Having said that ~80%+ value sales of baby food and ~60%+ infant formulas happen in North America and Europe. But the other markets are growing faster. I think this is natural.
The three most important things for adoption are a) brand name b) quality/safety and c) nutritional content. Price doesn’t figure in top 3 considerations for purchasers of these products. Also I read somewhere that the most prominent way of spreading brand is word of mouth.
The other brands in the market are primarily Similac by Abbott Nutrition, Enfamil, also there are some specialized brands which do not contain any milk products (these are essentially for babies with lactose resistance). There is even a black market for such specialized infant powders where they sell for over a 100% mark up!
Nestle India contributes to <2% of Nestle sales globally. Also in the Infant and Baby product suite very few are actually sold in India. For instance we have Nan Pro plain vanilla offering but in Australia there are variants which are much better in terms such as different content which a baby’s body absorbs more efficiently. Australia for instance has over a dozen variants of Nan line of brand. We have only one which is the most inferior not that its bad.
Also note the diaper market and infant formula market is very correlated. This is what I have observed and heard. We have a lot of data available of growth in diaper market but little about infant formula.
Coming to Nestle baby nutrition. I happen to have a very good friend of over a decade who used to be the brand manager of this for India and then for South Asia. Discussing with him gave me insights into what kind of quality control goes into the plant at Samalkha (as far as I remember the name). They do a great lot of research in order to produce stuff. One small anecdote. We hear that babies/toddlers should be given ragi. Nestle also evaluated this in India. They had product samples etc but they concluded even if the opportunity is great they will not launch. Why? They said the quality of ragi in India is not good as per their liking. Even in the variants of Nan they do not sell all types in India because they want to maintain the quality. That is the top most priority. My friend doesnt work with Nestle anymore.
I dont think they will be displaced in this niche segment. And the market size will only grow as our gdp/capita grows.
Regards
p.s. I have used Nestle Nan Pro, black market lactose free formula, Nan variants sold in US/Australia so I am kind of a consumer. Technically my child is.
Nestle is an undisputed market leader in baby food. Their revenue from Baby food segment is very stagnant over the last few years and as such, I don’t expect any sudden growth unless the company launches any new products.
At the same time, their market share is quietly being taken away by new entrants. Abbott in particular.
I think the table takes Nan Pro and compares it with something like pediasure and shows them as a %. They may have to segment them carefully based on age.
After reading this thread I was having a conversation with one of my colleague,he became parent some time back. And he said that the doctor gave him a list of the foods not be given to the infant kid. And Cerelec was at the top of the list. Reason being it is kind of addictive to the kids. I am not sure how wide this practice with the doctors now a days. Need to dig deep on this point. It might be one the odd cases.
Nothing works better then mother’s milk.if at all supplement needed…then…home cooked food items and not packaged infants food…
This is the trend of neonatologist… and health conscious parents …not the odd case…still Nestle manages to keep up sales …but yes…a growing barrier for cerelac…
It’s highly addictive like any sugar based product. That is the reason 99% of kids who gets addicted will be a consumer of cereals and other processed foods. Obesity is the biggest beneficiary of processed foods which we teach our kids from childhood. Walk around and see how many have a thin waistline. You will be surprised that 99% of population is not bothered about being fat and unhealthy. They just want reassuring words that what they eat is healthy. So a Nestle product saying zero sugar and whole grain will be enough to make consumers buy them.
Nan Pro on the other hand is a necessity as mother’s milk is not going to be enough as mother’s work these days and their bad lifestyle ensures that milk is secreted lesser than our grandmother’s.
Go realize reality, please touch your waistline and feel the fat
I think we are confusing two things
a) Mother’s milk substitute - In this case Nan brand ie Infant Formula
b) Baby Food - Cerelac
Now Infant Formula is something which is always inferior to Mother’s milk. Mother’s milk has something called Lactoferrin. The first milk of Mother has 7x-10x time the content of Lactoferrin than the later milk which the baby drinks. This Lactoferrin is the critical immunity improver. It doesnt come in Infant formula though synthetically it is sold for instance in Bangalore we get something called Laktrum Powder.
Mother’s give infant formula for two reasons a) not able to generate enough milk for feeding b) occasional management since sometimes the child either doesnt have the strength to latch or is tired. My child came off Nan Pro very easily.
