Nestlé India Chairman says it is very clear that the market is facing weak demand

NEW DELHI: Packaged food maker Nestlé India Ltd said middle-income households are not buying enough packaged food and beverages as high food inflation continues to dent household budgets. This is especially true for consumers in metropolitan cities, although a good monsoon has ensured a revival in rural demand.

The company reported a 1% rise in September quarter revenue as demand for dairy products and chocolate was particularly tight. Transaction volume fell slightly year-on-year.

“The market is facing weak demand. It’s very clear. Growth in the food and beverage industry, which was in double digits a few quarters ago, has now fallen to 1.5% to 2%. This is a combination of food inflation. A few days ago, regarding The food inflation debate has been reignited yet again with talk of a sharp rise in prices of fruits and vegetables and, of course, petroleum prices, Suresh Narayanan, chairman and managing director, Nestlé India, said on Tuesday. This is worrying, the company told reporters at a media briefing at its plant in Samalka, Haryana.

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“As far as we’re concerned, Tier 1 and below towns seem to be quite stable, rural areas are indeed quite stable, and the pressure points are coming from big cities and metropolitan areas,” he added.

Consumer products companies are about to report their September quarter earnings.

Last week, Tata Consumer Products Ltd also pointed to “weak” urban demand. “We may have underestimated the impact of food inflation on consumers,” managing director and CEO Sunil D’Souza said during the tea and salt maker’s earnings call last week. The pressure comes.”

Narayanan is one of the few consumer goods CEOs to point out the impact of high food inflation on consumption. He said the market was currently “polarized”, with middle-income households cutting back on spending while the rich continued to spend.

“Companies (companies) that provide fair and reasonable value to the middle class are seeing their fortunes shrink temporarily. I don’t think this is a long-term phenomenon,” he said.

India’s retail inflation rose to a nine-month high in September as food prices rose. Food inflation rose at an annual rate of 9.24%, compared with a rise of 5.66% in August.

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Nestlé’s revenue growth slowed sharply in the September quarter, with net income rising 1% year-on-year to $51 billion rupees; gross profit margin was flat year-on-year. “The pain point felt by most fast-moving consumer goods (FMCG) today is that the middle section is getting a bit tight. I think this will become an issue in a few quarters,” he added.

Amid the gloom, good monsoon has been a “redemptive feature”, especially for consumers in interior areas.

“People expect farm incomes to recover. People are also seeing some early green shoots in some areas. Premiumization is quite strong – that gives us reason to cheer because as a company we are also constantly innovating and premiumizing,” he explain.

Meanwhile, key commodities in Nestlé’s India portfolio such as coffee and cocoa have been boiling. Prices of coffee and cocoa have risen significantly over the past 12 months, with the former rising by 60-70%; prices of cereals and cooking oils have also increased.

The company has increased coffee prices by 15% to 30% over the past 12 months. Nestlé India sells packaged yogurt, baby food, ready meals, ketchup and chocolate in India.

Coffee prices remain very volatile and unpredictable, he said. Nestlé will prioritize production over further price increases. “The philosophy of the organization is very clear – penetration leads to volume growth. I’m keen to get back to that as soon as possible, which means there will only be an uptick if we have no other mitigation measures,” he said.

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He added that Nestlé was taking steps to address some weaknesses, such as taking steps to mitigate local competition and planning to increase advertising spending. Nestlé’s Munch brand is facing competition from local market players.

“The action points for this quarter and next quarter are quite clear, and we have reason to believe that the demand cycle for our products will start to increase in the coming quarters,” he said.