New Delhi: Nestle India Ltd is adopting a hyperlocal model for marketing and distribution that the local entity of the Swiss packaged food company believes will help increase penetration and expand reach leading to faster growth.
As part of this approach, Nestle has divided India into 15 different clusters—each considered a different market—based on food preferences of the local consumers. “There are many Indias in India. Each of them needs to be served differently," said Suresh Narayanan, chairman and managing director, Nestle India.
The company—which reported total sales of Rs10,135.11 crore for the year ended December 2017, backed by a 10.9% revenue growth in quarter ended 31 December 2017—is targeting double-digit volume growth in the coming quarters.
In the cluster approach, the company has formed a separate team—comprising 10-20 people from sales, category marketing, supply chain and trade marketing—for each of the clusters. “Product placements, distribution, marketing and promotions for each cluster would be tailor-made based on insights from the ground. This would ensure better penetration in existing markets and help us expand into adjacent markets," Narayanan said, adding that even basic marketing and promotions could be different from cluster to cluster for one particular product.
Over a period, Narayanan said, Nestle could look at launching tweaked versions of one particular product for different clusters. “It has to make commercial sense. There could be different Maggi masalas for different clusters. However, having 15 different variants of one particular product may not make commercial sense," he said, adding that the company could look at launching a new variant of a particular product if it sees the variant has the potential of contributing 3-5% to the brand’s revenue over a period of two-three years. The cluster approach also gives Nestle India the scope to expand beyond its focus 100 top towns—a value-driven strategy that the company adopted after the half-a-billion-dollar Maggi noodles crisis in 2015.
“While our focus will be on the top 100 towns, we need to expand beyond these markets to ensure sustainable growth for future. These may be smaller markets, but they will grow faster in foreseeable future," Narayanan said.
Nestle products used to reach around 5 million of India’s estimated 9 million retail outlets before the Maggi fiasco that broke on 5 June 2015. The product was off the shelves for about six months until 9 November 2015. After the crisis, its retail reach fell to around 3.5 million outlets.
The company started conceptualizing the cluster model towards the end of 2016, and adopted it fully beginning this year. Nestle’s products now reach around 4 million retail stores, out of which it reaches around 1.3 million directly.
Nestle is not the first company to take a hyperlocal approach. Back in 2016, cigarette-to-noodles maker ITC Ltd adopted a similar strategy, but more focused on differentiated products for each cluster with the aim to roll out market-specific products that are relevant to a particular town, state or community with a potential to grow it nationwide over time, Mint reported on 17 June 2016.
Nestle, which entered the pet care market in India, is planning to enter another new product segment in next 8-10 months. “It may not be a completely new business. It could be extension of an existing category. Premium coffee, category extensions in prepared dishes and snacks are among a bunch of things that are in the priority list," added the Nestle chairman. In the last couple of years, Nestle India launched about 40 products.
“This year, we have already launched three new products. We’ll bring more products. With a global portfolio of around 2,500 products, the challenge is not what to launch, but when to launch," said Narayanan