Baby food is not addictive atleast for my child. I can take her without cerelac for weeks. I use it only for a quick evening snack when I am actually lazy to cook something for her. I hope the discussion doesnt go into parenting now
You don’t know that yet. The very DNA is changed by a substance called Gliadin. It works without you realizing it and 99.99% won’t know that for the next 100 years. That seems like a good time frame to exit the processed food business after a hearty profit due to compounding and ignorance of the masses.
Nestle products are indeed best in their areas…wanted to know ur thoughts on agro tech foods…a mini FMCG company in India belonging to US giant con Agra…it is testing investor patience it seems
Saurabh mukherjea of Marcellus on how Nestle is a consistent compounders and why HUL is not in the same league . An interesting video http://www.ecoti.in/5RZWXa
Article referenced in the above video, an interesting read
Screener shows the ROCE of Nestle for the last 8 years around 50-70% and dividend payout around 60%, while the ROCE figures for HUL are 100% + and dividend around 80%. Would that not mean that HUL is ploughing back similar % of capital into business and at a much better ROCE. So, why is Nestle better? Can someone please explain?
1 For Higher growth rate, Market always accord higher appreciation for stocks with growth . Eg Hawkins has very high ROCE but almost flat growth since many years and thats why its price hasnt moved substantially .From Dec’04 HUL profit increased from 1201 Crores to 6054 crores i.e approx 5 times in 15 years (roughly) while Nestle has increased from 252 Crores to 1606 crores (approx 6.37 times and this is despite maggi issue else it would be much higher ) in last 15 years with last few years showing very high growth rate almost double to that of HUL . As per ratestar.in Nestle 3yr PAT CAGR is approx 17% while HUL 3 year CAGR is 10.37%
2 Base of HUL is much higher and as @nav_1996 pointed out , is in much more saturated categories and HUL looks to expand through inorganic expansion whereas Nestle continuously tries to expand organically (having lower base) through brings out new products and has a strong product line with market leadership in its major products segments like leadership in Baby food (almost monopoly and much higher market share ) and Food products like Maggi , Nescafe having slightly semi addictive type and are category market leaders and a decent market share in confectionary as well .
3 And IMHO ploughing back , if it doesnt result in commensurate growth in sales and profit , then it wont be value accretive
HUL is reinvesting 20% (100% - 80% dividend payout) of the earnings back in the business. The ROCE is 100, so the earnings growth every year is expected to be 20%
Assume the ROCE for Nestle is 60%, they are reinvesting 40% (100% - 60% dividend payout) of the earnings back in the business. The expected earnings growth for Nestle is 24%. Nestle earnings growth is higher because they are reinvesting bigger chunk of earnings back in the business.
This is simple theoretical justification, the real returns are determined by actual earnings growth that the business delivers.
Recently on a visit to a small supermarket saw this:
Like the Maggi Coconut Powder which is imported from Sri Lanka, this Nesquik is imported from South Africa. Once volumes and sales pick up, Nestle India may manufacture in India itself to have lower price point and possibly increased margins. And talking about margins, saw this Maggi Nutri-licious Breakfast cup:
It has strong r&d capabilities and while this product may not immediately be launched in India , as @drgrudge rightly says the chances of introducing new products from the parent pipeline remain significant due to high growth opportunity in India .
Disclosure- this is not a recommendation and I am not a sebi registered analyst. Pls do your own due diligence before investing
Another oft-overlooked growth driver is exports. They export to ~ 40 countries (Top 5 are: Turkey, Bangladesh, USA, Canada and Australia) but gets only 6% revenues from exports. They aim to become more aggresive on this front and looking to enter more overseas market.
It is a bit intriguing because Nestle being a Global company is bound to have presence in different overseas markets, also they could export from their parent company too. The reasons I could think of are the following:
Some Nestle Products (e.g. Maggi) have India specific local flavours, and these are popular among NRIs (in USA, Canada, Australia etc.) and in countries with similar tastebud (like the countries in Middle East, Asia Pacific and South Asia).
Taste of Coffee or Tea differs based on the sourcing region. So, NesCafe, NesTea made in India are bound to have different tastes. Turkey is a big market for India made NesCafe.
There could be some India Specific brands (are there any?), and unique products in global brands, which they may export too.
I believe points 1 & 2 are unique for a Food company. Global companies in non-food FMCG segments do not have this benefit but can export products falling under point 3 (like HUL does).
