HUL closing gap in instant coffee sales with leader Nestle

Mumbai: The gap between market leader Nestle India Ltd and No.2 Hindustan Unilever Ltd (HUL) in the instant coffee market narrowed in the quarter ended June, with Nestle’s Nescafe brand losing ground. Experts said this was because Nestle had not done enough in the cold coffee segment during the summer months when some people switch to the beverage from hot coffee.

According to data provided by market research firm A.C.Nielsen, Nestle’s share in the market by value declined from 59.3% in the quarter ended March to 52.6% in the quarter ended June, with its largest brand Nescafe’s share slipping from 31.8% to 23.6%. The company’s other coffee brand Sunrise saw its market share rise from 27.5% to 29%. The real gainer, however, was rival HUL that saw its share increase from 40.7% in the quarter ended March to 47.4% in the quarter ended June.

“The seeming drop in market share for instant coffee during April-June is due to the seasonality effect, which is much more pronounced in the markets of the North, West and East, where Nestle is the dominating market leader,” said a Nestle spokesperson.

He added that the company lost share in the April-June quarter of most years. Mint does not have data on the April-June quarters of previous years to verify this.

“However, during the rest of the year, especially during the winter months, the consumption of coffee improves sharply in the North, West and East. This benefits Nestle and our market share increases significantly,” added the spokesperson.

“We are witnessing significant upgradation from other beverages to coffee,” said Vikram Grover, category head - Beverages, HUL. “Our small pack portfolio and innovations such as Bru Cappuccino have contributed to the growth,”he added.

Experts said that Nestle lost share because it did not launch any cold coffee variants or change its advertising strategy during the summer months. “There wasn’t enough action of Nestle in the cold coffee segment this year,” said Harish Bijoor, head of Bijoor Consults, a Bangalore-based marketing consultancy. “Nescafe is consumed more in the Northern parts of India, while Bru and other local brands are more popular in Southern India. Since summer had hit the north of India hard this year, Nescafe’s sales suffered because the northern market is weather sensitive unlike south India where drinking coffee is in people’s DNA,” Bijoor said.

According to the Nestle spokesperson, the company’s decision to not focus on cold coffee was deliberate. “This year, our focus has been to promote regular consumption of coffee even during summmer months, as cold coffee is only a very small proportion of coffee consumption in India,” he added. The spokesperson said the company’s market share by value increased from 54.8% in January-July last year, to 55.4% in the same period this year.

An analyst said that Nestle could have lost market share because of HUL’s aggressive promotions for its cold coffee variants and its own focus on product categories other than coffee. “HUL launched many variants in the cold coffee segment last quarter and also introduced low priced sachets to boost sales. On the other hand, Nestle focused more on its dairy business,” said Anand Shah, an analyst with Angel Broking, a Mumbai brokerage.

However, Bijoor said that the coffee market in India is extremely volatile with market shares changing considerably every quarter. “Brand loyalty is generally dead in categories such as coffee. In categories where substitutability is common, consumers tend to move to competitor brands very easily”, he adds.