The head of Nestlé’s business in Asia has admitted the company has made mistakes in the way it has approached the India market by ignoring consumers in the country’s massive middle-class over the last decade.
Speaking to the press in Delhi this week, Nandu Nandkishore said the world’s biggest food company’s strategy to target the mass market with entry-level products like cheap noodles has resulted in it playing catch-up with the emerging affluent segment.
“We have realised this already,” Nandkishore said. “We have been working to plug that gap.”
Focus on countryside consumers
Nestlé has been increasing its focus on emerging markets, which now account for 43% of the company’s US$98.2bn of global sales. But as a result of its emphasis towards cost-sensitive, rural consumers, Nestlé is now being forced to reconsider its strategy as a result of the plummeting rupee, slowing economic growth, higher input costs and rising domestic competition.
Whereas Nestlé’s sales in India had been growing at a rate of around 20% a year over the three years to 2011, this growth had reduced to only 8% in the third-quarter of last year.
“The challenge is developing an organisation that is able to manage the extremes of going after the rural market and the affluent at the same time,” said Nandkishore.
“Rural demand is robust. Growth in [the] premium [market] is very strong—where we have felt pressure is in the middle.”
Under their nose
The executive explained away the lack of success Nestlé has been witnessing with its premium products as “fallout of the choice that we made over the last decade to focus on the mass market.
“We ignored what was under our nose, which is the huge explosion of opportunity of the upper-end of the pyramid. We have woken up and for the past two years, we have been systematically going for it.
“We have to continue to be a mass market player at the same time we have to also play a different game at the premium end. Our biggest challenge is to create an organisation that’s able to manage both the extremes within the same company.”
India’s gross domestic product growth has slowed from a peak of 9.2% in the first-quarter of 2011 to just 4.8 per cent in the second-quarter of the current financial year. At the same time, consumer prices have risen by an average of 10% each year over the last five years.
However, to maintain its appeal within India’s low-income group, Nestlé has taken a number of measures in the face of this inflation. For example, it has held the price of its Rs10 (US$0.16) noodles constant for the last 10 years—at the same time as the upper end of the market has been booming.