Operating one of India’s largest food companies is no simple task, Suresh Narayanan, the chairman and managing director of Nestle India, tells just-food in an exclusive interview at his business’ headquarters, near New Delhi. The company faces an array of challenges in the market – from the recent Maggi recall, to intensifying competition, to issues like obesity and diabetes. Narayanan shares how the Switzerland-based food giant is responding in the country.
Nestle is recovering fast from the major crisis for its flagship Maggi brand of noodles, which was the subject of a nationwide recall in India in 2015.
A favourite food item for Indian children, Maggi 2 Minute Noodles were taken off retail shelves last summer for four months after reports from state government food testing laboratories detected high lead content. Nestle, which disputed the results, nevertheless destroyed hundreds of tonnes of noodles as a result.
“What happened in the case of Maggi was most unfortunate,” says Narayanan. “The company’s whole foundation is on food quality and safety, which was sadly questioned.”
At the time, Nestle had contested the findings of contamination within its products. However, Narayanan thanked Indian regulatory bodies, courts and consumers for allowing the company to bring back Maggi.
According to Narayanan, the situation affecting Nestle in Maggi’s case is not unique to India as “glitches and blips” in operations happen in all countries.
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Narayanan, who moved back to India moved from his position of chairman and CEO of Nestle’s business in the Philippines during the Maggi noodles crisis, will not be drawn on what – if any – changes the company made to its Indian operations as a result of the recall. Instead, he insists it is time for Nestle to move on. “The new Nestle is a resurgent and a reinvigorated Nestle. We will rather look to the future than cry over it.”
Nestle’s sales fell by 20% in the second quarter of 2015 due to the Maggi affair, dropping to INR19.34bn (US$289m) compared with INR24.19bn. But Nestle now projects its noodle sales will grow at 10% to 15% annually in the coming years, says Narayanan. “I hope that we will be able to actualise that. Today the game is for us to really try and catch up on where we were.”
The early signs are positive. Nestle’s sales in India for the quarter ending June 2016 were US$336.7m, representing growth of 17% over the previous quarter, largely due to recovering Maggi sales. And the company is targeting sustained double-digit growth moving forward.
But maintaining momentum will not be plain sailing. As with many other iconic brands, the resurgent popularity of Maggi noodles also helped boost the whole segment and attract more competing players, notes Narayanan. Coinciding with the relaunch of Maggi noodles in November 2015,local business Patanjali Ayurveda launched its Atta Noodles, for instance. Indeed, in the last decade, the Indian ready-to-make noodles segment has changed dramatically. “Ten years ago you probably had ten to 15 brands of noodles … Today if you count all the national and local brands together we are talking of upwards of 300,” he says. “The whole segment has exploded.”
That said, even if Maggi recovers, Nestle is aware a more educated consumer base will not only be looking for new tastes, but also for healthier options – something that can make processed foods vulnerable, especially Maggi noodles with their high salt or sugar content. Indian consumers also have a tradition of preferring fresh food, and growing awareness of healthy lifestyles makes this issue more pertinent.
According to Narayanan, obesity is clearly becoming an issue in India, where over 60% of the deaths are now reported to be because of non-communicable diseases. “Issues relating to heart health, obesity, lungs and respiratory infections are the main causes of deaths,” he says.
Narayanan believes Nestle is well prepared to deal with the issue as globally the company invests more than $2bn annually on its research and product technology centres. The primary purpose of these centres is to work on key food ingredients in response to demand caused by lifestyle changes and nutritional requirements, he indicates.
“Over the last couple of years, in some of our products we have made 30% to 40% reductions in the levels of salt, sodium and sugar,” Narayanan notes. “Progressively you will be seeing from Nestle products that are even healthier.”
For this reason, Narayanan says he is not perturbed by the growth in Ayurvedic products in India, drawing on traditional Indian health know-how. These practices have been integrated into food manufacturing with significant success by a relatively new Ayurvedic company Patanjali Ayurved, which is co-owned by a yoga guru Baba Ramdev. Patanjali Ayurved has gathered US$800m annual sales in food and personal care items. It claims to use traditional and pure ingredients, which has helped it to rapidly expand its distribution network, disrupting the strategies, product portfolios, and pricing of several food companies.
However, Nestle is not worried, says Narayanan. “We welcome competition because it expands the segment and also helps us to differentiate ourselves. It is good if more competitors are coming so long as they are able to expand and sustain it.”
Nestle is also present in India’s highly competitive dairy sector, which is dominated by large farmer cooperatives and their associated brands, such as Gujarat Cooperative Milk Marketing Federation’s Amul brand. These cooperatives have strong customer loyalty and an assured supply of milk.
Nestle’s strategy is to focus on value-added products, relying on nutrition and technology, such as UHT milk, dairy whiteners, chilled dairy products and milk-based nutritional products for children, says Narayanan, who helped launch Nestle chilled dairy business in India in the early 2000s. “We are not competing in the plain pouch milk segment or segments where clearly there are other people who can do a better job,” he said, “our standards of food quality and safety are fairly high.”
But Nestle still needs milk and India’s milk production is notoriously inefficient. Nestle collaborates with around 100,000 milk farmers in the states of Punjab, Haryana and Rajasthan, assisting them with cattle care and increase milk productivity.
Indeed, milk is of key importance to segments of Nestle’s businesses that are the foundation of its future growth estimates, Narayanan suggests. These include nutritional focused food lines; chocolates and confectionery; coffee and beverages; and out of-home outlets. “All these businesses clearly have got the potential for getting us the double-digit growth,” he says.
To achieve this, Nestle needs to keep refreshing its product lines. With import barriers and tariffs easing and the country’s organised retail sector growing fast, Indian consumers have access to several food products that are not even officially marketed in India.
Narayanan says Nestle plans to launch several products in India the next two years that the company sells in other countries. According to Narayanan these include cereals; coffee pod system Dolce Gusto and some pet care lines.
For Nestle globally, China, the Philippines, Indonesia, Vietnam, India, Sri Lanka and Bangladesh are the key markets for future growth, Narayanan reveals. Nestle branches in these countries have been collaborating regarding product innovation, as well as exporting and importing their products. For example, according to Narayanan, coconut milk sold by Nestle in India is imported in ready-to-sell packaging from Sri Lanka.
Meanwhile, Nestle has been raising its profile through promoting social causes and being engaged in community initiatives. It has launched a corporate campaign connected with the Maggi brand to promote breastfeeding. Called ‘Super Babies’, it has got almost 10m views online, says Narayanan.
Furthermore, Nestle is planning to launch a campaign to encourage Indian girls to make the most of education, with messages being delivered via product packaging: “With 100m to 150m packs going out [every year]…many of our consumers are urban consumers,” says Narayanan. “We are trying to focus attention on girl child education.”
The limited space on product labels is not an issue as according to Narayanan – such social messages does not restrict the impact of product information. “Instead of saying Maggi 2 Minute Noodles, we say ‘2 Minutes of Education’,” he explains. “Below that is a bowl of noodles, so you know what the product is.”