Nestle revamps distribution structure to drive growth

Hit by the low sales growth in chocolate and other products, Nestle India is revamping its distribution structure to drive growth. The company has added 15 regional sales offices in its sales and distribution structure from Januray 2004 to drive product reach into the smaller towns and cities across the country.

It has also earmarked 25 per cent of its product portfolio at affordable price points and cut prices of Kit Kat to drive volume growth. The company is also planning product nnovations and aggressive distribution into India's hinterland.

Nestle has seen volume growth in chocolates slow down after the worm infestation controversy around Cadbury surfaced this year.

In other categories like milk products, noodles and baby foods, the company is taking new measures for market penetration. In order to expanding the market in milk products and noodles, Nestle has reworked its advertising and communication strategy to
grow the low unit price packs.

The company has started marketing its infant nutrition products directly to doctors to counter restrictions on advertising. Nestle is also planning to hire medical representatives to undertake direct marketing of infant nutrition products to paediatricians.

The company has also been affected by a rise in raw material prices. The milk and nutrition segment recorded a stronger volume growth (+8.4 per cent) in spite of the advertising ban on infant nutrition, which came into force in January 2004. Raw material prices peaked during the year, putting pressure on margins.

The management is implementing programmes to control key raw materials costs.

The company feels that raw material cost inflation could soon be brought under control.

The company recorded very low sales growth of 3.7 per cent last quarter as sales were by a non-recurring factor of insufficient availability of milk solids, which restricted production. Due to high prices of solid milk, the use of the milk was allocated to the most profitable business in its product. Also sales to canteen store departments (army sales) and ghee sales were stopped during the period, impacting sales growth. This shortage has now been resolved and is unlikely to recur in 2H, the company said.

For the export market, there has been a decline in sales value as there is a movement from retail packs to bulk packs. This has resulted in price declines in the coffee export segment.