For any good leader who intends to make a success of his enterprise, it's most important to be empathetic and compassionate besides having keen business acumen, said Suresh Narayanan, chairman and managing director of Nestle India on Wednesday while addressing an interactive session organised by the ICC YLF forum at Taj Bengal, Kolkata.
Narayanan spoke on "Leadership in crisis in Indian business post-Covid", a session presided over by Pradeep Sureka, president of ICC, and Mudit Beriwal, chairman of ICC Young Leaders Forum. TNIE spoke with the Nestle India CMD about the economy and future plans of the company. Here’s an excerpt:
Most economists are predicting that Inflation will curtail the pace of GDP growth. How much do you think growth will be affected?
Inflation is clearly a cause of concern and I've said before that the prices of about 9-10 of our 13 raw materials are seeing a 10-year high. This is a global phenomenon, and this situation is also going to last for a while. As far as growth is concerned, I think a lot will depend on the agricultural sector in our country and the bounce-back of manufacturing. As indicated in the latest data, the core sector growth is fairly strong and I do hope we will be able to not have a serious impact on growth.
How will it impact the top line and bottom line of companies operating in your line of business?
Most companies like Nestle try and mitigate price increases as best as possible by trying to look at the efficiencies and effectiveness of raw material purchases. However, with the inflation levels the way they are, going forward -- and indeed some of the companies are already reflecting it -- there will be a short-term impact on volume growth. So, value growth might be relatively better but volume growth is what we would like to measure as our performance and that could be some adverse impact of it.
By how much have your input costs been impacted and how much of it have you been able to pass it on to the consumer?
If you look at it in simple terms, the inflation that we have had in 2019/20/21 has been 5-6% per year, and what we are facing now, in the first half is almost 20-21% -- in terms of commodity and fuel inflation. Some of it we have been able to absorb because of better efficiencies in purchases, rationalisation, and cost-saving programmes that we run within the company, and some of it we have had to pass on in terms of the price increase. Our philosophy is to try and lower the quantum of price increases so that we are able to continue the volume growth of the company. If the same trend continues relentlessly for the next couple of months, then clearly more price hikes could happen.
This time inflation is impacting many countries. Are you borrowing from the models/practices/experiences of Nestle operations in other countries to tide over the current crisis in India?
Nestle learns globally from the inflations. There are numerous practices around cost efficiencies, buying efficiencies, recipe efficiencies, and pricing that we learn and since it's a global phenomenon, there is a fairly active mode of looking at it and sharing experiences.
How long do you think Inflation will hurt the common people? There are after all global supply forces at play too, most noticeably in items such as edible oil.
It's very difficult for me to indicate how long it may continue but so long there is an asymmetry between supply and demand and sources of supply, some of it is related to war which is now happening between Ukraine and Russia, which is, unfortunately, accounting for a significant portion of both oils and wheat. So, there will be some more pain, how long this pain will continue will depend a lot upon how we find a resolution for geopolitical issues. For India, we are fortunate to be self-sufficient in terms of grains and a lot will depend on monsoons. It's expected to have a good monsoon this year and hopefully, we will be able to manage our food inflation better than what would be globally.
How many brands and products do you have in India right now and what are the plans for the next two-three years?
Today we have close to 20 brands in the country and if you look at stock-keeping units (SKUs), we are selling about 1,000 of them and they are the major ones excluding the digital and the seasonal ones. The growth strategy of the company continues to be fairly aggressive as you know in the past five years we had about 10-11% year-on-year growth in terms of sales. But still, our categories have a lot of headroom for more penetration and that's why we talk about the rural and urban strategy to get into smaller towns because we see some fairly strong growth coming out of them.
As we go forward, while we are blessed with leadership positions in many of the categories that we operate, clearly there are new opportunities whether it is healthy-aging products, plant-based nutrition products, healthy snacking options, or the toddler segment beyond the two-year-olds segment where there are lots of interesting nutrition possibilities and all of this will be explored in the next two years.
How many new brands do you plan to introduce?
Rather than introducing new brands, we are looking for new categories and more platforms for growth which is more exciting for the company. Some of them could fit very well under the Nestle name since it's a powerful name.
What makes you bullish about consumption despite a projected slowdown in the growth rate?
The urban markets are coming back and rural markets are also looking good depending on the monsoons. Also, the government is doing a lot of initiatives around MNREGA and direct transfer and all of this will have an impact on consumption.