Nestle India seems to be exploring options for inorganic growth opportunities even as it has aggressive capex plans of ₹5,000 crore in the next three years. In an interview with businessline, Nestle India Chairman and Managing Director Suresh Narayanan said that the company is looking at potential “candidates” as part of its inorganic growth strategy. He added that the company is looking at setting up its tenth factory, while expansion is ongoing at its Sanand factory. Excerpts :
Is Nestle looking at inorganic growth opportunities given recent speculations on the company being in the fray to acquire owner of Ching’s Secret?
While we have got very aggressive plans for capex of ₹5,000 crore in the next three years,which will be invested across categories and that might also include a new factory. In addition to that, inorganic growth has always been an interesting area for us and we continue to look at candidates and I do hope that something is consummated. It will need to be a strategic fit for company in terms of category or line of business and bring significant upside in terms of growth. It will need to be culturally compatible with Nestle and hopefully accretive to the overall profitability of the business.
In March quarter, Nestlé India delivered highest growth in a quarter in the last decade. What factors contributed to this growth ?
The growth has been predicated on a combination of volume, mix and pricing. We’ve had a volume growth of about 5 per cent. Our “Ruraban” strategy has begun to work for the company. We are seeing traction across smaller towns and in rural India just as the mega cities and metros have grown for us. Although, rural markets contribution to our sales are placed relatively lower (20 per cent), it has been a positive story as far as we are concerned.
How do you see volume growth trends in the coming months and what’s your view on inflation trends ?
In 2022, we saw quite a serious amount of inflation but today, things are a relatively calmer except for categories such as milk and coffee. Wheat prices are kind of normalising and one hopes there will be no major surge. Edible oil prices, fuel and packaging costs are fairly stable. So in overall terms, the spectre of inflation and food inflation is there, but I would say its intensity is less than before. Therefore the play in terms of penetration lead volume growth will probably start to improve, which means that over a period of time, you will see a greater volume play coming into it. And that I think is good for overall consumption.
What’s your view on rural economy recovery trends and overall macro-economic conditions ?
Keeping aside the imponderables of El Nino and what impact it may have on rural economy, I think fundamentally I’m seeing a positive traction in terms of the desire of consumers to look for quality, value and trust in the brands that they consume even in rural regions. This is fuelling the pickup in consumption momentum. Out-of-home business grew by almost 40 per cent for us last quarter. I see it as a very promising part of our growth because the number of malls that are opening or the number of offices that are seeking better modes of vending and consumption, offers growth opportunities for good quality brands. While there is the overhang of weak global growth and continuing war in Europe, I think there is a quiet positivity that is working through the consumption economy and you know India is majority a consumption economy.
How is the ₹5,000 crore capex being invested ?
About ₹1,700-2,000 crore will get invested in the next year or two. We are also exploring options for setting up our 10th factory. We have not yet fixed a location but the project is in full gear and we are assessing various geographies and supply chain competencies to be able to determine the location. The first phase of our ninth factory at Sanand has already been commissioned and work is going on for the second phase expansion and there will be a third phase and probably a fourth phase too. So Sanand, will probably be one of the biggest plants for Nestle in the next three to four years.
The company has launched nearly 110 products in the past seven years. What will be future strategy for new launches?
We will continue to look at new launches in white spaces as well as existing categories. Currently, there are 30 odd-projects in this regard that are being worked on and will be rolled out between Q2 of this year and Q2 of next year. This will increase our footprint in existing categories and also in areas of healthy snacking, healthy ageing and plant-based proteins.
How is the “Rurban” strategy playing out to grow the company’s reach in semi-urban and rural regions?
We are accelerating our sustained growth journey in RURBAN. By 2024, we hope to complete the task of increasing our coverage to 1,20,000 villages above the population of 2000.
How do you view the competition intensifying in the packaged food industry with entry of new players such as Reliance?
My simple statement is respect competition but never fear it. Competition helps in expanding the category and consumer choices and makes the existing incumbents sharper in terms of the value propositions and the kind of efficiencies that they are able to offer to consumers. Nestle, as you know, has been around for over 100 years. Our brand positions are fairly strong and so I don’t think we will be sleeping at the wheel.
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