Power Grid Corp: Ramping up volumes is the way forward

For Swiss food giant Nestle, the 2012 show was marred by low volume growth, a fallout of price increases carried out by the company. The strategy of protecting the bottom line may have backfired in the near term, but could well be rewarding in the long run, once consumer sentiment — which is ebbing now — improves and discretionary consumption picks up.


Rising competition, however, is a threat to this. Compared with its historical revenue growth rate of over 20%, Nestle could manage only an 11% growth in CY12. Operating margins for the year were at 22%, higher than the historical level of 20%.

According to a recent report by Karvy Stock Broking, the company’s increased focus on high-value segments helped it boost profitability in the past few quarters, but led to a loss of momentum in the low-value segment.

Savings on raw material cost also helped Nestle improve its margins in 2012. But it remains to be seen whether the company will be able to sustain such higher margins.

Having exhausted the option of price increases to ensure revenue growth, stimulating volumes is the only option for the company to ensure further growth.

This can be done by investing more in brands, carrying out marketing innovations and by offering discounts and freebies. The company cannot afford to lose market share in the face of rising competition from firms such as ITC, HUL and GSK Consumer Healthcare in products like noodles and soups and from French foods giant Danone in the dairy segment.