Rural Revamp of Nestlé

The FMCG major launched new, tailor-made products that helped it make further
inroads into the hinterland.

In March 2021, Suresh Narayanan, Chairman and Managing director of FMCG major Nestlé
announced that the company is set to reach more than 1.2 lakh villages, each with over 5,000
people, in rural India by 2024. To cater to the needs of rural consumers, Nestlé is changing its
product portfolio by renovating some products. Suresh Narayanan said, “Rural is an important
dimension of the next phase for Nestlé.”

Nestlé has always been associated with the urban market, and young city dwellers in India too
typically take a liking to its product portfolio in India. After the Maggi fiasco in 2015, Nestlé
wanted to reduce its dependence on a few products and widen its reach. Nestlé India Ltd (NIL)
launched nearly 35 products within a span of just six months in 2016. At that time, it had a
presence in just 6,000 villages across the country.
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Fierce competition

Nestlé is a late entrant. Hindustan Unilever Ltd (HUL) was one of the first in India to develop
a strong rural distribution network in the 1940s and gain a wide reach. Later, in the 1990s, HUL
expanded its distribution network through Project Shakti, which helped women become
entrepreneurs by selling HUL goods. The project helped HUL cover almost 50 per cent of all
the 6,00,000+ Indian villages.

Other FMCG companies are not far behind — ITC catered to nearly 1,00,000 villages in 2021.
P&G is strengthening its network to reach more rural areas. Marico has increased its number
of stockists to 6,200, up by 30 per cent. Dabur, with over 6.7 million outlets in both urban and
rural areas, attributed 46 per cent of its total sales to rural alone.

Initially, Nestlé’s focus was on tier 1 and tier 2 cities from where it was witnessing high
demand. It then expanded its focus to smaller towns with 10,000 to 15,000 people. To improve
reach, the company started researching customers’ needs and shopping habits in different
geographies. This helped the company to come up with strategies specific to each market and
tailor its products accordingly.

Product diversification

Nestlé had always relied on a few flagship products, such as Maggi and Nescafé. Once it started
catering to rural markets, it started putting out tailor-made products in different packages.
Between 2016 and 2018, Nestlé launched 39 new products. These included Masala Fusion
dairy whitener, Greek Yogurt Grekeyo, and Nestlé Everyday Chai in three varieties.

It launched Nestlé a+ Banglar Misthi Dai, and Ceregrow organic cereals, Lactgrow for toddlers,
and products in the weight management category like OPTIFAST. Under the Maggi range, it
launched new variants of sauces, soups, pasta, and poha . New flavours of Maggi — Yummy
Capsica and Chatpata Tomato — were launched along with atta spinach noodles. To cater to
growing demand from towns and tier 2 and tier 3 cities, Nestlé launched Maggi fried rice
masala, Paneer masala mix, and Nestlé Ceremeal Daliya.

At the same time, Nestlé also withdrew some products which were not garnering enough sales.
These included health drink, Milo, as it had failed to gather enough momentum in spite of its
long-lasting presence. Other products that Nestlé decided to remove from the shelves included
Nestlé Chocostik, butter, and Nestlé Choo. With the rural push, Nestlé had covered 89,000
villages by 2019.
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Challenges

During the Covid-19 pandemic, growth in the urban areas tanked, but the rural markets showed
accelerated growth. In the quarter ending December 2020, while Nestlé’s overall sales grew by
10 per cent, urban sales grew by just 6 per cent. Narayanan was of the view that the main reason
for the falling demand from urban markets was the reverse migration that took place in the
wake of the lockdown imposed to prevent the spread of the virus.

At the same time, semi-urban and rural India were experiencing growth. For example, Maggi
had found several takers in rural markets, pushed by advertisements in local languages and
smaller packs priced at ₹5.

As of early 2021, rural areas accounted for 25 per cent of Nestlé’s revenue, and the company
announced that it would continue to concentrate on the rural markets due to growing demand.
However, Nestlé was still behind the other FMCG companies, which had an average revenue
of 35 per cent from the rural areas. In order to reach 120,000 villages, Narayanan looked at
introducing customised products, and different packages and distribution channels.

Narayanan was also positive about the demand for packaged products growing further, owing
to the bottom of the pyramid shrinking and the estimated 140 million households expected to
move into the affluent class by 2030. In the rural areas, Nestlé was in competition with players
such as Unilever, ITC, Dabur, and so on, in a highly-penetrated market. These companies offer
a wider range of products that enjoy immediate recall among rural consumers. For Nestlé, only
Maggi has mass appeal.

