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Business News/ Companies / News/  Rural sales put urban in the shade for Nestlé

Rural sales put urban in the shade for Nestlé

Consumers going back to villages are driving demand for firm’s products
  • In the September quarter, Nestlé India’s urban sales grew 6%, while rural growth stood at 12%
  • Roughly 20-25% of sales for Nestlé come from India’s villages, which the FMCG company has doubled down on by setting up wholesale hubs in rural areas.   (Photo: Bloomberg)Premium
    Roughly 20-25% of sales for Nestlé come from India’s villages, which the FMCG company has doubled down on by setting up wholesale hubs in rural areas. (Photo: Bloomberg)

    Large-scale migration and a good monsoon helped Nestlé India’s brands clock strong sales in rural markets and smaller towns as more and new consumers bought more of its Maggi noodles and chocolates in the September quarter, said the company which draws significant business from urban markets.

    Roughly 20-25% of sales for the fast-moving consumer goods (FMCG) firm comes from India’s villages. In comparision, the FMCG industry sees 36% of sales emerging from rural markets.

    In the past few years, the company has doubled outreach points by setting up wholesale hubs. It also tweaked its portfolio in line with consumer purchase patterns in smaller towns and villages in the aftermath of the coronavirus outbreak.

    In the September quarter, urban growth for Nestlé India stood at 6%, while rural markets grew at 12%.

    “In Q1, urban growth surpassed rural quite significantly. In Q2 (June quarter), the situation changed. For Nestlé, the urban growth was 0.7%, and rural growth was 1.7%. In Q3, the urban growth for Nestlé was close to 6% and rural growth was upwards of 12%. Whether this will last, and to what extent would the monsoon effect and other measures that the government is taking in order to alleviate the rural sector will be sustainable in terms of long-term demand... only time will tell. However, at least the rural sector continues to be strong and robust for many consumer goods companies," Suresh Narayanan, chairman and managing director, Nestlé India, said at a virtual press conference on Wednesday.

    The local arm of the Swiss foods company has also doubled its rural reach over the past 12-18 months from 40,000 to 45,000 last year to 90,000 now. The company is also reaping the benefits of a cluster approach it adopted in 2018, by dividing India into 15 different clusters, each considered a different market based on food preferences of the local consumers, Narayanan said. “The 15 clusters that we have got has helped us accelerate some of the distribution touchpoints as well," he said.

    Nestlé India also strengthened its distribution network. Earlier, distributors and re-distributors comprised 5,000 to 6,000 contact points. “Today, we have almost doubled it and now have what are called wholesale hubs in addition to distributors and re-distributors, which are auxiliary points in smaller towns, to enhance the geographic reach of distribution," Narayanan said.

    Nestlé India is not alone in reporting an increase in rural and small-town demand. Most large FMCG firms have seen increased consumption in these parts of the country as better economic prospects and limited reach of the covid-19 accelerated demand.

    Consumers going back to villages are seeking Nestlé’s brands, driving demand for Maggi, Munch and Nescafe products, Narayanan said. “The number of consumers shifting from urban to rural have increased, leading to a shift of consumption," he said.

    Late last month, Nestlé had announced an investment of 2,600 crore that could help the company augment capacity by 10-20% over the next few years.

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    Suneera Tandon
    Suneera Tandon is a New Delhi based reporter covering consumer goods for Mint. Suneera reports on fast moving consumer goods makers, retailers as well as other consumer-facing businesses such as restaurants and malls. She is deeply interested in what consumers across urban and rural India buy, wear and eat. Suneera holds a masters degree in English Literature from the University of Delhi.
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    Updated: 18 Nov 2020, 09:35 PM IST
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