‘Focus on smaller towns, urban areas’ helps Nestle clock double-digit growth

Nandana James Mumbai | Updated on December 18, 2019 Published on December 18, 2019

Suresh Narayanan, CMD, Nestle India   -  Bijoy Ghosh

Dampened sales in rural areas have much lesser impact on FMCG major vis-à-vis its peers

At a time when the FMCG sector is facing the heat of the overall slowdown in the economy and growing at a rate of around 5-6 per cent, Nestle India has been witnessing a double-digit growth, due to its lower rural footprint vis-a-vis peers as well as its “very strong growth” in tier-2 and tier-3 cities, said Suresh Narayanan, Chairman and Managing Director.

The sales growth comes in the backdrop of the rural growth for the FMCG sector dropping below urban growth for the first time in seven years, as per Nielsen’s India FMCG Growth Snapshot report on Q3 (July to September 2019).

The FMCG major has 20-25 per cent sales coming from the rural areas, which is lower compared to competitors. “For the first time in many quarters, the rural growth has actually gone below the urban growth. That has not happened till now. This is creating some stress points for companies which have a larger footprint in terms of rural sales, or have a portfolio that is also strong in rural (areas),” said the Nestle India chief.

He observed that a combination of lower agricultural income, together with the overall stress in the economy, was creating this situation.

“We have managed to show fairly strong volume-led growth in the last eight quarters,” said Narayanan, speaking to reporters on the sidelines of the Confederation of Indian Industry’s National FMCG Summit 2019.

But, he underscored that the company is not insulated from the dampened sales in rural areas, as a quarter of its sales still comes from these areas.

Covering more retail outlets

The company has also been improving its access over the last couple of years, both in small towns and urban areas, he said. Earlier, it was covering around 4.5 million retail outlets and it is now looking at increasing it to around 5.5 million outlets.

What has also worked in the favour of the company is that consumers are seeking brands which are associated with the highest level of trustworthiness, in terms of quality and value, said Narayanan. People in rural areas are also increasingly focussing on quality and brand value, he added.

Nestle India plans to tap the health sciences product category further, he said.

On whether the company has adopted any special strategy keeping in mind the slowdown, the Nestle India chief said, “I don't think there is anything specific that we did only for the slowdown.

“The fact of the matter is that four years ago we had a massive crisis as a company — the whole Maggie episode that happened — so we were really very, very focused on bringing the company back on the rails and doing all the things that are in consonance with what the consumer is expecting of us — not only (bringing) the favourite brand back, but also new brands, new offerings, better advertising, greater investments behind the brands. So, we did whatever was in our belief essential to be a successful company.”

Input cost pressure

Meanwhile, he termed the input cost pressure facing the FMCG industry a serious matter. Prices of commodities like milk and wheat, which FMCG companies are dependent on, have been increasing. Food inflation is here to stay, and it is not what it was a few years ago, he said.

“What we normally try and do is, we try and see if we can mitigate it through better efficiencies, through better economies. And only in a very extreme case do we look at increasing the prices, because we are cognizant of the fact that as we sharply increase the prices, the levels of penetration will also get affected. But it is a big challenge,” he said.

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Published on December 18, 2019
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