Nestlé’s Strategy Shift

Good morning. In today’s edition: Ratan Tata dies aged 86, why an ex-Amazon employee will lead fast-moving consumer goods company (FMCG) Nestlé India and Tata Motor’s falling shares.

THE TAKE

Nestlé’s New Top Boss Hire Is A Sign Of Times To Come  

Most FMCG veterans from Hindustan Unilever (HUL) and those heading other organisations fondly recall how their first assignments as management trainees were in rural India, say for example Etah in Uttar Pradesh. They said this experience shaped their outlook and understanding of the Indian consumer. But what happens when the consumer and the distribution pipelines start shifting, as they are now, from physical to digital or a complex hybrid of both? 

Nestlé India, the maker of Maggi and KitKat, has recently hired a replacement for 26-year-old company veteran, chairman and managing director Suresh Narayanan who retires next year. Interestingly, the incoming chairperson worked with Amazon for eight years. However, he has also spent 20 years before that at Unilever. The Amazon part is unlikely to be a coincidence.

There are two interesting themes at play in the succession playing out for Nestlé India’s top job. First, Nestlé has chosen to go for an outsider. This is unusual for multinationals like Nestlé, Hindustan Unilever and Procter & Gamble, among others, particularly in the consumer products space. 

These companies pride themselves on the internal growth opportunities and succession pathways for their employees that kick in almost the day a management trainee steps into the office. To skip the internal succession route would suggest Nestlé feels it needs skills the company might not have internally. Add to that, the new hire comes from Amazon and not another consumer products company. It is perhaps the experience in e-commerce that is presumably important here, apart from all the other factors of brand, market and consumer experience.

This is a different world from the early days of the HUL management trainee at Etah. Most consumer product companies would have similar initiation rituals given that this is the part of India where the bulk of their consumers reside. But the digitally savvy consumers are increasingly likely to consume differently, even if they are in the same physical locations. India has close to 800 million internet-enabled smartphones with a robust payment system for transactions and the logistics infrastructure to deliver to most places or pin codes. Significantly, for both HUL and Nestlé, the share of e-commerce to total sales is growing and currently stands around 7%.

HUL’s CEO Rohit Jawa said recently that e-commerce was growing faster than modern trade and modern trade was outpacing general trade, a trend that seems secular. Nestlé said a few months ago its e-commerce business continued to accelerate with significant growth in quick commerce along with click-and-mortar, driven by brands such as Kitkat, Maggi noodles, and others.

This is not to say that a stay in Etah will not be useful or productive for a management trainee in a consumer products company. But what they will learn in these places is likely to be different from their predecessors: a different lens and approach to selling.

In the earlier era, you had brand managers who focused on brand marketing, proposition and then a distribution tail which included warehouses and distributors. The structure of this goes back to the pre-GST era when states had different local taxes and transport of goods was highly constrained.

In the new era where direct channels are growing, the nature of distribution and marketing is changing fast. For example, there was no role for influencers earlier because sales were driven by physical outreach campaigns including in-shop posters, pamphlets and other merchandise. Or conventional media like television and print advertising.

The new consumer product company CEOs have to think differently and perhaps unlearn certain things that brought them to their current position. The new markets have to be driven by understanding and execution that is top-down. The realisation seems to have already set in, but the change will take longer to come. Nestlé’s hire is a sign of times to come.

CO:RELATION

Bumpy Road Ahead For Auto Companies? 

It has been a dream year for the share prices of most auto companies. The Nifty Auto index is up 65% during the year. However, Tata Motors, the parent of luxury car maker Jaguar Land Rover, underperformed the sectoral index. Over the past month, the share price of Tata Motors has commenced a downward journey in comparison to sectoral peers that have inched up despite an across-the-board selloff. On Tuesday, Tata Motors shares fell when benchmark indices traded in the positive territory. The company is your proxy to the global luxury car market. 