To capture the rural markets, it is important for companies to reach customers through direct
channels, experts said. Most FMCG companies reached more than 60 per cent of their outlets
through direct channels. But Nestlé reached only 1.5 million outlets directly of the total 4.5
million outlets, and much of this reach was in the urban region.

Another issue that Nestlé needed to address was the high price of its products. Except for
Maggi, and some varieties of chocolate, the rest of its products were not available at low price
points.

Analysis

India has the world’s largest rural population. According to the 2011 census, rural markets
comprise more than 6,40,000 villages with 850 million people. Despite increasing urbanisation,
over half of India’s population still lives in the rural areas. Around 15 per cent of the rural
population lived in poverty as of 2020. The average size of the rural household is 4.7. The rural
FMCG market in India accounts for 40 per cent of the overall FMCG market in India.
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The people in villages account for half of the country’s GDP and their consumption patterns
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are changing gradually. They demand high-quality products, just like their urban counterparts.
The consumer goods market in India’s rural areas, which stood at $12 billion in 2019, is
expected to rise to $100 billion by 2025.

The rural population is turning tech-savvy and, with the growing penetration of smartphones
and the internet, rural consumers are aware and knowledgeable about brands and products.
These consumers demand high-quality products that help them live on a par with their urban
counterparts. According to Kearney India Retail Index, with the increasing use of mobile
phones and availability of the internet, the rural markets have been uplifted.

4As of rural marketing

The 4Ps of marketing are a standard for marketing strategy. But rural marketing needs
something different — these are the 4As — acceptability, affordability, availability, and
awareness. For any company to be successful in rural India, an adequate mix of the 4As is
necessary.

Acceptability

Products designed for urban consumers may not be suitable for rural customers. It is important
to ensure acceptability. Rural customers demand products with high utility value and
convenience to use. In smaller villages, the demand is for products that help save money and
effort. Godrej Consumer Products, for example, created acceptability for their range by
showcasing the products at rural haats , melas , and religious gatherings.

Nestlé introduced several products specific to rural India to gain acceptability among
customers. These include Maggi Fried rice masalas, paneer masala mix, and Nestlé Ceremeal
Daliya.

Affordability

When the income of average Indians is considered, people in the rural areas earn less than half
their urban counterparts do. In 2019, the government’s estimates of per capita income in terms
of Net Value showed that urban per capita income was ₹98,435, whereas in the rural areas it
was ₹40,925.

It is the foremost requirement that all products and services designed for rural areas are
affordable. At the same time, the rural population needs products of high quality, so it is
necessary to design products that are value-adding for rural consumers. They prefer smaller
packs as they are more affordable.

This has led to the proliferation of sachet packaging in India. Coca-Cola introduced 200 ml
PET bottles priced at ₹5 to push the beverage into the market. Nestlé too has been bringing in
some products like Maggi and a few types of chocolate in smaller quantities priced low, to
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make them affordable.

India has over six lakh villages, spread out across the country. Over a quarter of these villages
are not connected through all-weather roads. It is important for FMCG companies to make their
products available in the hinterland if they want to take advantage of the demand there. The
last-mile distribution is, however, a challenge in India. FMCG major HUL addressed it through
its ‘Project Shakti’. Nestlé is available in nearly 90,000 villages, which still left a lot of villages
uncovered.

The company could consider replicating the highly popular até Você door-to-door micro-
distribution system that it has successfully used in Brazil. In this system, distributors and
resellers from the local community sell Nestlé products in their neighbourhoods. Though Nestlé
used this system in the urban markets of Brazil, a similar programme can be envisaged to reach
the rural population in India.

Awareness

While literacy levels are lower in rural areas than in urban areas, growing internet adoption has
made it easy to reach people and create awareness. At the same time, marketers may find it
difficult to cater to the rural population as most of the advertisements in the country are urban-
centric. The fact that languages and dialects change every few miles makes it important for
FMCG companies like Nestlé to come up with specific programmes for the rural population.

One unique awareness-building programme started by HUL to reach consumers in the rural
hinterland was a free mobile radio service called ‘Kan Khajura Tesan’. This mobile-based, on-
demand entertainment initiative was launched in Bihar. Through this service, customers could
listen to songs, dialogues from popular movies, jokes and poetry in Hindi and Bhojpuri by
calling a particular number. These programmes were interlaced with advertisements for HUL
products.

Retrieved by Prof. Arnob Sen, TISOMS from https://bloncampus.thehindubusinessline.com/case-studies/nestl-powers-on-

with-a-rural-revamp-and-innovation/article64635111.ece, dated 04/04/2022 @ 0109 hours