Swiss packaged food company Nestlé India’s 2% year-on-year revenue growth in the June quarter fell short of analysts’ estimates, primarily due to production disruptions and declining sales amid the covid-led lockdown. In an interview, Suresh Narayanan, Chairman & Managing Director, Nestlé India, shared his views on the increasing value of digital engagement with the consumer. Edited excerpts:
Do you see an uptick in consumer sentiment and mobility?Covid-19 is not just a health challenge, it is also a humanitarian call to redefine the way humans live, engage and work innovatively. I do believe that companies that are better placed to react to the new normal will naturally be preferred more by consumers.
Food companies need to leverage their in-depth knowledge of food habits, nutrition, quality and safety in order to innovate and renovate, and adapt to this new normal. They need to respond to new demands, reset defining relationships with consumers and reconsider their product portfolio in the post-covid era to make products healthier, while allowing consumers to make an indulgent choice.
What is your outlook for the Indian economy in the short and medium term?
India’s economy is showing signs of recovery after withstanding the impact of Covid-19. Some sectors were impacted more than others. With easing of restrictions on economic activities, businesses are slowly getting back on track. The government announced several measures to ensure business continuity and sectoral revival.
What else can the government do to drive demand?
The government has taken measures to increase liquidity. I am hopeful that it will help the economic climate and push up demand. MGNREGA inputs have maintained an income source for a large number of people in rural areas and helped maintain demand. A good monsoon also helps. While we do see a push up in rural demand, as the economy starts opening up, it should create jobs and help build up urban demand as well. A strong focus on infrastructure development will revive the job sector as well as demand.
Is Nestlé seeing demand from the metros or from smaller towns?
We have witnessed better growth in Tier II, III and IV cities, semi-urban areas than urban areas during the lockdown. Rural consumption continues to be stronger than urban demand. We delivered strong performance in the e-commerce channel. The demand in all out-of-home consumption channels experienced a sharp decline due to the lockdown.
However, Nestlé brands enjoy trust, credibility and strength as far as in-home consumption is concerned. This boosted sales of our dairy whitener, milk and coffee, all of which performed well. Maggi witnessed solid growth towards the end of the quarter after initial supply constraints.
How will consumer preferences change once the pandemic is contained and normalcy returns?
Covid-19 has had a profound impact on the pace, channel, texture and frequency of consumption, across a variety of segments in FMCG. There is a redefinition of out-of-home consumption in favour of brands and formats that are more in-home. Channel contexts have undergone sharp changes with a surge in ecommerce.
We witnessed the contribution of ecommerce going up significantly, while out-of-home has not done well. If you look at ecommerce channels in the US, what took eight years in terms of penetration was achieved in eight weeks. Clearly the ecommerce journey is here to stay and there will be recalibration of channels. Quality, safety, nutrition and trust have undergone sharper re-definition and consumers tend to favour tried-and-tested brands and relationships formed herein.
A new word has been added to the lexicon of consumer needs, which is ‘immunity’ for self and the family.
Categories that are in favour have changed and, together with the economic pandemic that followed Covid-19, a recalibration of the consumer wallets is taking place where essentials are taking precedence over luxuries, however affordable they are.
How are you as a company prepared to adapt yourself to this change?
Our entire innovation funnel is undergoing a change. Every business is recalibrating in the context of newly relevant consumer behaviours that are coming in, that is, what innovations we should go with, what innovation should be left out. I am a great believer that in a crisis, one should engage, not disengage. If we disengage, then the consumer has other choices.
Going forward, consumers are going to be more digitally active than they were earlier, and food companies with a strong digital-first capability are the ones that are going to hold consumers’ interest for a long time. Overall, we have accelerated our digital engagements across key parts of our portfolio and put out innovative digital campaigns to engage with consumers.