FMCG cos expect plentiful rains, new govt to drive consumption: Nestle India CMD

Mumbai: Makers of packaged consumer goods will benefit from a good monsoon this year and formation of a stable government that will re-inject money into the market, driving up private consumption, Suresh Narayanan, chairman and managing director, Nestlé India, said on Monday.

Commenting specifically on forecasts around a pick-up in consumption during the ongoing elections, Narayanan said a hot summer is posing a threat to out-of-home consumption. The heatwave could also hurt milk supplies.

“It's still a market that has been impacted by inflation. To that extent, there is some tendency to postpone discretionary purchases. We have had the elections but, unfortunately, it's also such a hot time that I don't know how many people will go out and eat at this time…we were expecting to get greater consumption but it may turn out to be just another month (due to the heatwave). The market will be watching for a good monsoon and when the new government gets formed and if there is some re-injection of money into the market,” he said at a press conference on Monday, after the company’s March quarter earnings announced last week.

“In the last quarter, the growth has been infrastructure-led and private consumption has grown at just 3% to 4%. When that kickstarts is when you can expect companies also to be beneficiaries of it,” he added.

For the three months ended 31 March, the company reported underlying volume growth of 5% with a 9% jump in domestic sales. Last week, India’s largest consumer goods maker Hindustan Unilever Ltd reported a 2% jump in volume growth for the March quarter.

Stressing on the company’s need to chase penetration-led volume growth, Narayanan said the company wants to get back to strong volumes “as quickly as possible”.

“My objective is to ensure that, whatever be the market circumstance, I should be in the top quartile of performance. There was a time we had 8% to 9% volume growth, so we have to ramp up,” he added. This will be led by companies driving greater penetration and consumption of packaged goods, he said.

Last week, the maker of Kit Kat chocolates and Maggi noodles also warned that prices of coffee and cocoa are seeing “unprecedented headwinds”.

“Some commodities are secure and stable—oils are stable; milk I hope is stable. There's some report that because of extreme heat conditions, there could be a shortage of milk. Wheat is expected to be a good crop and, also, the government is doing good procurement of it so that should be stable. There is runaway inflation in cocoa and coffee. We have cost avoidance programs…one is trying to optimize those in coffee and chocolates to be able to get better yields and avoid a price increase,” he added.

Last week, the company also announced the formation of a joint venture with Dr. Reddy’s to sell nutraceutical products in India. Narayanan expects the business to double or triple over the next four to five years. “It's a relatively small space for us today with about ₹45 crore to ₹50 crore in terms of the outer limit of business. We are looking to at least double or triple that business in four to five years,” he said.

Concerns about sugar

On Monday, Nestle also addressed concerns about added sugar in its Cerelac baby food. The company clarified that the product complies with local food laws and that the amount of added sugar is below the limit set by India's food regulator.

“That we have the need in India is the reason why we have added this (sugar) but at levels which are much much lower than what is even specified by the local regulator. One has to have the trust and confidence that the local regulator knows what they're putting there…All that we are saying is that, yes added sugar…there is a content, the content is declared on our pack. There has been a 30% reduction in the last five years and there is a further journey to reduce it to whatever will be the bare minimum,” he said.

The company’s comments come after a report by Public Eye, a Swiss investigative organization and the International Baby Food Action Network (IBFAN) alleged that all Cerelac baby cereal products sold in India contained added sugar.

India’s food regulator the Food Safety and Standards Authority of India (FSSAI) has set a maximum permissible level of added sugar at 13.6 grams per 100 grams of feed for baby food. On average, Nestle’s Cerelac brand contains 7.1 grams (per 100 grams of serving). "I also want to add here very clearly that added sugar products and no added sugar products are present in Europe and Asia as well. So the unfortunate allegation that it is racially stereotyped is unfortunate, but untrue,” he added.

Meanwhile, the company will continue reducing added sugars in its baby cereals brands, Narayanan said. Over the past five years, the company has reduced added sugars by up to 30%, across its infant cereal range.

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