Nestle eyes rural markets, to reach 1.2 lakh villages in next 2-3 years

With a focus on the fast-growing rural market, FMCG major Nestle has plans to reach around 1.2 lakh villages with each having a population of over 5,000 over the next two-three years, supported by distribution expansion and some portfolio tweaking, its chairman and managing director Suresh Narayanan said on Friday.

To support the move, Nestle is also planning a communication thrust for messaging and advertising, which will be more rural centric.

Besides, Nestle — which is expecting a rebound in urban markets — is also evaluating Direct-to-Consumer (D2C) channels to reach its customers at their doorsteps. “The target is to reach 1,20,000 villages. That is all villages, with more than a 5,000 population is really the kind of reach that you would like to establish in the next two to three years,” Narayanan said while addressing a virtual media roundtable.

This will be done, not only through distribution expansion but relevant parts of the portfolio will be tweaked, he added.

“The work is on in terms of, renovating and innovating some products that we will be putting out in semi-urban and rural markets,” he said.

Small rural and semi-urban areas of tier II, III and IV have shown a greater resilience against the pandemic and have performed better than the big metros, which are still struggling.

According to Narayanan, a revival of the urban market is also important as a third of Nestle’s business clearly comes out of the large cities and metros, and there are signs of improvement as enterprises open up.

“So I see urban markets opening up and starting to see the signs of improvement. And I do hope and pray that nothing goes wrong and there is no second (Covid-19) wave,” he said adding, “I think, urban markets also will start to come back in the next one or two quarters.”

However, Narayanan said that it was difficult to say as to whether it would hit a double-digit growth as the pandemic is still here.  

In the short to medium term, in the last couple of quarters, the company is witnessing normalisation in sales after pantry uploading during the sever periods of the pandemic. 

Narayanan has ruled out any immediate price hike due to higher costs and said it has plans in terms of procurement and cost efficiencies to mitigate some of the commodity cost increases. 

While talking about D2C, a sales channel evaluated by several FMCG companies, Narayanan said it is an interesting space providing competitive offering over other channels.

“We are actively evaluating at the moment,” he said.

Nestle globally have about 35 billionaire brands, which sell more than a billion Swiss francs per annum and in India, it has only nine of them. 

“I think there is still a lot of runway space that we have as a company, and the D2C could be a good platform for some of these engagements,” he added.

On being asked about the pace of new launches in 2021, Narayanan said it had launched almost 80 new products in the last 4-5 years.

“As I speak, there are 40 to 50 projects which are on the anvil, on which work is being done. Even during the pandemic year, we did launch new products but the pace was not aggressive as before,” he said.

While talking about the rural reach of Nestle, Narayanan said in 2017, it was covering roughly about 1,000 odd villages in the country and in 2019, that number was almost 89,000. 

Though it has come down in 2020 because of the pandemic as it was not able to service those markets but the number of stocking points, which it has today is close to 12,000. Stocking points means distributors, small distributors and wholesale hubs.

On export, in which Nestle India is having a sluggish growth, Narayan said that it was because of the pandemic and also as markets such as Turkey, where it was getting duty benefits as a preferred nation, has been stopped and cost arbitrage is not in its favour.

“A substantial part of our export go to South Asia itself and outlook is positive. Some of the Indian ethnic products as Maggi Noodles, Masala Magic are seeing good traction in the US, Canada, Australia and other markets. We do hope that as these markets starts to open up, we would able to do a better growth in terms of exports growth,” he said.

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