At the same time, the prices of key agricultural commodities have been rising at a fast pace. Still, Nestle India has proved the prophets of doom wrong, with a 20 per cent growth in turnover in the last quarter.
Martial Rolland, chairman and managing director of Nestle India, spoke to Bhupesh Bhandari and Suvi Dogra on these issues. Excerpts:
Internationally, Nestle has an array of brands. Your portfolio in India is much smaller. Do you plan to bring your other international brands? What about pet foods?
I believe in driving big brands. It is very important to have focus in your approach towards placing new brands in a market. Just because we are present across 10-15 categories internationally doesn't mean we can roll out the products everywhere.
Also, the categories we are not active in here are very specific categories - frozen food, chilled culinary and ice-creams.
To be present in these categories, one needs structural capacities and a frozen chain or a cold chain. With the kind of power cuts we face here, it becomes unfeasible. But these I would say are interesting categories moving forward, but which are restricted right now due to infrastructure challenges.
Coming to pet food, we did introduce our brand Purina into the Indian market by way of importing it. But we needed to have a beef free product as per the norms.
Secondly, due to the bird flu scare the government cut down the imports and bringing Purina into India became a big hassle. This raised the question as to why we should bring the brand now when things are not working the way they should. So we decided to put it aside for the time being.
Will Nestle get into packaged water by the summer?
Packaged water is an interesting category and we have a presence in it worldwide. To be present in this segment in India is indeed a big question.
The packaged water market in India is pretty crowded. The business has very small margins. We need to have a model that works and is financially viable. If we were to look at the international players in the market, I would be really interested to know how they sustain the business. Is it viable?
Does that mean at current price points, the business is not viable? The entry barriers look significant.
It depends on cost structures and who is running the business. It will be difficult running a business like this with the current cost structure. Also, we need to feed the entire country and for that we need to be present everywhere across the value chain like other players. At this point, it is a difficult thing to do.
Among all your brands and products, how many are sprinters and how many are laggards?
Right now, I would qualify most of our products as sprinters except one - Milo. Otherwise all our brands have been running fairly well.
As far as Milo is concerned, it is a very successful brand internationally, but it is not necessary that it should be successful in all markets. We need to somehow ensure or work out a way to put it back on track. We are looking at the options.
We see a lot of action in packaged milk. Does the category interest you, since you have a huge presence in this sector?
We are a company that offers products with added value. We are not going to get into selling milk in plastic pouches simply because the cost of investment is huge and the realisation is not in tune.
We are not a commodity oriented company and are not looking at branded packaged commodity business because we will never be able to have the lowest cost of production, which is a must to succeed in this line.
How big is the problem of trademark infringement for you?
I think it is fairly minimal. Some people do try to pass off some brands as their own, but it still less compared to what we face internationally.
The breakfast cereal market is attracting many international players to India. Does Nestle plan to enter this segment?
We are test marketing our brand Cerevita in Bangalore. It is available in two offerings - rice with corn and mixed fruit.
Breakfast habits are very hard to break, but with the growing work culture the young consumer is being driven towards convenient breakfast options. Our cereal goes well with hot milk, something the Indian consumer likes.
What is the outlook on the cost of key inputs like milk, wheat sugar and coffee?
Input costs have been increasing and there is no reason to believe that there will be an improvement in this regard.
And this is a worldwide phenomenon wherein we are moving into an era where input costs are on the rise. In India, raw material costs will continue to challenge us.