India the crown jewel in Unilever, Nestle empires: MNCs mint money in India, never mind the slowdown

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February 21, 2020 6:02 PM

India is the ‘crown jewel’ in the vast empires of giant multinational corporations selling goods and services across the world, even amid the cries of a back-breaking economic slowdown.

In their quarter earnings commentaries, both Unilever and Nestle SA said that their overall growth was pushed by India performance. (Reuters)

India is the ‘crown jewel’ in the vast empires of giant multinational corporations selling goods and services across the world, even amid the cries of a back-breaking economic slowdown. India continues to be a money mint for global FMCG giants such as Unilever and Nestle, despite consumer goods sales growth in India falling in the past few quarters. From Hindustan Unilever to homegrown companies such as Parle and Britannia, there is no denying that slowdown has hit the previously-seen growth rates. Nonetheless, India remains the place to be for global MNCs as the performance of their India arms has lifted the overall results of the parent companies.

In their quarter earnings commentaries, both Unilever and Nestle SA said that their overall growth was pushed by India performance. “In fabric sensations, the performance was supported by ongoing market development-driven growth in India, where we also launched premium detergent brand Love & Care,” Unilever said in January upon releasing yearly performance numbers. Nestle SA as well said that the company’s South Asia performance was pulled up by strong growth in India. “South Asia grew at a mid-single-digit rate driven by strong growth in India,” Swedish FMCG firm Nestle said.

The brightest star on a foggy night

While the FMCG firms’ shining India performance may not apparently square with the ongoing economic slowdown, several experts that Financial Express Online spoke to said in unison that India is still a lucrative market for global FMCG firms even in its low growth period. While FMCG companies have not been able to register their previous growth numbers, India’s growth numbers outmatch that of their parent organisations’. “Comparatively, while India is in a slowdown, Indian businesses have still done better. The Indian subsidiaries have done better than their peers globally. However, India could do even better than what it is doing,” Pinakiranjan Mishra, Partner and National leader, Consumer Products and Retail at EY, told Financial Express Online.

So, when globally the results are in low single-digit, Indian subsidiaries have outperformed global results by almost double. Subhendu Roy, Partner, Consumer and Retail Industries, Kearney, explained the maths with an example: “The global company has been growing at 2-3%. So, even a 5-10% growth in India is more than 2-3% growth.” India is also one of the biggest five markets by volume and growth. “Impact of India is sizable in the global company results,” he added.

The last resort

Developing markets such as India are the only fast-growing markets compared to their European counterparts. Further, hopes also abound that the ongoing slowdown is largely temporary and will be reversed soon. “Developed markets like Europe are either in decline or flat. As far as the Indian market is concerned, the growth has only slowed down temporarily and is still higher than what their most developed markets have,” Narendra Solanki, AVP Equity Research, Anand Rathi Securities, told Financial Express Online. Nestle India declined to comment, while HUL is yet to respond to the query sent.

The next springboard

Then, there is rising penetration in Bharat — the rural India — which is acting as the next growth driver. “With increased digital literacy and awareness, rural markets are now at the forefront of the consumption race. Companies today are now leveraging this appetite of Tier2/3 cities with a range of products at affordable prices,” Harsha Razdan, Partner and Head, Consumer Markets and Internet Business, KPMG in India, said. The rise in the number of customers from Bharat also reflected in the festive season sales for most of the e-commerce companies such as Amazon and Flipkart with homegrown e-tailer Snapdeal saying that 90% of its orders were from non-metro cities.

But is India really under slowdown?

Unfortunately, yes. “The key point is Indian arm of many companies are growing between 5-10%; which is lower than what the Indian arm has been growing at. Hence the slowdown in India,” Subhendu Roy said. In fact, the slowdown is not just limited to FMCG but is widespread. “From tour companies, steel or cement manufacturers and technology companies, to restaurant businesses, car rental services and right down to the kirana store owner and the cab driver, are all facing medium to severe slowdown. The demand seems to have dried up in all sectors alike,” N Chandramouli, Founder, TRA Research, told Financial Express Online. In fact, he is of the opinion that if the current slump is not reversed, it might snowball into a recession in the coming two years.

What lies ahead

While the FMCG sector has been under a slowdown for close to a year now, the growth is likely to revive soon. “As the economy bottoms out, which is very much visible currently then the growth would definitely start to come back gradually,” Narendra Solanki said. Companies can also make their products more lucrative to reach a wider audience. Some of the tactics they can look into include taking a multi-pronged approach for targeting different consumers in different parts of the country and “Brand extension and Premiumisation of products within a category,” he added.

Further, companies are expected to provide personalisation experience to customers, as that would help them in churning out good performance. “Companies/brands will need to innovate and think about new channels of distribution, possible ways of regionalisation or customization combined with focused customer engagement initiatives to be able to unlock the potential India has to offer,” Harsha Razdan said. To that extent, even amid slowdown, companies have not been hesitant to experiment with regionalisation and have kept up with the pace of new product launches.

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