Inside Nestle India’s Bharat travels

The hotel’s owner, Mayaram, once made a living selling daal-rice and kachori. A year back, he switched to selling Maggi, the instant noodle brand from Nestle India Ltd that quickly rose to become urban India’s favourite comfort food since it was introduced over four decades ago, in the 1980s.

Mayaram’s switch to serving travellers noodles was partly driven by a shortage of cooks who could make elaborate meals. Instant noodles only take a few minutes to prepare and for ideas, the 42-year-old occasionally logs on to YouTube to look for recipes.

Sales have been brisk, Mayaram said. He stocks about 10 cartons of Maggi Masala noodles every week. Each carton has 12 packets, 420 grams each.

But it was not just demand or the shortage of cooks that influenced Mayaram to switch to easy-to-cook food. A huge sales machinery from Nestle is at play in this rural belt dotted with sugarcane fields.

About 90 km from Pujari Hotel, is Balak Ram Purwa, a village of 250-odd residents in the Bahraich district of Uttar Pradesh. Here, on a hot August day, 47-year-old Shobha Verma, was busy manning Ma Gayatri Computers and Electronics. Once, this store operated as a repair store for broken fans and mobile phones. No longer. It is a grocery store that is covered in Nestle paraphernalia. There are neatly stacked rows of Kit-Kat and Munch chocolates. Nescafe coffee, Masala-e-Magic spices and Everyday milk powder sachets hung from strings.

This year, Nestle’s on-ground representative in the area, approached Verma to open a Nestle-fronted store. Verma, and her brother, then decided to convert the phone repair shop into a grocery store.

“Earlier, we would keep notebooks and candies priced at ₹1-2 because there is a school nearby. Now, I keep Maggi and Munch chocolates. People buy more Maggi here," Verma said. A local distributor visits the store twice a month to help her stock up.

From this store, Verma manages to sell products worth ₹12,000-15,000 a month. Earlier, she was a stay-at-home mother, often helping her husband, a sugarcane farmer. She is now a tiny but important speck in Nestle’s grand plan to deepen its presence and eventually win rural India. She is part of the company’s Project Swabhimaan—one that employs rural women to sell and endorse the company’s products in tiny hamlets.

Late to the party

Such projects to woo rural India have arrived late for Nestle. Some of the company’s rivals are way ahead. Both ITC Ltd and Hindustan Unilever Ltd (HUL), for instance, have made deeper inroads in India’s small towns and cities.

HUL’s equivalent of Project Swabhimaan, the Shakti programme, started in the early 2000s. Through Shakti, HUL appoints women to sell its brands in rural markets. Till date, HUL has worked with 1.9 lakh women called ‘Shakti Ammas’.

Rural sales contribute to around 40-45% of HUL’s overall sales. In comparison, the rural business generated only 20% of Nestle overall sales in 2022.

For decades, Nestle worked on building a portfolio of noodles, packaged milk, chocolates, baby formula, ketchups and instant coffee for more urban consumers. It’s easy to understand why. Consumers in urban markets are more equipped to buy packaged food products. In a value driven market like India rural, consumers are more inclined to buy essentials such as soaps, toothpaste, cooking oil and unbranded rice or pulses before moving on to buying branded foods.

But an inflection point came in 2015 when Nestle India faced its worst crisis ever—the company had to recall Maggi noodles packets from retail stores after the Food Safety and Standards Authority of India, the country’s food regulator, reportedly detected monosodium glutamate (MSG) in some samples.

Nestle realized the need to reduce the business’ dependence on a single brand or category. In 2014, Maggi generated about 30% of the company’s India revenue, Mint had reported in 2015.

Suresh Narayanan, Nestle India’s current chairman and managing director, who was brought in to de-escalate the Maggi crisis, has since led the company’s plan to diversify its portfolio. He is also driving the company’s ‘rurban’ (rural plus small towns) strategy that started in 2019.

In the last three years, Nestle has nearly doubled its distribution reach in rural India. Nestle’s share of rural business has doubled from a little over 10% four or five years ago to 20% now. Officially, the company does not report revenue for Maggi noodles. However, its ‘prepared dishes and cooking aids’ segment, which includes Maggi, ketchup, pasta and masala mixes, contributed 32.2% of its 2022 revenue.

Tale of two villages

The pillars of Nestle’s rural strategy is to drive distribution in small villages, expand the portfolio catering to local flavour profiles, and bring in products at affordable price points.

“We are adding about 20,000 to 25,000 villages to our network coverage every year. That journey will continue because we still have a fairly large headroom to grow—we are talking about 600,000 villages as the total base in India," said Sushrut Nallulwar, director of sales at Nestle India. Nestle’s total village coverage today is close to 180,000-185,000.

Nestle has split these villages into two. Of the 600,000 villages in India, about 120,000 have a population over 2,000. Rest of the villages are much smaller or less than 2,000. Nestle’s focus appears to be on the first segment—it claims a coverage of about 90% of villages with a population of over 2000.

