NEW DELHI: The fast-moving consumer goods (FMCG) sector is facing challenges as inflation continues to drag volume growth. Chairman and managing director of Nestle Suresh Narayanan blames it on the “shrinking” middle class.
“Premium consumption still continues to be fairly strong, but the middle segment, which used to be the segment that most FMCGs used to operate in, seems to be shrinking. The ones who are offering fresh to reasonable value in the middle segment are finding their fortunes temporarily impacted,” Narayanan said in an interaction with the media on Tuesday.
However, he was quick to add that this (shrinking of the middle class) is not a long-term phenomenon. “We cannot have a long-term consumption growth of 3-4%. It will be unsustainable with our economic ambitions. So I think things will have to be done in order to kick-start consumption,” cautioned Narayanan.
Nestle India revenue grew by a modest 1.4% in the second quarter. The growth in revenue was due to a 3% increase in value, even as the company saw volumes contract by 1% during the quarter.
The CMD, therefore, remains cautious about any increasing prices in the future, even as prices of some commodities such as cocoa and coffee have gone through the roof in the past year.
“If the increase in commodity costs can be covered by efficiencies, we would rather not take up the prices. Our long-term model is penetration-led volume growth, so we have to start getting back to it. Any more price increase that we use is going to sharply retract us from that path,” Suresh Narayanan said, responding to a question on price hike.
He said that the company has seen 6-7% year-on-year volume growth from 2016 to 2022, but for the past 2-3 quarters, the growth has been weak.
Narayanan also pointed out that the company has seen 38% growth in sales through e-commerce, with 50% of it coming from quick commerce. However, he says that the company is not going to shift all its focus to e-commerce alone as it is growing fast because the general trade channel remains important for the company.