass brand specific to
India
HLL had launched Wheel (today the largest consumer brand)
Colgate has Cibaca in its kitty (not a part of parent company)
Nestle grew in China only after entering the mass segment
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Indianize – Product, Process, People
McDonalds launches Rs20 McVeg Aloo Tikki Frito Lays introduces the Namkeens and Chaats flavour Colgate penetrates rural market through Colgate Tooth powder Star got a break only after launching Indianized programmes
On the other hand…
Kellogg's corn flakes failed trying to change India habits
Marks & Spencer's has restricted scale being highly premium
General Motors & Ford introduced Mid Size Cars targeting middle class (USD22000 cars?)
Success Story
The Failures
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Indianize – Product, Process, People
Its not only about Indianized product portfolio, Indian market is unlike the developed markets
Rapidly changing dynamic & fragmented market calls for Indianisation in approach (processes & people), nimble footedness & aggression
Market is far more aggressive and Nestle will not have time to react as much as in the 80s and 90s
Need for decentralized & move away from system driven company toindividual driven co. – HLL launched Wheel b’cos it was decentralized
MNCs that have been highly successful in Indian markets (HLL, Coke, Pepsi and Cadbury) have Indianized in terms of processes, business and people
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Though amongst the earliest entrants in the Chinese markets,
Nestle was not the top brand in the fastest growing categories of – Dairy, bottled water, bottled tea
Nestle India – China Calling…
Reconciliation
Launch of spate of localized products
Launch of Kit Kat in the mass segment (40% lower)
Change in distribution – from Joint ventures to external distributors, ensuring deeper penetration
IssuesPressure of margins restricting company to scale up operations
Was operating only in the premium end –Kit Kat
Took three years to decide entry into functional waters, by then it was already a big category
Lack of market understanding – faulty distribution channel for water
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All In All…
Redefine BRAND positioningRedefine BRAND positioning
STRADDLE multiple segmentsSTRADDLE multiple segments
INVEST on market developmentINVEST on market development
INDIANIZE – products, process and peopleINDIANIZE – products, process and people
AGGRESSION – distribution, visibility, response and TARGETSAGGRESSION – distribution, visibility, response and TARGETS
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If Nestle continues the way it is…
Given,
Nestlé's satisfaction growing at just above GDP,
The narrowly defined space that it operates in,
&
Low distribution reach
Nestle at best can be US$0.8bn (Rs35bn) by 2010
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Nestle 2010, the way WE see…
To be the largest foods business player in India with presence in multiple categories and segments
Innovation, Renovation, Extension and Aggression
US$ 1.5bn (Rs70bn) business by 2010
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“The Only Easy Day Was Yesterday”
