Page 12 - ABFI March 19 issue

cover story

new launches have helped pure-play food company in
the company maintain the December 2018 quarter
leadership positions in reported a 30% year-on-year
more than 85% of product increase in other expenses to
categories. Brands like Rs 814 crore and attributed
Lactogen and Nan (together the increase to ‘step up in
67.7%), Cerelac (96.1%), demand generation activities
KitKat, Munch and Milkybar including on new products’.
(together 61%), Nescafé In a report, Kotak
(51%) and Maggi noodles Institutional Equities noted,
(60%) are market leaders in “…if we were to attribute
their respective categories. all the increase in other
Currently, it gets some expenses to ad spends, is not
6% of its Rs. 11,216 crore was historically known for he said, “Given the overall consistent with the Nestlé
sales from the international low ad spends, is now on buoyancy in the company style of execution we know
market. The flurry of new track to up its advertisement across categories, expansion of and would be very, very
launches and aggressive spends on a sustainable of manufacturing capacity is surprising”. According
marketing to support the basis. under active consideration.” to Narayanan, support to
brands has downside risks Narayanan spoke in The company can do this advertising and marketing
as well - at least in the short- detail about the increase in either by increasing capacity — part of other expenses —
run. the company's advertising at its existing manufacturing increased by 50% in 2018. In
According to Narayanan, and promotional expenses facilities or by setting up Q4 of CY18, the company
Nestlé's advertisement and and the strategy going a greenfield facility in the invested in NesPlus, a range
promotional costs went forward. “One of the core future. of breakfast cereals, which
up by over 50% during the foundations of Nestlé India Typically, our approach the company claims to be a
quarter. "Consequently, our business model has been is to augment (capacity) at promising category.
advertising and promotion a model that centers on our existing factories, but “The company may
cost as a percentage of increased volume growth, it does not rule out a new pull out resources where it
sales rose to 6.5% in the increased penetration and manufacturing facility, said is not working and put it
year 2018 from 5.2% in increased brand focus,” Narayanan. where it is working,” said
2017." However, the cost Narayanan said, adding that Narayanan. The company
of promotion would be it also hinges crucially on ‘Aggressive Growth follows a January to
brought down to the normal innovation and renovation Strategy’ December financial year. The
level. as drivers of growth. He Nestlé India will keep increase in other expenses
said new innovations the pace of spending on during the December 2018
Innovations Galore and renovations do advertising and marketing led to a 6% y-o-y decline
The company has also demand increased level of activities up in 2019, as was in earnings before interest,
launched as many as 40 advertising and promotional the case in the December tax, depreciation and
new products over the expenses, "so the company 2018 quarter. In the last amortization.
past three years. Asked has increased spends on few years, Nestlé India The new offerings include
whether the company will that in the last quarter of has launched 10-12 new ready-to-drink coffee cans,
continue with this strategy last year by 370 basis points products each and currently Maggi variants and Nescafe
he said, “Innovation will over the previous year has around two-three dozens Smart coffee machine, among
continue to be strong play in same quarter. The previous projects running which others. The company which
Nestlé India as supporting year’s same quarter was also may result in new product has eight factories as of
new categories and new slightly depressed because offerings. now may soon takes call on
innovations will be at the of Goods and Services Tax “The company is locked capacity expansion to take
centre of whatever we do.” (GST) introduction." “We in a position of aggressive care of the need for more
The company, for have spent almost 30-40% growth strategy. There are production facility with the
instance, will soon put Karela of monies in the last quarter clear indications that India is growing number of offerings.
Raita and Mishti Doi variants of 2018 to support the new a growth market for Nestlé,” “While typically the company
on the shelves. Nestlé India launches,” said Narayanan. said Narayanan. He added would want to augment the
has also stepped up its that while the company existing factories, greenfield
advertising and marketing Expansion plans does not plan to increase or brownfield expansions
spends to back new Replying to a query advertising spends from the are not ruled out,” said
launches. Analysts believe on plans to expand current level but the pace Narayanan.
that the company, which manufacturing capacity, will remain strong. The

12 March 2019 AgriBusiness & Food i ndustr y