FMCG not as badly hit by slowdown as some other sectors: Nestle India CMD

Firm's chief says double digit will be difficult, but the kind of issues faced by other sectors may not get replicated in FMCG, as it still has plenty of low-payout, low-budget essentials

Even as the economic slowdown has impacted many industries, food and beverage firm Nestle Ltd said it is confident of reporting growth in the future as it feels the sector has not been as badly hit by the ongoing crisis.

After announcing entry into the Rs 8,000 crore cocoa-malt beverage segment in India through its brand MILO, Suresh Narayanan, chairman and managing director Nestle India Ltd said it is true that due to the economic climate the FMCG and food business is going south, but the impact is not as bad as in other industries.

“I am not saying that numbers are declining, though analyses of the corporate results have projected numbers for FMCG going southwards. Yes, double digit will be hard to come back, you will not start seeing greatly encouraging results coming from the sector, but the kind of issues faced by other sectors may not necessarily get replicated in FMCG, because it still has a lot of low payout, low budget essential items that are important for daily consumption. It is not as if suddenly everything will stop,” said Narayanan.

He added that impact on Nestle would be much less given that the level of penetration achieved by the category is relatively lower.

“I have some runway left for penetration of Nestle brands. This may slow down a bit, but is unlikely to be dramatically lower than what it used to be. I am relatively low in rural play as compared to other brands. Currently, it is around 20-25 per cent,” he said, adding that today the company covers about 52,000 villages and will double it in the next 2-3 years.

The rural play for Nestle is going to be smaller relatively compared to other players. In that context, tier-II and III towns are holding up well, he added.

On the urban market, he said it is true that urban growth rates are also not what they were before, but saying that the bottom will break is bit drastic.

He agreed that issues related to credit, demand and other structural matters are not suddenly going to vanish, but this sector never been in the burst, it neither had growth levels of 30 per cent, nor had it seen the lows of a 25 per cent de-growth. These stocks are called defensive stocks.

“We are like Dal roti, or idly sambar. We are not going to rock the boat. Still it will be positive,” said Narayanan adding that downturn also offers great opportunity to engage and connect with consumers looking for value and quality for which they are ready to pay extra, and that is where Nestle's focus is. The India launch of cocoa-malt beverage, MILO, is in line with firm's thrust for innovation and rennovation.

The product, which is made at Singapore, is specifically tailored for the Indian consumer and the launch further expands the MILO brand in India.

Narayanan admitted that commodity prices such as milk, wheat, and oil are rising. During the first half of the year they went up by 200 bps and the company suffered about 160 bps. It had to increase the prices to factor in rest of the cost increases and in the coming months it may look at increasing prices for few products, he added.