Is Nestlé right to persevere in the Indian coffee market?

Nestlé play the long game for the Indian coffee market
  • The head of Nestlé’s Coffee Strategic Business Unit has identified India as a market of focus
  • Nestlé will invest in their “core” range, which contributed 12% to their total revenue in the country last year
  • With year-on-year growth in the Indian coffee market projected to sit at just 2% until 2025, Nestlé is playing the long game

India has long been recognised as an exciting prospect for coffee brands. With a rapidly growing middle class and a population that is expected to overtake China this year, it presents a huge opportunity for global brands hoping to capitalise on the increased consumption shown recently in other Asian countries.

Phillipp Navratil, head of Nestlé’s Coffee Strategic Business Unit, recognised India as a market of focus for the food and beverage conglomerate in a recent interview.

Last year, Nestlé allotted over $600 million to invest in the Indian coffee market by 2025, with half of the investments allocated towards scaling their coffee and confectionery portfolio within the country.

Rising at-home consumption, a strong café culture, and more premiumisation opportunities for coffee products were all earmarked as reasons for a focus on the market. Since the investment was announced, it has now become one of the company’s most prominent strategic markets.

As in other markets around the world, the influence of Gen Z and young millennials is becoming a defining feature. Global brands are repositioning themselves to appeal to younger generations, and this is no less true in India.

“There has been increasing growth in coffee consumption, especially among Gen Z,” says Sintila Samanta, senior coffee taster at ITC Limited. “Specialty coffee shops are appearing in major cities across India. There’s definitely increased attention towards coffee quality, as coffee enthusiasts spread their knowledge about new experimental coffees and the various processing techniques.”

As a result, there is a growing conversation about more premium coffee products.

“More and more people are talking seriously about premiumisation,” she says. “There is a growing demand for premium products, which is generating a lot of conversation. People are becoming more interested in taste profiles and having a good experience with coffee.”

Yet, an out-of-home coffee culture is still developing. As such, Nestlé hopes to capitalise on a growing interest in premium coffee by focusing on at-home consumption. Their “core” range, comprising Nescafé Classic, Gold and Sunrise blends, contributed 12% of their revenue in the country last year, with full sales reaching over $2 billion.

These products will continue to be the central focus for Nestlé. As they seek to penetrate the household market for a rapidly-growing middle class, it has no plans to roll out its higher-end premium range – such as pods.

This is just the latest step in a waiting game that food & beverage multinationals have been playing for decades. Everyone seems confident India’s coffee-drinking population will one day explode – and brands want to be poised to pounce when it does.

But how long until that happens?

The Indian coffee market is experiencing slower-than-expected growth

Nestlé is playing the long game

Despite continued conversations about the latent potential of India’s coffee market, year-on-year growth is projected to sit at just 2% until 2025, meaning it will be massively outpaced by other emerging global markets.

As a result, brands who have entered the Indian market in anticipation of quick, explosive growth have been forced to wait – and this slowdown has already seen the closure of hundreds of stores across major cities in India.

In spite of this, Nestlé is remaining persistent and continues to invest heavily in India.

It is generally accepted that China and India have huge potential as developing markets. The conclusion for most coffee brands is that if you are able to enter them, it can be incredibly lucrative.

The challenge, however, is entering them.

While the European and Northern American markets both largely have an established coffee culture – allowing global brands to expand within them with relative ease – developing markets such as India and China are completely different. The same strategies do not work.

The Chinese market is now paying dividends for multinationals that have been waiting patiently, but the Indian market remains obstinate in the way that it has been operating for many years.

Furthermore, for countries like China and India where the population (and its distribution) is colossal, understanding and predicting consumption habits becomes considerably more difficult. While it’s easy to generalise to consumer segments in individual European markets (think of Italy’s love for espresso bars, or Nordic countries’ relationship with light roasts), this simply does not work in India.

“The majority of people who reside in the southern part of India consume coffee on a daily basis, but they drink traditional filter coffee mixed with chicory, milk and sugar,” Sintila says. “While a large number of North Indian people rely on instant coffee.”

It could be argued that Nestlé’s focus on its “core” product range is an acknowledgement of this fact – that while interest in higher-end premium coffee may be slowly gathering momentum, consumption habits are complicated and slow to change.

Nonetheless, despite other global brands withdrawing from the market, Nestlé remains steadfast. Soon to be the largest population, the sheer size of India’s coffee market – along with its rapidly-growing middle class – clearly presents opportunities in the long term. While it’s not clear yet how long this might be, Nestlé’s commitment to staying in India shows a willingness to hold steady and absorb any of the costs needed to play the long game.