Nestle plans R&D centre for India mart

Like many other Western companies, Nestle is ramping up in emerging markets where fast-growing economies and young populations mean an increasing number of consumers can afford nonessential goods. Nestle predicts that 45 per cent of its sales will come in emerging markets by 2020.

In India, Nestle will focus on making nutritionally enhanced foods for people with lower incomes, said Nestle Senior Vice-President and head of research and development Klaus Zimmermann.

Nestle already caters to India’s love of spice by making Thrillin Curry two-minute noodles and a Sweet Chilli Sauce that it packages like ketchup, but the company plans to go further.

“We have to understand the consumer in India, and know how they cook,” said Zimmermann. The research centre will be predominantly staffed by Indians, and will develop products relying on Indian cuisine, traditional ingredients and spices.

Analysts said the move was part of a global trend of focusing on India. “I see India as the next China in terms of importance for international consumer goods companies, and it is happening now,” said Kepler Capital Markets Head of Swiss research Jon Cox.
“Nestle’s new R&D efforts underline India’s growing importance for the group.”

Coca-Cola’s top executive in India said the soft drink company would spend more than $120 million to set up a plant in Karnataka. The factory will increase Coca-Cola’s investment in India to more than $1.2 billion, Hindustan Coca-Cola Beverages Chief Executive  T Krishnakumar told Dow Jones Newswires. Nestle’s sales in India last year were $1.14 billion, or one per cent of overall sales of $108 billion, but they grew almost 20 per cent during the year. Nestle’s profit margins in India are 4 per cent higher than at the company overall, executives said.

The company is already the second-largest private buyer of milk in India, after the dairy giant Amul. Nestle has been dogged for years by criticism that it markets baby formula in developing countries like India too aggressively, discouraging mothers from breast feeding. The company does not advertise baby formula in India. Nestle faces stiffer competition in India since Kraft took over the British chocolate giant Cadbury. At the time, Kraft executives said Cadbury’s emerging market presence was one reason for making the deal.

“We have to work harder to keep our presence and position in India,”  Nestle India Chairman and Managing Director A Helio Waszyk. India has become the de facto laboratory for Western companies trying to figure out ways to sell to emerging market customers.

These companies are drawn by India’s pool of scientists and engineers, who can earn less than 10 per cent of their peers in Europe and the US, and India’s long tradition of innovation when raw materials or machinery were not available. In recent years, General Motors said it was developing low-cost cars here; Bristol-Myers Squibb opened a pharmaceutical research centre; and DuPont said it would open a laboratory here.

Nestle is investing about $50 million to build the research centre. The company is also building a factory in Karnataka and plans to open another factory just for its popular Maggi brand fast-cook noodles. Some global companies, including pharmaceutical manufacturers, have begun to spin off their research and development arms and contract out the work.