NESTLÉ BANKS ON RURAL AS URBAN GROWTH DWINDLES

Targets 120,000 villages in 3 years, says FMCG market to double in a decade

“Rural and semi-urban areas are something to watch out for; we are renovating and innovating some products we will be putting out there... Urban markets will come back in the next one or two quarters” SURESH NARAYANAN, Chairman and Managing Director, Nestlé India

Nestlé India, the country’s largest food company, is expanding its rural network because growth of late has been subdued in urban markets.

The company, known for its urbancentric model, is aiming to reach 120,000 villages by 2024 with new offers, targeted messaging, and higher penetration.

While it began to focus on rural markets in 2018, in the aftermath of the pandemic its bet on uncharted territories is significantly higher. From 1,000odd villages in 2017, Nestlé reached 89,000 by 2019. During the period, the share of rural markets in sales grew from less than 15 per cent to 25 per cent. In 2020, however, the lockdown and the pandemic brought down the number.

“The target is to reach 120,000 villages. That is, villages with more than 5,000 people is the kind of reach we would like to establish in the next two to three years,” said Suresh Narayanan, chairman and managing director, Nestlé India.

Apart from tweaks in its portfolio, Nestlé is planning messaging and advertising that will be more rural-centric.

“Rural and semi-urban areas are something to watch out for ... We are renovating and innovating some products we will be putting out there,” he said. The company is working on a new route-to-market model that involves taking a re-look at its distribution channel structure to make it suitable to cater to smaller markets.

Nestlé gets some 75 per cent of its sales from metros and large cities and reviving growth in these areas is crucial for the company’s health.

According to Narayanan, there are signs of recovery.

“Urban markets will come back in the next one or two quarters.”

Its renewed focus on rural markets is evident from Nestlé’s performance in the past year. The firm, which follows the calendar year for financial reporting, posted 10 per cent top line growth in 2020. While urban markets delivered 6 per cent growth, the rate in rural areas was 12 per cent.

Post-lockdown its production lines regained optimum levels, and the firm is now in need of capacity expansion. To meet the rising demand, Nestlé will expand its facility in Samalkha (Haryana), apart from setting up a plant in Sanand (Gujarat).

Further, while in 2020 it had to go slow on launches, close to 50 products are now in the pipeline, said Narayanan. Between 2016 and 2020, the firm launched about 80 products.

Last year, its ready-to-cook portfolio, primarily represented by brand Maggi, grew 11.4 per cent, higher than all its other divisions. The Maggi segment contributed over 30 per cent to its ~13,000 crore sales, the data from its annual earnings presentation shows.

The largest category, milk and nutrition, which contributed 45.8 per cent, grew 8.9 per cent, while confectionary (13.6 per cent) went up 7 per cent. Its beverages segment, however, remained flat.

According to it, the growing size of the middle class will be a key factor in the growth of fast-moving consumer goods and Nestlé India.

Citing a Bain & Company report, it said by 2030, the middle class in India will grow to 300 million from 158 million in 2018.

“Surveys conducted by major agencies suggest the packaged goods market will double in the next 5-10 years. The (FMCG) market today is worth $35 billion and we are expecting it to go up to ~70 billion,” said Narayanan.