The country is yet to see the worst when it comes to food inflation and the quarters ahead could see a further uptick in prices as supply of commodities such as milk, coffee, and palm oil derivatives continues to suffer, said Suresh Narayanan, Chairman and Managing Director, Nestle India, while addressing a media roundtable on Monday, September 20.
According to Narayanan, pandemic-induced disruptions have depleted the supply of milk in the country, and now, as the economy opens and demand improves, prices of the commodity will surge.
“Similarly, globally, coffee prices have also risen quite significantly. Vietnam, the largest producer of coffee, has been adversely impacted because of the pandemic, and therefore, we will witness some disruption as far as coffee prices are concerned. So, the spectre of food inflation will continue to haunt us,” he added.
Narayanan, however, stressed that the impact on Nestle would be limited as it largely sources produce locally, and given the company’s scale, it would be able to offset some of the impact. The robust monsoon in several parts of the country in September remains a silver lining and would help mitigate inflationary pressure, he added.
Nestle, the CMD said, on average has increased the prices of its products by 1-3 percent in the last few quarters to offset the impact of the rising prices of key input products.
Rural, essentials continue to outshine
The rural growth story continues to remain strong even as the country emerges from the second wave of the pandemic, while the urban market is showing signs of a pick-up. The hinterland, in fact, has outstripped the growth in urban areas for the seventh quarter in a row for Nestle.
“While our rural contribution is lower compared to some of our peers, we are witnessing strong growth in the region as consumers in tier II cities and beyond as well as rural areas seek our brands across categories,” said Narayanan.
The maker of products such as Maggi, KitKat, and Nescafe currently draws about 20-25 percent of its share from the rural areas. Narayanan foresees demand from the region remaining strong even as urban India recovers.
Nestle India, mostly an urban brand so far, has been aggressively pushing its products in the rural regions of the country. The company has a presence in about 90,000 villages (with a population of over 5,000) and plans to expand its retail footprint in the hinterland to reach 1.2 lakh villages in the next two-three years.
In other trends, the FMCG segment continues to witness strong sales of essentials while discretionary goods remain a laggard, with consumer incomes under stress. The Nestle CMD expects this trend to continue for another few quarters.
“MSMEs and unorganised sectors are still finding their feet and household budgets will remain under constraints for the next couple of quarters. Hence, logically, essential products will form a larger share of the consumer’s purchase basket as compared to discretionary,” he added.
Cautious optimism for festivals
While most companies and sectors are projecting bumper sales during the festive season, Nestle remains cautiously optimistic, anticipating better demand than last year.
“There are still mixed signals in the market. This Diwali is going to be better than the last festival given that there are fewer restrictions on movement this time around. But we will have to wait a few more quarters to ascertain if this is sustainable and not some last vestige of pent-up demand,” said Narayanan.
The company has started prepping for the season ahead, and beyond that, Nestle plans to amplify its product launches. “We are looking at new launches in the coffee, confectionery, food, and prepared dishes spaces,” said Narayanan.
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