Innovation Cushions FMCG Companies During India’s Consumption Slowdown

As Nestle India’s revenue and profit tumbled after its Maggi instant noodles were banned in the country, the company changed its head. Incoming Managing Director Suresh Narayanan embraced innovation. The company, in the last three years, launched 60 new products.

Success of some of them helped Nestle India cushion itself from a slowdown in demand even as volumes of its rivals declined. CLSA and Edelweiss Securities cited focus on innovating products and premiumisation as a catalyst for its growth.

Nestle has more than 2,000 brands but offers less than 20 in India. “We don’t want to be known as a Maggi company. There are so many other products that we have as a company. It was to broad-base that, we went for an aggressive innovation programme,” Narayanan told BloombergQuint. “It was the time to show that promise as we were coming out of the Maggi crisis.”

Nestle isn’t alone. Companies from ITC Ltd. to Godrej Consumer Products Ltd. are increasingly relying on innovation to sustain growth or create newer markets even as India’s slowing consumption has dragged the GDP growth to the lowest in more than six years. The number of new launches actually fell during the slowdown—down to 13,800 in 12 months through June 2019 from 16,100 in the year-ago period. But the fresh products launched in the last few years helped create new growth avenues, particularly in the premium category.

“India is experiencing a wave of premiumisation, with opportunities not only centered around metros or upper social class but also among the rural consumers,” Nidhi Srivastava, BASES Lead, South Asia, Nielsen Global Connect, told BloombergQuint. Breakthrough innovations in the FMCG categories command a much higher price premium compared to the category, she said.

Narayanan said Nestle India realised that consumers wanted products at the premium and popular ends. The company launched Nesplus breakfast cereal, Milo chocolate drink and many flavours of Maggi noodles.

He explained how that helped beat the slowdown in the last two quarters.

“One is that our rural sales are relatively modest compared to our peers,” he said. Rural India contributes 25 percent to its sales compared with 35-40 percent for other companies, he said.

Of its total launches since 2016, 60 percent are priced to cater to the premium category customers, while the rest for the mass segment.

Also, the company’s portfolio has grown with more offerings in milk, nutrition, food, chocolates and confectioneries and a strong demand for such “aspirational products” have emerged from tier 2, 3 and 4 markets, Narayanan said.

Nestle represents the increased pace of innovation in the industry.

“Innovation is one of the key ingredients of success,” Dhanraj Bhagat, partner (consumer and retail) at Grant Thornton India LLP, told BloombergQuint. “Companies should pay attention to changing consumer trends to capture the market.”

In 2017, ITC launched a pocket perfume ‘Engage On’ at an affordable price of Rs 60 for 18.4 ml, while the two-in-one pack was priced at Rs 90 for 28 ml. Sameer Satpathy, chief executive officer of the personal care products division at ITC, told BloombergQuint, “This not only helped create a new segment in the fragrance category but also offered an enormous opportunity to educate and drive growth of perfumes as a critical grooming essential.”

Beardo, which started out by selling male grooming oils and creams exclusively online, is now available in stores since 2018. And it has plans to target salons to boost reach, according to Nielsen India.

Godrej Consumer Products has launched—Godrej Naturals Neem Agarbatti, HIT Anti Mosquito Racquet on e-commerce platforms, Godrej Aer Smart Matic (a bluetooth-enabled automatic fragrance diffuser), Godrej Expert Easy five-minute shampoo hair colour and relaunched its Godrej Expert Rich Crème with 10X Aloe Vera in the last one year.

Vivek Gambhir, managing director and chief executive officer at the company, told investors that its second-quarter growth was driven by new launches.

In the food category, biscuits have seen the highest innovation rate across all FMCG categories since 2010, according to Nielsen, prompting customers to either opt for branded products or buy higher-priced packs.

In 2017, ITC launched a fruit-and-nuts variant of the Moms Magic brand and a cookie made with sattu or gram flour under the Farmlite brand.

Britannia Industries Ltd., too, launched Choco-chip Cookies and Good Day Wonderfulls in choco nut, butter almond, and berries and nuts flavours.

Another category that has seen successful product innovations is salted snacks. From being the sixth-largest segment by sales in 2010, it’s now No. 2, according to Nielsen India, driven by companies focusing on local preferences.

Within this, a niche category of healthy snacks has emerged. RPG-Sanjiv Goenka Group has successfully forayed into it with its Yumm brand of offerings of makhana (fox nuts) to baked chips at Rs 10 a pack.

“When we looked at the launch of Too Yumm, we wanted to launch something which would meet consumers’ unmet demand—which is to have healthier snacking options,” Suhail Sameer, CEO of the RP Sanjiv Goenka Group’s FMCG business, told BloombergQuint.

The company tapped Indian cricket captain Virat Kohli as its brand ambassador.

RAW Pressery is another brand that emerged with its unique proposition of cold-pressed juices. The company banked on influencers for marketing and even tapped Mumbai’s Dabbawalas for doorstep delivery.

Srivastava of Nielsen Global Connect explained how different marketing strategies executed by brands have also changed to market the new launches. For instance, Cadbury Fuse in its most recent campaign had 96,000 advertisements targeted at different demographics, cohort, genre, time of the day and social media platforms, Srivastava said.

Still, not all products succeed. For Nestle, 30 percent of the products didn’t work, according to Narayanan. But that hasn’t deterred the company.

He cited the example of Everyday Masala Fusion, a dairy whitener infused with spices. Consumers didn’t understand the product, and thought that if water was added to it, it would become a Masala Chai, Narayanan said. The product was then taken off, worked on and re-introduced as Everyday Chai Life, which is a tea and that’s doing much better, he said.

But the contribution of new products to Nestle India’s revenue fell from 4 percent in 2018 to 3.7 percent in January-June 2019. That’s because Nestle India, which follows a January-December fiscal, doesn’t categorise products as “new” after three years of their launch, Narayanan said.

Bhagat of Grant Thornton said in the future, product innovation would be seen in the food and nutrition space. “Also, companies will innovate more for the rural masses as distribution penetration increases in the country,” he said. “More will be found in smaller packages and the shelf life of products will increase.”