FMCG sector facing sluggish demand, F&B growth declines to 1.5-2%: Nestle India CMD

The FMCG sector is facing sluggish demand with the growth in F&B declining to 1.5-2 per cent as against double digit some quarters ago, said Nestle India Chairman & Managing Director Suresh Narayanan on Tuesday.

This decline is due to a combination of factors, including food inflation, the outgoing Nestle CMD said at a media roundtable here.

"The market is facing a muted demand. It is extremely clear that the growth in the F&B sector, which used to be in double-digit a couple of quarters ago, is now down to 1.5 to 2 per cent," Narayanan said.

Referring to a sharp uptick in fruits and vegetables, and oil prices, Narayanan said this is a cause for concern "because this clearly will lead to an increase of prices if they become unmanageable for organisations." He said Nestle too is facing difficult situation on account of higher prices of for cocoa and coffee, which are key ingredients for the company's products.

Besides, some "pressure points are coming from mega cities and metros" though tier one and below towns seem to be reasonably stable. Even rural is reasonably stable, he added.

However, Narayanan hoped that good monsoon and crop this year will lead to revival in consumption, saying the last quarter was impacted by floods and natural calamities.

"I think ultimately one can look at modest increase in volume and value going forward. Premiumisation is fairly strong, and I think that gives us some cause for cheer, because as a company, we are also increasingly innovating and premiumising, and that is getting us good results in whichever segments we are operating in," he said.

Asked whether Nestle India is going for a price hike, he said:"As of now we are not looking at sharp price increase, because the philosophy of the company is to look at economies of scale." "There is some stability in milk, packaging, material and fuels, which are important ingredient for the company. So we will look at... If the increase in the commodity costs can be covered by efficiencies," he said.

Earlier, Nestle India had about 11 to 12 per cent organic growth year-on- year in value, and about 6 to 7 per cent growth in volume.

"Now, obviously today, that volume growth has come down, but our model, long term is penetration led volume growth, so we have to start getting back to it, and any more of price increase that we do is going to sharply retract us from that path. So we would like to minimize it and take it very, very selectively," he added.