Nestle admits to errors in India expansion push

Nestle, the world's biggest food company, has admitted to erring in India by ignoring more affluent consumers as it pursued those spending pocket change on sweets and noodles.

"We made a mistake," said Nandu Nandkishore, who heads Nestle's $98.2bn emerging markets business. "We basically focused on driving the mass market, and we really ignored a little bit the emerging affluent segment."

The maker of Magi noodles and KitKat chocolate bars, like other consumer goods companies, has been ramping up in emerging markets, which now account for 43 per cent of its total sales.

However, like its peers Nestle is now being forced to redraw its strategy in the face of depreciating local currencies, deceleration in economic growth, the impact of inflation on input costs, and rising domestic competition.

Such factors are especially punishing on cheaper mass-oriented goods, as L'Oreal, like Nestle, has discovered. The French cosmetics group last week halted sales of its mass-market Garnier brand in China.

Nestle's sales in India grew by around 20 per cent a year annually in the three years to 2011, but growth decelerated sharply to just 8 per cent in the third quarter of last year

In an interview with the Financial Times, Mr Nandkishore said that at the peak of its rapid growth in India, Nestle focused primarily on making its more mass-oriented products available to large numbers of new, cost-sensitive consumers deep in the countryside, even though demand for premium products at the upper end of the market was also exploding.

"We've realised this already," he added; "we've been working to plug that gap."

The Swiss manufacturer is now switching tack in India to cater to rapidly growing demand from more affluent Indians, whose household budgets are more immune to the country's rising inflation and faltering economy.

Nestle recently introduced its high-end Alpino chocolates to India to compete against Ferrero Rocher and the premium offerings of Cadbury.

Nestle's difficulties reflect how tough it is for large global consumer goods companies to devise a strategy for a market characterised by vast disparities between wealth and poverty.

"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," Mr Nandkishore said, in terms of price and quality.

But he said Nestle was finding the most difficulty in spurring growth in the mid-range of the market. "Rural demand is robust," he said. "Growth in (the) premium (market) is very strong - where we have felt pressure is in the middle."

Sales in India account for just 1.5 per cent of Nestle's global sales, but over the past four years, Nestle has invested Rs35bn ($569m) to increase its manufacturing capacity in the country, expanding seven existing plants and setting up one new facility.

"We are looking very much at Nestle India to be an accretive growth engine that mirrors within Nestle the place of India in the global economy," Mr Nandkishore said.

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