‘FMCG sector seeing premiumisation’
NEW DELHI: Nestle is seeing continued uptick in the premium products as a result of the ‘Wealth Effect’. Its managing director Suresh Narayanan in an interaction with the media on Thursday said those in the middle and upper middle class have the income and feel good about buying whatever they want to. However, he says inflation is still hurting the common man.
He says inflation, especially food inflation, continues to be a concern in the country. While denying the impact of consumption slowdown on the company’s finances, Narayanan pointed out a new phenomenon -- of polarity of booming premiumization and tepidness in the mainstream.
“So, if you’re the most expensive product in the market, and you have a certain standing, and a certain brand and certain equity, it gets lapped up very quickly. But if you’re a mainstream product, there you’re facing the vagaries of a combination of job losses and inflation,” says Narayanan.
Narayanan said that for most FMCG companies, volume play alone won’t work and they have to bring a balance between volume and value.
He was non-committal on the question when the volume will come back for FMCG companies. He said a lot will depend on companies’ strategies to shore up the volume oriented parts of their portfolio and the equation is going to be fairly tight.
“There are many organizations that have reached the limits of price flexibilities that they can look at after a time. Losing equity and losing it significantly is more detrimental to the long-term future of the business as compared to a short term gain that you make by whatever you do,” Narayanan said on the question of volume versus value.
Nestle in its fourth quarter result reported a total sales growth at 9.4% and domestic sales growth at 10.3%. Profit from operations was at 22.6% of Sales, while net profit grew at 4.4% to Rs 908.1 crore. As per a NielsenIQ report, Indian FMCG industry has experienced a 6% growth in value, attributed to a 6.4% rise in volume.The report says volume growth for the quarter is 6.1% higher than in the same period last year.