Jaguar-Land Rover reported a decline in retail and wholesale sales for the second quarter of the financial year. The company attributed the decline in sales to the disruption of high-grade aluminium supplies. The demand for JLR luxury cars depends on the economic outlook in rich countries and China. There is also another problem for Tata Motors. While there is excitement about the passenger car segment due to a rise in discretionary spending, the commercial vehicle market in India is likely to witness a tepid growth. The underperformance in the stock market shows the lack of enthusiasm among investors.

CORE NUMBER

6.5%

This is the unchanged repo rate  by the Reserve Bank of India's (RBI’s) Monetary Policy Committee (MPC) decided by a 5-1 vote. According to The Business Standard, it forecasts inflation at 4.5% for FY25, with quarterly consumer price index projections of 4.1% in Q2, rising to 4.8% in Q3, before stabilising at 4.2% in Q4 and 4.3% in Q1 FY26. While shifting to a 'neutral' stance, the RBI remains cautious about inflation risks, particularly from adverse weather and geopolitical tensions. Food price inflation has averaged 6.9%, contributing significantly to overall inflation, though experts anticipate stabilisation.

FROM THE PERIPHERY

— Ratan Tata, chairman emeritus of Tata Sons, died aged 86 in a Mumbai hospital on Wednesday. N Chandrasekaran chairman of Tata Sons announced Tata’s death in a statement late on Wednesday. It read, “It is with a profound sense of loss that we bid farewell to Mr. Ratan Naval Tata, a truly uncommon leader whose immeasurable contributions have shaped not only the Tata Group but also the very fabric of our nation.” Tata joined the Indian steel-to-software conglomerate in 1962 and succeeded JRD Tata in 1991 to become the chairperson, a position he held till 2012.

— Over 1,000 workers at Samsung's factory in Tamil Nadu have rejected the company's wage hike settlement, marking the largest labour dispute in recent years. According to The Business Standard, the strike is now entering its second month. Tamil Nadu's government has struggled to resolve the issue. Samsung proposed a monthly incentive of Rs 5,000 until March, but the Centre of Indian Trade Unions (CITU), India’s national-level trade union, dismissed it for lacking union recognition. Workers seek a raise to Rs 36,000 monthly.

— A day after reports said that South Korean automaker Hyundai would list in Indian markets, managing director Unsoo Kim said that there are plans for India to become a global manufacturing hub. "India is the most exciting market in the world," he said. Hyundai’s IPO, valued at $3 billion, will be India’s largest IPO. The company said that the Indian market was “exciting” with both urban and rural segments contributing to their growth. 

— India’s low-cost airline SpiceJet, boosted by a Rs 3,000 crore investment, informed India’s regulatory body for civil aviation, the Directorate General of Civil Aviation (DGCA) that it plans to return all grounded planes to service within 18-24 months. According to The Economic Times, the airline is allocating Rs. 400 crore for spare parts and maintenance, while also wet-leasing aircraft to expand capacity quickly. By year-end, seven grounded aircraft will be operational. The airline aims to have 10 more planes flying by November's end through leasing and reviving grounded ones. This expansion follows a successful QIP, enhancing SpiceJet's financial stability.

— Food delivery app Swiggy’s top bosses just got really rich. In anticipation of an IPO, the company had doled out stock options worth $271 million to its senior leadership. Mint reported Swiggy’s pre-listing prospectus showing that founder and CEO Sriharsha Majety getting the largest chunk of these ESOPs worth $200 million. The report said that this was launched in February and most of the ESOPs were given to only top executives and founders.

UGHH

Australian airline Qantas had to issue an apology after it played an R-rated movie on a flight from Sydney to Japan’s Haneda. The movie in question — Daddio starring Dakota Johnson and Sean Penn — has an R rating because of graphic nudity and sexual language. The movie was played after technical difficulties on the flight that did not let each passenger choose what they wanted to watch. Unhappy passengers took to social media to point out the film wasn’t appropriate for a family audience.

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