Financial Daily from THE HINDU group of publications
Monday, Mar 18, 2002
Agri-Biz & Commodities
Nestle set to `adapt' to consumer's purse
Mr Carlo M. Donati, CMD, Nestle India Ltd.
NEW DELHI, March 17
THE Nestle Chief in India, Mr Carlo M. Donati, is distinctly unhappy. The Budget 2002-03 fails to instil consumer confidence. And that perturbs him. But what really gets his goat is the prevailing ``chalta hai'' attitude. So says Mr Donati, in a no-holds barred interview with Business Line.
The coming fiscal does not look good, going by the revised GDP figure, pegged at four per cent or near about. The numbers notwithstanding, he observes, ``it is the attitude...chalta hai...that is disappointing and that does not create consumer confidence. Subsequently, there will be no expenditure and it is against this background that we have to deliver. And that, is not easy.''
Not surprising then, that Mr Donati, CMD, Nestle India, was away at Varanasi, perhaps watching the Ganga flow by, when the Finance Minister was presenting the Budget for the new fiscal!
``Consumer confidence has a multiplier effect and is a generator of GDP growth. If GDP remains stagnant, then I would not be able to catch a new consumer,'' he explains.
But, the Swiss food major's disenchantment with the Budget is for reasons more than just not spurring consumer confidence.
The scrapping of the Milk and Milk Products Order (MMPO), specifically, makes Mr Donati indignant. ``Neither Nestle nor NDDB are charitable organisations. They invest because they want to collect (earn). We invest in the milk area because we need a certain quantity and quality of milk.'' Nestle, till date, has cultivated about 95,000 farmers in and around Moga (Punjab).
``Liberalisation is my doctrine. But it has to be applied with a certain degree of caution. If you liberalise, like it is now a free for all then my investment will benefit someone else'', he points out in anguish. And goes on to elaborate further.
``If India has reached the No.1 position in the world in terms of milk production through the milk-shed area model, I don't see why we should dismantle it.''
``The MMPO was proposed for changes, but the changes are not clear, nor is its implementation...There is a mismatch between the spirit of the liberalisation and the proposal,'' he adds, emphatically.
Nestle's strategy, in the difficult environment, would be to ``adapt to the purchasing power of the consumer'', even as it seeks to sell more to the segment with ``disposable income.''
``It may be difficult for a consumer to spend Rs 96 for a bottle of ketchup, but that's why we introduced the Rs 2 sachet'', he explains.
On having a premium-priced product portfolio, he has a ready answer. ``My prices have not increased for the last four years in general. Take Nescafe, condensed milk, tomato ketchup and noodles.'' Admitting, however, that Nestle is an expensive company, he quips, ``but we give you the best quality.''
In India, Nestle had decided to focus on its dairy and water segments. And its `dahi' and butter have done rather well in a segment with active players as Amul, Mother Dairy and Britannia.
``Brands are never built through good advertising, but through good products. That's why Nestle's Dahi is the best in the market,'' he observes.
But it's quite a different story with Nestle's mass-consumption packaged water, Pure Life. ``This market is not ready to understand and accept the value of the quality we offer at a Rs 2 premium. The consumer trades functionality for quality. So they prefer to pay Rs 10, rather than Rs 12 for Pure Life.''
Also, there is a fierce fight in the market between Coke and Pepsi, he adds. ``They offer discounts to stockists. Besides, while they can leverage their existing distribution, I don't have that. Nor do I have the volumes that Mr Ramesh Chauhan has.''
Nonetheless, Nestle will pump in money into the one-year- old product. ``We are building up to compete and one day we will. In water, I am not certainly making money, but I am investing.''
This year, Nestle is investing to increase the volumes of its water.
``But we are not getting into third party manufacturing, though in the beginning that was our regional strategy for the future. Now we are still in the initial stage and it is taking longer than we originally anticipated,'' he confesses.
On Nestle S.A. being granted permission to increase its stake in the Indian company by 10 per cent, he observes:
``We asked for buy-back permission (from FIPB) to have freedom to decide what is the best approach for the company to increase its foreign participation. This was misread by analysts as Nestle would go for full acquisition of the domestic shareholding.''
``Actually, it is a question to ask Nestle S.A.! We will use the option available to us. We will judge the element of risk in the country, which is relatively high. When we look from outside one feels uncomfortable,'' says Mr Donati.
On future investments in India, he is pretty clear in his mind on what to do.
``Our asset rotation has grown considerably and our utilisation of capacities has also grown. We will have short-term investments in capacities. I am quite optimistic in terms of investment and development. Where I am not happy is the speed at which the improvement is happening.''
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