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Nestle shifts focus, bets big on rural as urban growth dwindles

Company aims to reach 120,000 villages in three years, says FMCG market to double with in the decade

Nestle India set to replace Indiabulls Housing in Nifty next month
Arnab Dutta New Delhi
4 min read Last Updated : Feb 26 2021 | 11:36 PM IST
The country's largest food company, Nestle India, is aggressively looking to expand its rural network to insulate itself from the subdued growth observed in the urban markets of late. The firm, typically known for its urban centric business model, is aiming to reach an unprecedented 120,000 villages by 2024 with new offerings, targeted messaging and higher penetration.

While it began to focus on the rural market in 2018, in the aftermath of the pandemic its bet on the uncharted territories is significantly higher. From 1,000-odd villages in 2017, Nestle grew its presence to 89,000 by 2019. During the period, the share of rural market in its sales grew from less than 15 percent to 25 percent. In 2020, however, the lockdown and the pandemic brought down the number by a large extent.

“The target is to reach 120,000 villages. All villages with a population of more than 5,000 is really the kind of reach that we would like to establish in the next two to three years,” said Suresh Narayanan, chairman and managing director, Nestle India.

Apart from tweaks in its portfolio to attract rural consumers, Nestle is also planning for messaging and advertising, which will be more rural centric.

“Rural and semi-urban area, something to watch out for in terms of their continued resilience over a period of time. We are already renovating and innovating some products that we will be putting out in semi-urban and rural markets”, he said. The company is currently working on a new route-to-market model that involves re-looking at its distribution channel structure, to make it more suitable to cater to smaller markets.

Nestle currently gets some 75 per cent of its sales from metros and large cities and revival of growth in these areas is still crucial for the company's health. According to Narayanan, signs of recovery is now in the horizon. “I think, urban markets also will start to come back in the next one or two quarters.”

Its renewed focus on rural is evident from Nestle's performance in the past year. The firm that follows a calendar year format for financial reporting, posted 10 percent top-line growth in 2020. While urban markets delivered 6 percent growth, rate in the rural areas was double – at 12 percent.

Post-lockdown its production lines regained optimum levels and the firm is now in need for expansion of capacity. To meet the rising demand, Nestle will be expanding its existing facility at Samalkha (Haryana), apart from setting up a new plant in Sanand (Gujarat).

Further, while in 2020 its had to slow down on new launches, close to 50 products are now in the piepline, said Narayanan. Between 2016 and 2020, the firm launched about 80 new products.

Last year, its ready to cook portfolio, primarily represented by brand Maggi – delivered 11.4 per cent growth, higher than alll its other divisions. The Maggi segment contributed over 30 per cent toards its Rs 13,000 crore sales, data from its annual earnings presentation shows. The largest category, milk and nutrition, which contributed 45.8 per cent, grew 8.9 per cent, while confectionary (13.6 per cent share) grew 7 per cent. Its beverages segment, however, remained flat.

According to Nestle, growing size of the middle class households will be a key factor behind the growth of fast moving consumer goods sector and Nestle India. Citing a Bain & Company report, it said by 2030, size of middle class households in India will grow to 300 million, from 158 million in 2018.

“Surveys conducted by all major agencies suggest the packaged goods market to double in the next 5-10 years. The (FMCG) market today is worth USD 35 billion and we are expecting it to go to USD 70 billion”, said Narayanan.


Topics :Nestle India

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