Nestle Local Routes to Global Presence 1

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1 Nestle Local Routes to Global Presence 1 Rahul Singh PhD Associate Professor Birla Institute of Management Technology Greater Noida, INDIA rahul.singh@bimtech.ac.in 1 This case has been written for a book in publication as an additional material.

2 Nestle began operations in India in 1912, when it started trading as The Nestle and Anglo-Swiss Condensed Milk Company (Export) Limited, importing and selling finished products in the Indian market. The ability to integrate itself with the community as a partner in progress has continued to be an intrinsic aspect of Nestle operations. In 1947, after India s independence, the Government reviewed its economic policies and emphasized the need for local production. Nestle consequently set up its first factory in 1961 in Moga, Punjab where the Government wanted Nestle to develop the milk economy. The region lacked basic infrastructure for industrialization and the supply of milk was unpredictable. Nestle persevered, remained committed in understanding the local community to build confidence, help create economic progress and earned the trust of the community. The company used its Agri-Services expertise at the grass root to educate and help the farmers in improved dairy farming methods, increasing milk yields, irrigation, scientific crop management practices and other similar aspects. Investments in Milk collection centres and fair and transparent practices encouraged confidence in the dairy business amongst the local community and Nestle was able to make its operations commercially viable. Nestle has always emphasized long term profitable and sustainable growth. Even before the economic liberalization process of the 1990 s Nestle was clear that it intended to remain in India and made regular and substantial investments. In 1967 it set up its second factory at Choladi. In the late 70 s even though changes in the laws governing multinational companies necessitated it to reduce its equity holding from 69% to 40%, and many other companies left India, Nestle continued to steadily increase capacity and continued to introduce products from its international portfolio. In 1989 it set up another new factory in 1989 at Nanjangud. With the commencement of the economic reforms in the 90s, the Indian economic scenario began to change. Integration into the global economy helped to broaden the economic and social thinking within the country. From an inward looking economy, with strong traditional values that inhibited conspicuous consumption, the focus started shifting from a savings orientation to one that encouraged consumption and better quality of life. The new generation of sophisticated consumers who were young, technology savvy and exposed to international cultures were upwardly mobile. In this liberalized environment, the lifestyles began to change. Nestle continued investing in understanding the changing trends and strengthening its consumer insights to innovate and renovate its product portfolio and began to introduce products of daily consumption such as Nestle Dahi that suited the changing lifestyles. From manufacturing just MILKMAID in 1961, Nestle was now manufacturing a large range of international brands and high quality products and continued to invest in expanding its manufacturing capacities. The portfolio now included LACTOGEN, CERELAC, NAN-PRO, NESCAFE, MAGGI, KITKAT, BAR-ONE, NESTEA, MUNCH, A+ Milk and Curd. It set up new factories at Samalkha in 1993, at Ponda in 1995, at Bicholim in 1997, at Pantanagar in 2006 and at Tahliwal in 2012.

3 By the end of the century Nestlé India had become a vibrant company that provided consumers in India with products of global standards and was acknowledged amongst India s Most Respected Companies and amongst the Top Wealth Creators of India. The Company s activities in India facilitated direct and indirect employment and provided livelihood to millions of people including farmers, suppliers of packaging materials, services and other goods. In 2012 Nestle celebrated 100 years in India. A. Helio Waszyk, Chairman and Managing Director said on the occasion It is an affirmation that our family roots in India are deep; we have grown-up with India and we are an integral part of families. What an achievement to have our earnings per share (EPS) touching 100 rupees at the time Nestle is celebrating 100 years. While India is expected to be the fourth largest economy in the world by 2020, Nestle India would target to be the fourth largest contributor in the Nestle global performance. Marketing Insight The huge and diverse Indian market was, however, a challenge. Traditional channels accounted for over 97% of retail trading that stretched across urban, semi-urban and rural markets and are not easy to manage. Effective distribution, where freshness of the product can be maintained and quality is not compromised can be tough. Extreme variations in the climate across locations and through the year can severely affect the ability to retail food products. Nestlé India has to continuously invest in training, monitoring and educating retailers in proper handling of the products. The objective was long term profitable sustainable growth and Nestle adopted a 4- pillar strategy. Its ability to develop a strategy around each of the pillars enabled it to grow its top-line and bottom-line, even as other companies in the FMCG environment appeared to be slowing down in an uncertain and challenging environment. The four priorities for the Company were Innovation and Renovation Efficient Operation Greater accessibility of Nestle products Whenever, Wherever, However. Better communication with consumers The source of marketing strategy is in three pillar tactic Product, Affordability and Branding, and three level actions. First, increase the penetration which is adding new consumers; second, increase the frequency which is swelling the personal purchase portfolio; and third, new product and business enhancement which is selling new to both same and new. Nestle s vision was to be the recognized Nutrition, Health and Wellness Company providing Good Food, Good life. Its products were constantly benchmarked on the 60:40 + concept. They had to achieve at least 60 % consumer taste preference with