“Rurban is not just about having nice apps in the hands of your salespeople. It is about building the nuts and bolts of distribution," Suresh Narayanan said during Nestle India’s fourth quarter and earnings call on 16 February this year. “For us, it has meant taking an ambition of covering 120,000 villages above the population of 2000, where I am happy to report that in 2022, we covered a little over 91,000 villages," he added.

The ₹10 trick

In September, Nestle rolled out spicier versions of Maggi for ₹10 in 15 states. These packs are largely designed to fuel demand for the noodle brand in smaller markets. In bigger cities, Maggi packs start at ₹14.

Teekha Masala and Chatpata Masala, as the ₹10 variants are called, is among the first few launches channelled towards building the rurban portfolio, Nallulwar said. “The product is designed with rurban codes and supporting local communication. This is only to kickstart the entire process," he said.

The latest move will also help the company keep local competition at bay.

According to a recent study released by researcher Kantar, volume growth of local brands surpassed that of national brands significantly over the 12-month period ended 30 April. Local brands, defined as those operating within a single market, witnessed 12.7% volume growth, while national brands posted 8.2% rise during the period.

In the instant noodle market, while Nestle competes with national companies such as ITC (Sunfeast Yippee!) and Nissin Foods (Top Ramen), local brands are also making inroads. For instance, sales of 1to3 Noodles, manufactured by Bengaluru-based Shri Raja Industries, rose 113% in the period tracked by Kantar.

Regional brands typically offer their products at a marginal discount compared to established players and, therefore, can eat into their market share.

Sweet pilot

More products need seamless distribution and storage. Nestle has to traverse a learning curve here, particularly with products that have shorter shelf lives. For instance, chocolates.

Chocolate companies have taken time to build out their supply chains in rural markets because chocolates need a cold supply chain. They need to be stored in chillers, which requires an uninterrupted supply of electricity. The process is largely dependent on the government’s electrification schemes.

Mondelez India Foods Pvt. Ltd, which sells India’s largest chocolate brand, Dairy Milk, started its rural journey six to seven years ago. The company is rapidly deploying visi-coolers—chillers that provide uniform cooling—in rural markets, with the numbers doubling over the last three to four years.

Nestle is currently experimenting with placing gel packs to chill chocolate containers. The gel packs are frozen for a few hours and then placed below the container to keep it cool. The pilot, which kick-started in eastern Uttar Pradesh, is Nestle’s first such attempt to ensure greater availability of chocolates in rural markets.

In 2022, chocolates and confectionery, including brands such as KitKat, Munch and Milky Bar, contributed 16% to the company’s domestic sales.

Money in a mesh

In Sitapur, 42-year-old Manuj Shah Agarwal, whose family has been in the distribution of fast moving consumer goods since the 1940s, exemplifies Nestle’s efforts to build a stronger distribution force on the ground.

India’s offline retail supply-chain is a mesh of many layers. In this mesh, Agarwal is a ‘super stockist’. In other words, super stockists buy products in bulk from manufacturers before selling them to distributors. Often, a good super stockist can change the game for companies in rural areas because of their influence and network of smaller distributors.

In this region of Uttar Pradesh, goods from Nestle’s distribution centre in Lucknow are transported to super stockists such as Agarwal, who then dispatches it to re-distributors or wholesalers. The stocks are next supplied to the markets.

Earlier, for rural markets, Nestle also relied on wholesalers or trips made by shopkeepers from larger towns, said Dhairyashil Patil, national president of the All India Consumer Products Distributors Federation, a trade body. “Now, reach and availability have increased. As a result, sales have increased," he added.

Agarwal has had a long association with HUL. However, in 2022, Nestle’s area sales manager convinced Agarwal to expand his business with Nestle by appointing more re-distributors for the area. Agarwal’s agency also works with Godrej Consumer Products Ltd and J&J Pvt. Ltd.

Agarwal said the pandemic has turned around the fortunes of packaged consumer goods companies. More households switched to packaged and hygienic products versus buying unbranded items. This trend has also boosted his confidence of further investing in the business.

Currently, Agarwal’s trading business is linked to 64 re-distributors. Each re-distributor, in turn, covers 200-300 outlets. These re-distributors could be doing monthly sales of anywhere between ₹1 lakh and ₹15 lakh.

Apart from appointing more re-distributors, Agarwal said that he is spending more on market development for Nestle—stuff such as in-store merchandising, increasing the visibility of products in stores, etc. Till about three-to-four years ago, such visibility programmes were only prevalent in the urban markets.

As the parent company pumps crores of rupees in increasing its capacities in India— ₹5,000 crore by 2025—the country’s growing road connectivity will help with swift movement of its chocolates and milk products. Of course, better infrastructure will help every company—including Nestle’s rivals.

Chairman Narayanan, during a media interaction in July, said that improved infrastructure, access to clean water and rural electrification are enablers of the company’s small market push.

“This whole highway thing is becoming a big deal. I was surprised to see that the Lucknow-Varanasi stretch is now covered in four hours. On both sides, there are hotels and restaurants. These are decent ones, not the old ramshackle sheds, and they stock Maggi, Nescafe and KitKat because consumers are asking for them," he had said.