Nestle likely to focus on low-cost products to gain rural share

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Published: May 18, 2019 12:31:02 AM

With only 25% volume coming from rural sales, Nestle India will focus on products in the popular pricing range to gain rural market share as the company is slated to launch close to three dozen products in the current financial year.

Nestle likely to focus on low-cost products to gain rural shareNestle likely to focus on low-cost products to gain rural share

With only 25% volume coming from rural sales, Nestle India will focus on products in the popular pricing range to gain rural market share as the company is slated to launch close to three dozen products in the current financial year.

“We have an innovation platform that will strengthen further the popular pricing part of our portfolio. So, what you will see is not only premium products but also popular price initiatives that will help us to increase relevant penetration,” said Suresh Narayanan, chairman and managing director, Nestle India, on Friday.

While the company is aware of the fact that an expected weak monsoon may dampen demand, especially in the rural areas, fiscal stimulus by the government is likely to boost demand.

Private weather forecaster Skymet Weather, earlier this week, predicted a below-normal monsoon this year at 93% of the Long period Average.

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Nestle hopes that Congress’ poll promise of minimum income guarantee of `6,000 per month and BJP’s scheme of `6,000 a year to marginal farmers will provide the company some cushioning from the rural market.

“Typically, any stimulus, whether cash or kind, goes towards staples. So, if that happens then there will be some cushioning. Whichever government comes in, everyone realises the importance of rural growth,” said Narayanan.

Market research firm Nielsen has predicted the rural FMCG market to grow at 11-12% in the current financial year compared with 14% last year. While at the predicted rate of growth, the company expects demand to remain intact, but if monsoon is going to be less than optimal, then it will have a dampening effect.

While typically the rate of growth in demand from rural areas remain 100 bps below compared to urban areas, the gap had widened last year but has narrowed now.

“One of the reasons why Maggi has delivered a double-digit growth in the first quarter in terms of volume is because of robust rural demand. We understand the conversion of rural and urban aspirations. Increasingly, there are urban profile consumer sitting in rural areas too who want premium products,” said Naraynan, adding unless the rural economic cycle becomes very acute, the fundamental levels of demand will not go down.

In the January-March quarter, the company had to mitigate 160 to 200 bps jump in agricultural product prices which might go up if monsoon is sub-optimal.
However, in terms of increasing product prices, the company will be hesitant as it disrupts the momentum of growth.

“We have mechanisms through which we can mitigate some of these price rise (in agricultural commodities). But if it becomes especially challenging, we might consider price increase in a select few products in our portfolio,” said Naraynan.

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