Suresh Narayanan, Chairman and Managing Director of Nestle India, has pointed out that fast-moving consumer goods (FMCG) companies are struggling with volume growth due to persistent food inflation and a slowdown in demand from mega cities and metropolitan areas. He noted that growth in the food and beverage sector, which was once in double digits, has now dwindled to just 1.5-2 percent.
During a media briefing on Tuesday, Narayanan explained that while Tier-I towns and rural areas appear stable, mega cities and metros are becoming significant pressure points. “It feels like we are operating in two different Indias,” he stated.
Nestle India has been focusing on volume growth, yet the company reported a 1 percent decline in volumes for the second quarter ending September 30. The milk and nutrition segment saw the largest slowdown, along with the chocolate and confectionery categories. While the KitKat brand experienced high single-digit growth, the Munch brand faced regional competition, which the company plans to address fundamentally.
Narayanan expressed concerns about soaring food inflation, stating that it could lead to further price increases if it becomes unmanageable. He highlighted the rising costs of key commodities like coffee and cocoa, which have reached ten-year highs. Coffee prices have surged by 60 percent since last year, while cocoa prices have nearly doubled, resulting in average consumer price increases of 15-30 percent.
“We aim to maintain lower price points while increasing prices on larger packs, which has led to subdued but positive volume growth in coffee,” he explained.
Despite the challenges, Narayanan indicated that he does not foresee immediate further price hikes. He noted that outside of coffee and cocoa, there are economies of scale in other commodities, with some stability in milk, packaging, and fuel costs. The company is focused on returning to volume growth driven by market penetration, emphasizing that additional price increases could hinder that goal.
Looking ahead, Narayanan expressed optimism for a revival in demand, especially with the potential for a good monsoon to boost agricultural incomes. He remarked that while mega cities and metros will face their challenges, their recovery, along with improvements in rural areas, could pave the way for broader economic recovery.
On a consolidated basis, Nestle India reported a 0.9 percent decline in net profit to Rs 899 crore for the September quarter, while net sales saw a slight increase of 1.3 percent.
