Double-Digit Growth Unlikely For FMCG Sector, Revival Expected Next Year: Nestle
The fast-moving consumer goods sector is unlikely to touch double-digit growth but will not have a degrowth as witnessed by some other sectors like automobile, Nestle India Ltd. Chairman and Managing Director Suresh Narayanan said.
He noted that there will be “period of low growths” for the FMCG industry but with “decent single digit”, and the company would not be much impacted from the slowdown as its play in the rural areas is relatively less as compared to other players.
Rural markets contribute 20-25 percent of Nestle’s sales presently.
“As far as the economic climate and the FCMG trend are concerned, the numbers are speaking of a decline. Analysis of the data, not only the corporate results but if you also look overall Nielsen projected numbers, total FMCG growth is going southwards,” said Narayanan in a media roundtable.
He added that unlike other sectors as automobile etc, FMCG would not have a degrowth as it deals with essential items and the average ticket size of sale is lower as compared to others.
“Yes, double digits will be hard to come by. You will not start seeing great encouraging results from the FMCG sector,” he said.
But, the kind of issues faced by some other sectors may not get necessarily replicated in this sector because it still has a lot of fairly essential low payout, low budget items that are important for daily consumption, he added.
Growth in FMCG sector could be from modest double digit to decent single digit but not the kind some other sectors as automobile are witnessing, Narayanan said referring to the negative growth in some sectors.
He was however hopeful of FMGC sector getting back with double-digit growth in an year.
“As various people are talking about economic stimulus etc, monsoon looks like surfeit rather than a shortfall and hopefully it translates into a better agricultural situation. Automatically, there would be positive sentiments,” he added.
Besides, Nestle, which is among the top three listed FMCG companies of India, was considering a “selective price increase” of some of its products as the commodity prices are increasing.
“At the moment commodities are growing northwards. Agri commodities like milk are strengthening , wheat and oil prices are growing..overall there will be a pressure on the overall pricing,” said Narayanan.
He, however, ruled out an immediate price hike because the company is concentrating on volume growth.
“We do try and see how much we mitigate going forward. Since our core strategy is penetration-led volume growth we will try to keep the priceline.. if commodity prices goes up, then we may have to look at selective price increase,” he said.
The company has already increased prices in categories as milk and nutrition and has “subsequent pressures in culinary food areas but attempt is to mitigate this most increase,” Narayanan added.
Last month, data analytics firm Nielsen in a report said the FMCG sector in India will face a slowdown in 2019 with a growth rate of around 9-10 percent impacted by a dip in demand, particularly the rural.
The FMCG growth rate for the first half of 2019 is around 12 percent, which is lower than the previous forecast of 13-14 percent, the report said.
In 2018, FMCG sector had a growth rate of 14 percent. The sector is estimated to have around Rs 4.2 lakh crore sales.
According to the report, the demand is impacted by rural sales, which contribute around 36-37 percent of the total FMCG sales.