Nestle India Chief Warns Of Continued Downturn In Consumer Spending
A fresh injection of money into the market by the new government is likely to give a fillip to an otherwise flagging consumption scenario, CMD Suresh Narayanan said.
Inflation-wary shoppers are still pulling back as they feel stressed about their budget, hindering India's consumption story, according to Nestle India Chairman and Managing Director Suresh Narayanan. The ongoing Lok Sabha election being held in sweltering heat is only adding to the challenge rather than acting as a boost to consumer spending, he said.
"There's still a tendency to postpone discretionary purchases," Narayanan told reporters during a post-earnings briefing on Monday. "We expected a consumption boost during elections, but the way the weather gods are treating, April-June might turn out to be just another quarter," he said, adding that the market is now pinning hopes on a good monsoon to revive growth.
Narayanan also said that a fresh injection of money into the market by the incoming government is likely to give a fillip to an otherwise flagging consumption scenario. "Only when the country's private consumption begins to kick in it is then we can expect companies to be beneficiaries."
Nestle India has sustained robust growth in a tough environment, marked by rising food inflation and volatile commodity prices, mainly due to lower product penetration in key categories and higher growth in small towns and villages—a strategy the company terms "rurban." Nestle's rural sales, at 22%, are underindexed.
In the March quarter, Nestle India clocked 9% domestic sales growth. But its volume growth stood at 4–5%, which is lower than its historical growth rate of 8–9%. Narayanan said that the company will be prioritising volume growth going forward in a bid to return to its previous growth pace.
The KitKat maker is also pressing ahead with its premiumisation strategy.
The premium category for Nestle contributes 12–13% of sales. "I would like that number to get to 15–16% in the medium term and 20% in the longer term, driven by pet care, Nespresso coffee and health science," he said.
With its recent joint venture with Dr Reddy's Laboratories Ltd. for nutraceuticals, Nestle India expects to triple its health science business to Rs 150 crore in 4-5 years.
In terms of commodities, he said that wheat and edible oil are now stable. But he expects extreme heat conditions could lead to a milk shortage and unavailability of fodder, raising future prices. Two commodities where there is runaway inflation are cocoa and coffee.
Commodity headwinds aside, the Indian arm of the Swiss food giant is battling negative news on other fronts. The addition of sugar to infant food in developing markets has come under scrutiny. Narayanan, however, clarified that its products are aligned with the country's regulations.
Cerelac Controversy
"Every formulation for children, especially those below 18 months, is done on a global basis. There is no local approach to making a nutritional adequacy study," according to Nestle India chief.
"The baby food recipes are engendered in an age where energy-dense products are needed by children on four parameters: 50–70% carbohydrates, 15% protein, 20–30% fat, as well as vitamins, minerals, supplements and other elements required to nourish a growing child. This is done globally. Therefore, there is no distinction between a child in Europe and a child in India or any other part of the world," he said.
The maximum permissible level of added sugar, as per Food Safety and Standards Authority of India guidelines, is 13.6 gm per 100 gms. "At Nestle, we are at 7.1 gm, which is well below the standard," Narayanan said.
Over the past five years, the company has reduced added sugars by up to 30%, across its infant cereal range. It is looking at ways of reducing added sugar further, he said. "We are currently testing recipes of lower-added sugar in infant food while the ultimate goal of the company is to launch a Cerelac variant with no added sugar in the future," according to him.
Nestle has not received any formal communication from FSSAI, but the regulator has indicated that they may pick some food samples from Nestle India as well as other manufacturers for testing, Narayanan said.
