New Delhi: Nestle India’s top boss on Friday said India’s long-term consumption story remains intact, despite the blip faced by large consumer goods makers at the onset of covid-related lockdowns in 2020, as a rising aspiring and affluent consumer class is likely to shift to branded consumers goods over the next five to ten years.
Consumers moving up the income ladder are likely to demand more, and better-quality branded goods and digital connectivity is likely to drive consumption trends in India, Suresh Narayanan, chairman and managing director, Nestlé India said.
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“You know there has been a lot of moaning and groaning as far as the economy is concerned…But I'm a firm believer in the consumption story of this country. If you look at any research that has been done—the packaged goods market is clearly set to double in the next five to 10 years," Narayanan told reporters on Friday.
“I think there are a few things that are happening. I mean, the market today is worth about $35 billion, they are expecting it to go to $70 billion. Now the question is because of the pandemic there could be some delay in that, but I don't think we will be denied that. And there are a few demographic and economic reasons why that would probably be the case," he added.
Citing research, Narayanan, said that the shift across consumption classes over the course of this decade will be highly favourable for consumer goods companies. “If you look at what is called the aspiring class, the affordable class, and the wealthy in the country, research after research is showing that between 2018-19 and let's say 2030—we are going to be adding almost 140 million households to the aspiring and to the affluent class in this country," he said.
Narayanan said the bottom of the pyramid, which is really those who are the deprived, is going to shrink. “This clearly means that there is going to be an increasing proclivity towards the consumption of packaged goods, and also of branded goods of whatever kind during this period," he added.
He also pointed to Gen-Z that will be part of the future workforce. This will be 25-20% of the population, and have long-lasting impact on future consumption trends. Moreover, for legacy companies, a fast-growing internet savvy population is also a key monitorable as it reshapes the way they reach younger consumers. "If you look at the total people on the internet about 600-630 million is expected to be about a billion people," he said.
Narayanan said these economic, demographic and digital forces are likely to bode well for the consumer goods space.
Last year, the company announced an investment of ₹2,600 crore over the next three-to-four years in India to expand existing manufacturing capacities as it expects demand for packaged foods to go up.
Nestle India reported domestic revenue growth of 10% in the December quarter. The company’s staff costs were up 150 bps during the period.
Narayanan said it could take another one to two quarters for urban demand to return to normalcy. The maker of Maggi noodles and KitKat chocolates, meanwhile, is aggressively pushing its packaged foods in India’s small villages from where it draws a fourth of its sales—much lower than its peers. It plans to expand reach to 1,20,000 villages by the end of 2024.
“Urban India is extremely important to all companies. A third of our business clearly comes out of the large cities and metros. So, the fact of the matter is, I think they have been badly afflicted, because of the conditions of the lockdown and also because of the migration that took place in the early part and that will gradually start to come back as enterprises open up…On that premise, I think, urban markets also will start to come back in the next one or two quarters," he said.
Narayanan said rural and semi-urban India are likely to be more resilient over a period of time with growth in rural outpacing urban markets for the next few quarters. For Nestle, urban sales grew 6% in the December quarter, while growth in rural sales was nearly double of that.
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