Back‘Nestle investing in India’s evolving coffee culture to double growth’
Nestlé's deputy EVP David Rennie says India's coffee market is expanding, with the company gaining market share through new launches such as ready-to-drink cold coffee and frappe mixes
PremiumNew Delhi: David Rennie, deputy executive vice-president and head of Nestlé Coffee Brands, oversees its global coffee business, including Nescafe, Nespresso and Starbucks. In an interview, Rennie said India’s coffee market is expanding with the company making market share gains on account of launches such as ready-to-drink cold coffee and frappe mixes.
Coffee cafe culture in India is transforming with more consumers now turning to speciality coffee and demanding exotic brews from companies. Edited excerpts.
Can you please elaborate on the reach of Nestlé’s coffee business?
Coffee for Nestlé is really important; it’s a strategic drive category. Last year, we sold 23 billion Swiss Francs worth of coffee, which is roughly a quarter of Nestlé’s global turnover. We have operations in all Nestle’s markets, roughly one in seven cups of coffee drunk globally, is going to be a Nescafe. One in every four cups of coffee drunk in India, is a Nescafe. In 1963, we started selling in India. Our factory in Nanjangud was opened in 1989 and we have been producing coffee in India directly since then.The vast majority of the production is made in India, with Indian coffee, for Indian consumers. We’ve announced last year, a further investment in that factory of 110 million Swiss Francs to increase the capacity of that factory by 2025. By 2025, we will have that capacity. The majority is going to be for Nescafe and Nescafe Sunrise.
While 25% of your global revenues come from coffee, it’s your smallest segment in India. Is India under-developed for the coffee business?
One way to think about how developed a category is, is to look at average cup consumption per consumer. In India today it is around 30 cups per annum.
To give you a sense of where that fits, the average for the globe is 200 cups. So, it’s a strong business for us, and it is growing incredibly quickly at double-digit.
But in terms of potential we’ve really only just begun. It is clear Indian consumers are getting a taste for coffee, they enjoy it, it’s a category generating great interest.
Where is the Indian coffee business stand vis-vis other global markets?
India is very clearly within our top 20 (coffee) markets in the globe and it’s growing very fast, moving up in the rankings every single year. We’ve been growing double-digit for many years. We’re growing in absolute size. We’re also growing market share, and have taken really strong market leadership. So it’s a combination of having the preferred brand in the market and that preferred brand driving the category.
Will coffee emerge as a larger business in India any projections?
We absolutely do see a huge growth potential. That’s why we are investing to double the size of the factory. I don’t want speculate where we’ll be in five or 10 years, but we know we’re going to need more capacity. Driven by a young population, in both rural and urban as they are really getting into understanding what coffee is about. It’s the taste of a young generation, and not just hot coffee, it’s also cold coffee. It is partially driven by coffee shops, there’s lots of cold coffee and exotic coffees. With experimentation the youth are getting into the category and it’s definitely going to grow. I think the coffee shop culture itself helps create an interest. The other thing is as a coffee-producing country, India has the ability to create more jobs and infrastructure around coffee growing. It is exciting.
Will the Starbucks association extend to India, as the cafe business is with Tata Consumer Products Ltd?
Today, Tatas have a license for the cafes and a license for some of the products. For us, it is only a matter of time and we will definitely be building our business out in time. The main focus is not so much Starbucks but Nescafe. We believe Nescafe has strong potential. This is where our main focus is.
So, the Starbucks-Nestle association could be independent of Tata in India?
Yeah. In time, everything is possible.
Will core brands continue to drive household penetration for Nestlé’s coffee business in India?
The Nescafe brand that we’ve got—we have Nescafe Classic and Nescafe Sunrise are two really strong brands. There is huge potential for both of those brands to continue to drive their household penetration. Every single year, we are increasing the number of households that have those brands. I don’t think there’s any limit to what we can do with the core and actually we are seeing a bit of an acceleration in terms of penetration of those brands over the last two or three years. Within that though, I think innovation is super important, and we are seeing lots of innovation in different formats. One of the one innovations is ready-to-drink coffee, so coffee in cans and that’s a market again with young people, particularly on-the-go, is growing incredibly quickly. You’ll see innovation into these new territories but predominantly on the core brands. For the next five years, Nescafe will continue to grow in terms of soluble, no doubt. We’re investing a lot to continue to grow it. But ready-to-drink is another platform that has huge potential in India.
India is a tea drinking nation. Do you see a bigger focus on the cold beverages?
I think they’re both are big potential. I think hot coffee consumption, especially in the winter months and cold coffee consumption particularly with no exclusivity in the summer months is a really big potential. They’re not a number of markets, that are traditional tea drinking markets, they get to know and get to love coffee over time. And I think that’s exactly the journey that India is on. You’ll find people over time develop habit for tea and coffee. Certainly what we’ve seen in many places—not like you suddenly stop drinking tea and 100% drink coffee. There’s plenty of opportunity for us to take more of the cup occasions in hot beverage by just introducing more coffee into the mix. You think of markets like Russia which was historically a very big tea drinking market, now a very big coffee drinking market; Japan, a very big tea drinking market, now, very big coffee drinking market. The UK, which was a very big tea drinking market, and just this year coffee overtook tea as the number one beverage in the UK. It’s just a certain natural evolution. That’s why I sound really optimistic about the potential of India to continue to adopt to coffee.
So what fuels such changes in consumption habits? Is it linked to economic prosperity?
It’s not really economic, it’s taste and opportunity to try. It takes a long time to change and establish taste. Our Nescafe offerings are very affordable, we make them very affordable so there’s no barrier in terms of cost for people to try the product, but it just takes time to adopt the habit.
India is still not a large coffee export market for Nestle. What are your views on coffee sourcing from India, especially as climate change promises to threaten coffee production?
The way I think about India is the potential is huge. There are clearly issues everywhere, with regard to climate. We know that if we don’t tackle climate change, half of the coffee producing regions of the world could end up not producing any coffee by 2050. In India though, because of the way coffee is produced, coffee here is a long established crop. We farm in India with small-hold farmers, between two and six hectares. The notion of intercropping which is a key part of our Nescafe Plan of diversifying farmer incomes and getting different crops alongside coffee, it’s already a part of the Indian tradition, as they grow pepper and banana etc. That’s not true in the rest of the world. India starts from actually a very solid base in terms of regenerative agriculture and also in terms of resilience. But our commitment via the Nescafe Plan is that by 2025—100% of all of our coffee sourced in India for India will be responsibly sourced. We’re working with over 5,000 farmers directly today in over 250 villages across India giving on ground support through our agronomy program.
What is your outlook on global coffee demand and coffee prices for the next one year?
Commodity price is just something you can never speculate on. By it’s very nature, when you look at a 10 year cycle—you have highs and you have lows, so I’m not going to speculate on the future. In terms of demand for coffee—we see a consistent growth in terms of volume in the category of about 1% or 2%. In terms of value, which is to your premiumization point, we see that the value growth for the category globally is about 5%. So there is an increasing trend to premiumization across the world as people get into new habits, new brands, new ways of drinking coffee etc. It’s very consistent mid-single digit value growth and low-single digit volume growth, year-on-year.
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