Reference no: EM133298706

In 2021, FMCG Company Nestlé India Limited declared that it would spread its reach to 120,000 villages by 2024 by sprucing up its rural distribution channels. Suresh Narayanan, Chairman & Managing Director, Nestlé India Limited, said, "Rural is an important dimension of the next phase of Nestlé".

Nestlé had always been associated with the urban market. Its product portfolio found takers mostly among urban Indians. It had, however, always had a presence in rural India though on a very small scale. In 2015, after the Maggi fiasco, where the product was banned in several
states due to its lead content and was later reintroduced, Nestlé wanted to reduce its dependence on a few products and also widen its reach. By 2016, its reach extended to just 1000 villages.

Nestlé planned to reach out to those villages which had a population of more than 5000. By doing so, it planned to cater to the needs of consumers in rural India, whose consumption patterns were changing rapidly, and where products tagged as 'urban products' were finding
many takers. Nestlé also introduced several new products and was looking at extending its reach further.

As Nestlé was developing its distribution systems to reach the rural hinterlands, the competition was not far behind. Another FMCG major, HUL, was well entrenched in the rural markets with a presence in over 300,000 villages in the country. Indian companies like Dabur and ITC were also strong with a presence in more than 100,000 villages.

The New Channels
Nestlé reached out to rural India through multiple channels. The company used a combination of direct distribution and wholesale trade channels for the rural market. Narayanan said, "The route to market has to be different. It cannot be the same." The company even participated in local hats to advertise and sell its products. Many of Nestlé's advertisements were created in the local languages to woo the new markets. With the rural push, Nestlé had covered 89,000 villages by 2019.

The Results
During the pandemic, growth in the urban areas tanked, but the rural markets showed accelerated growth. In the quarter ending December 2020, while Nestlé's overall sales grew by 10%, urban sales grew by just 6%. Narayanan was of the view that the main reason for the falling demand from the urban markets was the reverse migration that took place in the wake of the lockdown imposed to prevent the virus spread. At the same time, semi-urban and rural India were experiencing growth. For example, Maggi had found several takers in rural markets, pushed by advertisements in the local languages and smaller packs priced at Rs.5 The Competitive Landscape

A study conducted in 2019 by the World Economic Forum and Bain & Company stated that there was a shift in the consumption pattern of Indians. According to the report, the information divide between rural and urban consumers was getting narrower due to the extensive reach of the internet.

Challenges for Nestlé
Nestlé was a late entrant into the rural market. Other FMCG companies had already established their footprint in rural India. Hindustan Unilever (HUL), ITC, Dabur, Britannia, Coca-Cola, and PepsiCo had been expanding their rural distribution since the early 2000s. ITC catered to close to 100,000 villages by 2021. a) Assume that Nestlé India Limited considers e-commerce as a channel for reaching its rural and urban customers. In doing so, it has to enter into online sales contracts with some of its B2B customers. Identify any five key questions that Nestlé should ask to test whether an enforceable contract will be formed by the chosen online method.

b) One of the key areas of consideration for companies like Nestlé India Limited is the future of e-commerce in their business. Explain the future for e-commerce in terms of the way it could potentially change the business environment for Nestlé India Limited.

c) It is often argued that the digital asset (information saved in digital form) is the key to the virtual value chain for companies such as Nestlé India Limited. Using examples, briefly outline the five main characteristics of the virtual chain.