Nestle India On Path To Accelerated Growth In Rural Areas, Prices Of Some Commodities Still A Concern, Says CMD

FMCG major Nestle India is on a path to accelerated growth in rural areas amid a big question over the performance of these markets in India, company chairman and managing director Suresh Narayanan said on Thursday. The company is increasing its reach in what it terms "Rurban" – a combination of rural and semi-urban areas.

"When there is a big question on rural India and rural growth, I do admit that rural play of Nestle is only 20 per cent but you see the growth has been around 25 per cent to 26 per cent. Again rural India for Nestle India is resonating and we are on a path to accelerated growth in rural markets as well," he told analysts in an earnings call.

Narayanan said distribution will be key in achieving growth from the smaller markets. "The power and resonance of a consumer goods brand lie in the distribution ...this is the area where we have a single-minded focus. In 2022, we accelerated our Nestle direct reach from 1.4 million to 1.5 million, overall reach at 5.1 million," he said.

In 2015 as a consequence of the Maggi crisis, Nestle's reach had shrunk quite considerably, Narayanan said adding, "we have built back on these years and now it is fully complete." On the challenges in rural and semi-urban markets, he said, "In towns of less than 1 lakh population, the growth was still positive but has come down from 13 per cent to 5 per cent. This is where the pricing impact of some of our small packs, especially rural categories has some impact."

However, growth continues to be in double digits in mega cities although there has been a decline, he added. "We have seen a dip there from 23 per cent to 12 per cent. I think this is the consequence of small pack sales," he said, adding, "on the longer term basis, I do not see a cause of concern."

Metro continues to be strong. In terms of town class 1, with below 10 lakh population, the growth has been strong on the back of a strategy of increasing penetration focused on activities and activations. Narayanan said high commodity prices continued to be challenging but the company is confident of mitigating it partially. This had an impact but this is not something that has not been anticipated by the company.

However, the company is mitigating a part of it through relationships, partnership and accelerated economies of scale and sharp procurement strategy. "We are confident of mitigating a part of it. We are confident of being taken care of by some additional opportunities for growth. Premiumisation and upgrading would come too. There is considerably still some pressure under the bonnet as far as wheat prices are concerned," he said.

Nestle India has delivered its "highest double-digit growth in a decade", led by sustained volume and (price) mix-led growth, leading to strong value growth, Narayanan added. In 2022 Nestle India total sales grew by 14.5 per cent to Rs 16,789.53 crore and domestic sales increased by 14.8 per cent to Rs 16,097.60 crore "with broad-based performance across all categories".