4 the added plus of nutritional advantage. While bringing together taste and nutrition in the same product is not easy, Nestle leverages its extensive global network of R&D to combine its strength in the science and technology of foods with expertise in taste and texture to provide science based nutrition. Marketing strategy has adopted a product focused strategy in the value chain which is heavily supported by the market research. Slowly but consistently, PPP and the Indianisation of products started to become integral to its strategy and based on strong consumer insights it kept innovating and renovating its product portfolio. In addition, Nestle is one of the first movers in affordability of the products and it has priced its BoP market products with precise calculation. Nestle business philosophy of Creating Shared Value stated that if business is to be successful in the long run, it must consider the needs of society and the shareholders. As the Indian economy began opening up, Nestle actively supported the concept of Inclusive Growth. Research for example was beginning to reveal that as responsibilities increased with changing lifestyles, housewives wanted to reduce their time in the kitchen. They want products that can help reduce time in the kitchen, while retaining the taste, consistency and nutritional content of their cooking. The consumer insights team indicated that preparing the base/ gravy is at the heart of Indian cooking and for this, cutting and chopping of onions, tomatoes, ginger and garlic, and the slow process of roasting or 'bhunana' to get the right colour and taste takes a lot of time. Using its knowledge of culinary art in India Nestle worked closely with the R&D Centre in Singapore and developed an innovative product MAGGI Bhuna Masala (spices) that enabled the housewife to bypass the tiresome process of preparing the base/ gravy without compromising on the fresh taste, nutrition and health aspects of the cooking. Consumer research and published data also brought out the insight that the meals that a large number of consumers could afford did not provide all the relevant nutrients. Using this insight, Nestle developed and launched MAGGI MASALA-ae- Magic. Shivani Hegde, General Manager [Foods] states There is greater understanding and widespread concern today about micronutrient malnutrition in India. Finding convenient and affordable approaches to address this was a challenge and we worked on various product concepts with our Nestlé R&D. MAGGI MASALAae-MAGIC is a unique fortified taste enhancer with nutritional value and will be useful across kitchens, especially so for lower income families who are unable to afford meals that can give them balanced nutrition. Besides the requirement for affordable solutions, there is also a strong need to educate the consumer about the importance of nutrition. Having successfully developed and launched products as an affordable option that even low income families can use, it prepares now to provide nutrition education to the base of the pyramid, and will soon launch the first programme in Dharavi, in Mumbai.

5 While product innovation has been strength, Nestle has leveraged it smartly. The product positioning has been a great expertise with the company, for example Maggi responding less with the working mothers, backed by its research Nestle switched to children and home maker moms. The product line has been stretched to other culinary products on successful branding. Nestle commands a huge brand equity, its rural marketing has been tremendous in India. The recent market trends indicate that a homemade 10 cent coffee is also sold at USD 2 in the market in emerging market, such a stretched value. Somehow it delayed the launch of premium products which are offered in few markets globally. The marketing strategy involves individual strategies i.e. pricing, product development, promotion and distribution, and gets all supports of technology and research. Technology manages the micronutrient fortification without comprising the taste and research offers the right product need based on consumers habits and aspirations. So consumers get the health benefits almost without realizing. Packaging is equally important concern, sizes play a key role; and if that means that at some point company should not sell a large pack size, that s executed with immediate effect. Amidst several achievements and milestones, most significant one is the immense trust that consumers, business partners and the communities have shown. Nestle India has been recognized amongst the top wealth creators and the most trusted companies. It has now also been rated amongst the best companies to work for and amongst Fortune India s most admired companies. Business standard has declared it STAR MNC, for the second time in three years. Over the last four years, Nestle CAGR (compounded annual growth rate) has been growing at 17.7%, ITC at 18.8%, Britannia 15.3% and HUL (Hindustan Unilever Ltd) at 13%. The award that took the least time to be decided was the STAR MNC of the year and everyone agreed the best part of Nestle was its ability to localize brands said CMD Antonio Helio Waszyk of India s largest food company.