Nestle India: Food Inflation to Ease, FMCG Demand Uptick Expected - PTI

New Delhi, Feb 8 (PTI) An uptick in FMCG demand is expected this year on the back of government's investment push along with food inflation looking to be "more benign", Nestle India Chairman and Managing Director Suresh Narayanan said on Thursday.

However, there are some "stress points" in the fast moving consumer goods (FMCG) sector with the last festival season not being as buoyant as expected, he said.

"I think overall headline inflation is certainly down but food inflation continues to be choppy. I do hope overall inflation levels are certainly down in 2023 as compared to 2022. If there is stability in some of the commodity prices then actually you might start seeing the uptick in consumption taking place," he said.

Narayanan also hoped as the general election approaches, there would be economic activities.

"A lot is hoped for on the elections with the economic activity around elections. Hopefully, that will give a little bit of a fillip to consumer companies," said Narayanan in a media roundtable here.

Moreover, there is economic stability and a lot of programmes are being put around infrastructure... an investment of Rs 11 trillion has been committed on infrastructure, which will definitely add to employment and incomes and some of it will flow into the consumption of essentials also," he added.

Narayanan also added the uptick in consumption of premium products would continue, which is mainly led by the wealth effect on the upper and upper middle class, but the common man is still hurting.

When asked about rural demand, Narayanan said, for Nestle, rural India is holding with a mute growth. However, there is a polarity of booming premiumisation, which is tepid in the main streets.

"If you are the most expensive product in the market and you own certain standing and a certain brand and a certain equity, it gets lapped up very quickly. But if you are a mainstream product, there you are facing the vagaries," he said, adding, it could be a combination of job losses and inflation.

Nestle, which has recorded over Rs 19,000 crore sales in 2023, get around 20 per cent contribution from the rural market. Narayanan expects rural markets to contribute around 25 per cent of total sales in coming years.

"If you look at urban penetration now for the company, which five years ago was about 80 per cent, today it is about 93 per cent and similarly, rural penetration also has gone up significantly to rate to about 30-odd per cent, which was in a mid to high single digit a couple of years ago," he said.

According to Narayanan, Nestle still has a long runway for growth in both urban and rural markets.

"I think my levels of penetration still are relatively modest," he said, adding, for its popular brands such as Maggi the annual penetration is around 80 to 85 per cent, he said, adding that the monthly penetration of Maggi is 40 to 45 per cent so there is still headroom there.

"The same applies to coffee, confectionery and the other parts of the portfolio," he said.

The underlying fundamentals of Nestle India continue to be strong.

"You can have short-term wobbliness... but the long-term sustainability of the trajectory is what we are confident about," he added.

The growth is also reflected in the capex of the company, which is now investing 8 per cent of its turnover on capex, which is much higher than what it ever was.

"In the last seven-eight years, it was in the region of about 2 to 3 per cent," said Narayanan.

Nestle India had earlier announced an invest of Rs 2,000 crore between year 2000 and 2020 and again in 2022, it had announced an investment of Rs 5,000 crore on expansion, which was to be invested by 2025.

When asked about any price hike, Narayanan ruled out any immediate steps, saying this would be the last resort for Nestle India.

He also added "Coffee prices are now becoming a little bit illogical", though milk prices are stable.