Nestle India chief flags concern for industry over lower-than-expected monsoons

  • Narayanan was addressing reporters on company’s entry into organic products
  • The company, however, bucked the trend of a slowdown because of its lower exposure to rural market

NEW DELHI : A below normal monsoon this year could further dampen demand for consumer companies in India’s hinterland apart from putting pressure on prices of agro-based commodities, Suresh Narayanan, chairman and managing director at fast moving consumer goods Nestle India said on Friday.

Narayanan was addressing reporters on company’s entry into organic products.

Commenting on the prediction made by private forecaster, Skymet earlier this week that hinted towards a lower-than expected rainfall this year, Narayanan said that, “if it is true that monsoons will be less than optimal there will definitely be a dampening effect as far as rural demand is concerned, we have already started seeing some of those manifestations."

This is also likely to impact agro-commodity prices going forward.

“What’s also happening is that in terms of agro-commodities the trend is clearly going upwards. This will exacerbate If the monsoon are not as good as predicted," Narayanan said.

Nestle India posted strong volume numbers in its quarterly earnings earlier this week in contrast to the weak numbers posted by other consumer goods makers on account of a slowdown in demand, especially in rural markets.

The company, however, bucked the trend of a slowdown because of its lower exposure to rural markets.

For quarter ended March 31, 2019, the company that sells popular noodle brand Maggi, and Kit-Kat chocolates reported a 9.2% jump in net profit at 463.2 crore. Revenues were up 9% to 2,982 crore.

“Yes, there have been issues in terms of credit flows in the market, and aberrations because of particular channels not doing well," Narayanan said.

“Nestle has come out stronger than its peer groups on volume growth as about 25% of our sales are in rural India and 75% are in urban markets and urban growth rates for us have consistently been maintained," Narayanan said as he announced the company’s foray into organic foods.

The company is set to roll out an organic variant of Ceregrow, its children’s cereal brand, as it anticipates an emerging demand for such products going forward.

The local arm of the Swiss food and beverage company that has been on a product launch spree over the last few years to widen its portfolio and reduce dependence on a single category, has also worked on procuring organic millet, rice, wheat and milk that is likely to help the company speed up the launch of more organic products in the near future.

“The shift to organic is a worldwide trend now but I think for India it is something relatively nascent," Narayanan said.

Going ahead, the company will add more organic products to its portfolio, Narayanan said without divulging details. “This is the beginning. We would look at ways and means of expanding our portfolio in organic," he said.

According to consumer insights firm Mintel, 39% of Indian consumers it surveyed said they actively look for organic claims on packaged food and drink product labels. The share of new launches with organic claims in the market here is still very small. In 2017, Mintel noted that 10% of new packaged food launches claimed to be organic; in 2018 the percentage share of such launches dipped to 7%.

However, in a note dated May 14, Jefferies’s analyst Varun Lohchab, said: “Though we like Nestle’s focus on diversifying the portfolio and being ahead of the curve, we believe that these launches will remain niche."

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