Largest Food Company In The World: Nestle In India

Nestle, a name that echoes in the most remote places of India is one of the leading food and beverages companies all around the globe. Headquartered in Vevey Vaud, Switzerland, Nestle is the world’s largest food company measured in revenues and other metrics since 2014. According to Forbes Global 2000 list of largest public companies 2016 edition, it ranked no. 33 and no. 64 according to Fortune Global 500, 2017 edition. Nestle’s relationship with India dates back to 1912 when initially it started trading as The NESTLE Anglo Swiss Condensed Milk Company (Export) Limited, importing and selling finished products in the Indian Market.

Post independence, when the scenario of the entire nation had changed, Nestle introduced it’s first manufacturing unit in the year 1961 at Moga, Punjab. Indian Government saw this as an opportunity to boost up the milk economy and today the Company’s activities in India have facilitated direct and indirect employment providing livelihood to over a million people including farmers, suppliers of packaging materials, services and other goods.

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As of today, Nestle India Limited’s net profit has risen from Rs. 263.43 crores to Rs. 395.03 crores over FY 2017. No wonder why it stands as the world’s largest food company. Article Analysis: Nestle India Ltd, the local entity of Swiss packaged food maker Nestle SA, reported a 50% jump in its net profit this Friday, for the quarter ended 30 June, backed by lower cost of raw materials. Net profit for the June quarter stood at Rs 395.03 crore as against Rs 263.43 crore in the year-ago quarter (Mitra).

This short, brief article in LIVEMINT talks about the reasons behind the above. One of the factors involved is lower cost of raw materials. This basically means, acquirement or production of intermediate goods, which however leads to final goods, is cheaper than before or levels of value added at the initial steps is lesser than usual which creates a larger margin of profit at the producer-consumer line. Suresh Narayanan, chairman and managing director, Nestlé India, stated in an official conversation and I would like to quote that this jump might well be due to “favorable cost of commodities” among other factors like “cost efficiency programs”. He also held account, positive effects of favorable market momentum that helped in sustaining the quantity of volume growth across all categories from food to beverages. In its website, Nestle states its efficiency strategies to commit to margin expansion, to be precise, setting an underlying trading operating profit margin target of 17.5% to 18.5% by 2020, up from 16% in 2016.

Further they plan on optimizing their manufacturing footprint and increasing efficiency throughout operations. This will both increase their capacity utilization and reduce the conversion costs. This macroeconomic jump is a result of a chain of other jumps most of which lies in the micro - economic benefit and planning. Revenue from operations grew by 8.6% during the quarter, helped by volume growth across categories, to Rs 2,698.40 crore from Rs 2,484.73 crore in the same quarter last year. Note that the rise of 215 crore of revenue in operations led to a whooping jump of roughly 131 crores in profit. On usual scales, profit that was roughly 11 percent of operational revenue became roughly 15 percent leading to operational as well as running efficiency. On proportional scales, there was a 60 percent rise of additional profit with respect to additional revenue which indirectly fine tunes with their strategy. In simple terms, there is a greater scale of returns (profit) towards every additional unit of output sold. The volume of domestic revenue grew 8.5 percent, whereas it’s counterpart i.e. revenue by exports saw an 8 percent rise. Now coming to the adversities, most of which is claimed to be blamed at the rollout of the new taxation system i.e. GST. The articles itself says, “The growth rates are adversely impacted due to lower reported sales by the change in structure of indirect taxes and reduction in realizations to pass on the GST (Goods and Services Tax) benefits”. The domestic sales have been estimated to rise at 14.5 percent.

A lot of the commodities that Nestle deals in or with like wheat, corn, coffee etc. are soft commodities and before the rollout of GST most of these markets benefited by soft trading (the buyer’s market) which indirectly acted as a base for the volume growth in sales. “Now with added whole nutrients.” One hears or reads these sentences every now and then over television ads and posters. A rational consumer, while buying food must always look at utility and pricing, in this case, price, taste and nutrition. Nestle has been constantly working on the taste factor but what steals the show is the research and study on nutritional value. This is a good step for not only the firm but for the consumers as well, as it shall led to a more prosperous society and more productive economy. In short, nutrition and consumer behavior around it is some sort of an externality which benefits nestle as well. On its listed strategies, it claims that “Nestlé’s success is built on its Nutrition, Health and Wellness strategy”. Their aim is to “provide the tastiest and healthiest choices, at all times of the day and for all stages of life, delivered in a convenient and time - saving manner. Also to offer consumer healthcare products to help people meet their health and wellness goals.

“According to Nestle India, its chocolate brand Kit-Kat, instant coffee brand Nescafé and instant noodles brand Maggi continued to grow strongly during the period under review. (Mitra) In addition to this, the food company has also entered the breakfast cereal market with Nesplus and canned beverages with Nescafé ready-to-drink offerings during the immediate past quarter to boost presence in growing health and nutrition space. (Mitra) The company has worked on adding components like veggies, micronutrients etc. to its products and work on sodium, sugar and fats usage to make food healthier yet tasty. In exact words, “Good Food Good Life”.