Nestle uptrades on satchets in a daring pricey-times move

Nestle India, the maker of Maggi noodles and KitKat chocolates, has thrown down the gauntlet at the ‘low price point’ theory fast moving consumer goods (FMCG) companies swear by.

The subsidiary of Swiss food company Nestle SA has recently taken a bold step of moving away from the traditional price points of Rs2, Rs5 and Rs10. Instead, it has started experimenting with price points of Rs7, Rs12 and Rs14 across noodles and chocolates.

The company, pressed by high input costs and keen to safeguard margins, has effected price hikes across its dairy portfolio, too.

Accordingly, KitKat, previously sold at popular price points of Rs5 and Rs10, has now been rolled out at price points of Rs7 and Rs14, respectively. Analysts suggest this has been done to target a different set of consumers and add flexibility to tap consumer spending.

The company is looking to replicate the same pricing strategy with Maggi where the product will be available at more price points than before. In some variants of Maggi, the company has also moved up from Rs10 to Rs12.

Typically, stock-keeping units (SKUs) at low price points or popular price points of Re 1, Rs2, Rs5 and Rs10 help FMCG companies add new consumers and drive volumes. These price points have been touted as a huge success in rural markets by most companies, and even as consumer goods companies have hiked product prices on larger SKUs and reduced weight on smaller SKUs, no player wants to fiddle with the low price points, until now.

“As Nestle is expanding distribution across the country, it is looking at multiple channels that serve a different set of consumers. It is hoping that multiple SKUs and price point offerings will find takers. Whether Nestle succeeds in this attempt, we can only wait and watch,” an analyst said, requesting anonymity. “Low price points are critical to FMCG companies because any hike there can risk volumes,” the analyst said.

Last year, even as rival Cadbury India introduced products at popular price points of Rs2, Rs3 and Rs5, Nestle went on to raise prices of KitKat from Rs5 to Rs6 and from Rs10 to Rs12, only to bring them back to the original pricing after seeing volumes dip.

In recent years, biscuit makers to personal care players, all have taken efforts to establish presence in the popular price point segment to attract consumers. Last year, companies like Marico, Cadbury India, Britannia Industries and Parle Products gave increased attention to presence in the popular price bracket.

“Nestle has over the last two months implemented aggressive price hikes in the chocolate portfolio and milk products portfolio, in both the core milk category and the dairy category. This aggressive pricing strategy, despite increased competition, underlines the company’s strong brand franchise and leadership, in our view,” analysts Manish Jain and Anup Sudhendranath of Nomura Financial Advisory and Securities wrote in their recent report.    

All the categories the company is present in —- milk products, chocolates, beverages and noodles —- have grown in double-digit value and volume terms.

Another reason analysts are positive on Nestle is the heightened investment from the parent company into India. The company is eager to launch products from the global portfolio to India and has promised to invest as much as Rs1,700 crore over the next two years in expanding capacities.

On Wednesday, Nestle SA’s chief executive officer Paul Bulcke announced operation of its new culinary plant in Nanjangud, Karnataka that the parent company had invested Rs360 crore in.