Nestle continues to underperform multinational peers Unilever and GlaxoSmithKline Consumer Healthcare

 Nestle, the world's largest food company, last week reported its slowest growth in business and profits in several years for 2012 as it continued to underperform multinational peers such as Unilever and GlaxoSmithKline Consumer Healthcare in India.


MUMBAI/NEW DELHI: Nestle, the world's largest food company, last week reported its slowest growth in business and profits in several years for 2012 as it continued to underperform multinational peers such as UnileverBSE 0.29 % and GlaxoSmithKline Consumer HealthcareBSE -0.85 % in India.

Analysts blame increasing competition, lack of innovation, parent's indifference and excessive focus on margins at the cost of volumes among others as Nestle IndiaBSE -0.57 % last week reported 11% growth in sales for 2012, its slowest in eight years and far behind Hindustan Unilever's 17% and GSK Consumer's 15% growth.


Worse, Nestle India's contribution to its Swiss parent' s revenues declined to a meager 1.57% from 1.69% a year ago. In comparison, Indian units of Unilever, GSK Consumer and Procter & Gamble have been significantly increasing share to their parent's kitty every year.

Nestle India's profits too grew at a 7-year low of 11%, while both 
HULBSE 0.29 % and GSK Consumer increased their profits more than 20%. 

While most global firms across sectors have been increasing their focus on India as one of the largest and fastest-growing 
economy, Nestle seems to be indifferent to the country. When its global CFO Wan Ling Martello presented the latest annual results in an investor call earlier this month, he spoke about the focus on emerging markets at length but largely ignored India, mentioning the country only once. 

Analysts say Nestle, which recorded sales of $100 billion (about 5.4 lakh crore) in 2012, has not been investing enough on its brands and marketing and its innovation funnel has dried up, helping rivals eat into its 
market share when Indian consumers were cutting back on discretionary spends. 

"In Nestle's case, the company's under-investment in brands over the past 3-4 years and the management's excessive focus on margin expansion in a scenario of losing market share is delaying a possible growth recovery," Arnab Mitra and Akshay Saxena of 
Credit Suisse said in an investors note. 

A Nestle India spokesman chose to shrug off its poor show as a one-off event. "Minor variations from one year to the other are not necessarily related to sales in a country but could be caused by factors such as currency fluctuations, impact of acquisitions in certain countries and not in others and so on," he said. "Nestle India has delivered a steady performance with focus on profitable and sustainable growth." 

Its global CEO Paul Bulcke recently admitted a slowdown in India. "Consumption has slowed down in India and that's not good, but we aren't cutting back on 
investments and look at India with a long-term horizon," he told ET in November. 

Nestle India's rough ride is reflected on its stock price too. Since last year, its shares moved up just 5% while the 
FMCG Index soared 35%. 

"The company's ability to outperform market growth is being questioned, as its execution capabilities have been under a cloud, in our view," Manoj Menon of 
Deutsche Bank wrote in a report dated February 20. The investor report, which recommended 'sell' on Nestle's stock, said the firm's "unwillingness to invest in new launches is surprising". 

In fact, Nestle has been going in the opposite direction, weeding out low margin products and opting out of low-margin channels over the past few quarters. For instance, it terminated milk supplies to the armed forces at low margins through Canteen Stores Department and discontinued sales of Nestle Eclairs to improve its realisation growth. 

"Nestle categorically has been focused on maintaining threshold SKU level profitability amidst persistent input price 
inflation throughout the year through a host of measures including price hikes and even discontinuing certain set of SKUs," Amit Sachdeva of HSBC wrote in a report to investors.