Demand trends are still indicating mixed signals about the next few quarters, and it is difficult to say that sustained consumption is here to stay, Nestle India chairman Suresh Narayanan said. “We have to wait for a few more quarters to see if the demand is sustainable and that it’s not the last few vestiges of pent-up demand,” Narayanan said in an interview. However, there is a “strong expectation” that this festive quarter would be better than last year, he added.
Consumer-facing companies typically see one of their biggest annual spikes in demand during October-December, coinciding with the peak festive season. Even in the pandemic-hit previous year, some recovery was recorded in the festive quarter with value sales growth of 7.3%, according to Nielsen data.
Nestle India, the country’s largest pure-play packaged foods company that makes Maggi noodles, Nescafe coffee and Milo health drink, also flagged inflation as a core concern. Narayanan said the year 2022 will likely be a “difficult year” as commodity prices are on the increase across global markets by close to 5%.
“India still has 8-10% unemployment, a lot of jobs have been lost, and there have been many salary cuts; so, there is definitely pressure on overall household budgets that is being felt. In that context, if commodity costs also play up, it is going to put pressure on the family budget,” Narayanan said.
Over the past few months, Nestle has increased prices marginally on some of its packs by 1-3%. Most FMCG companies, in fact, have increased prices, in response to steep increases in commodity, packaging and fuel costs.
Narayanan said inflation is “staring at all companies” and that the pressures are likely to be more acute, with global commodity prices of coffee, milk, oils and packaging up in high single digits. “There will definitely be an impact on us,” he said. Though Nestle primarily depends on local markets for sourcing, it is locking provisions so best prices can be brought to the table and bringing in economies of scale to mitigate the impact of inflation.
“The economy is still on the mend; we are still coming back and the unorganised sector and MSMEs are still finding their feet. So, logically, the essential products would be more privileged in the consumer’s consideration set, compared to discretionary consumption,” he said.
Reacting to an international news article that over half of Nestle’s products were unhealthy citing an internal company document, he said: “We have the requisite scale and competence for balanced nutrition and immunity products; and more of such products are being worked upon.”