Increased efficiency and better cost management helped Nestle India mitigate some of the rise in commodity prices.
“The escalation of fuel costs will definitely have an impact on packaging raw materials. I think the milk prices are clearly holding firm. So we will have to wait and watch the full impact of this and take our judgment calls. The central core of our strategy has been penetration-led volume growth over the past five years and we would like to protect that,” Suresh Narayanan, CMD, Nestle India, said.
“We have been focusing aggressively on increasing efficiencies and cost management within the organisation and that has helped us mitigate some of the commodity costs increases. So if we are able to continue to manage our costs well, then there will not be any significant changes in pricing,” he added.
Consumer demand
The company said that while urban regions is witnessing a consumption uptick in recent times, it expects rural regions to outpace urban regions for the next few quarters in terms of consumer demand. Speaking to select mediapersons on Friday, Narayanan said, “For us Tier-2,-3 and -4 towns have really shown accelerated growth during the pandemic maybe because the impact of the pandemic was lower in the smaller towns compared to mega cities and metros. The fact of the matter is rural India and semi-urban India is an area to watch out for in terms of continued resilience.”
Currently about 25 per cent of the company’s sales come from rural regions. In December quarter, the company’s domestic sales grew by about 10 per cent and while urban region sales growth stood at 6 per cent, rural sales growth was almost twice that of the urban region growth.
Urban markets
With nearly one-third of its business coming from large cities and metros, Nestle India said it is also witnessing signs of improvement in urban markets and expects them to bounce back in the next one or two quarters, depending on the evolution of the pandemic. “While urban growth is also coming back, I would still think that for the next few quarters, you will still have rural regions outpacing urban,” he added.
“We aim to expand rural distribution footprint to 120,000 villages (with a population of over 5,000 people) in the next 3-4 years from about 89,000 villages in 2019. We are also working on renovation and innovation of some products that we will be putting out in semi-urban and rural markets and strengthening our route-to-market model through wholesale and non-wholesale related channels to access smaller markets. We are also geo-targeting brands, SKUs and customer engagement activities to stimulate consumption based on real-time information and data,” he added.
The Nestle India Chairman said he is a firm believer in the “Indian consumption story”. Factors such as bottom-of-the pyramid segment shrinking as more and more households move up to the aspiring affluent class, younger consumers getting added to the workforce and diminishing divide between rural and urban divide, will lead to a “robust future” for the packaged foods sector in the country, he said. He added that the proposed PLI scheme in the food processing sector will also enable employment generation as the industry awaits the release of the final guidelines.
He said the Indian packaged food market is set to double to $70 billion in the next 5-10 years, led by factors that include economic growth and demographic dividend.
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