Shrinking middle class hits FMCG companies: Nestle India – Industry News

The FMCG sector is facing weak demand as it becomes polarized due to shrinking middle class but strong demand for premium products, Nestle India chairman and managing director Suresh Narayanan said on Tuesday. He added that in larger cities there is also a change in sales channels, where people prefer e-commerce and fast trade.

Talking to a select group of reporters at the company’s Samalkha plant, Narayanan said, “There used to be a middle segment where most FMCG companies operated, i.e. the middle class in the country. This seems to be decreasing. There is also a segment that is purely price and quality driven, which also seems to be doing quite well.” As a result, the fortunes of companies offering fair or reasonable value in the mid-tier segment are temporarily shrinking, he added.

This is also reflected in Nestle’s demand pattern. Narayanan said the company’s chocolate business was hit the hardest by the economic slowdown. However, premium chocolates are among the best in terms of growth.

He said that earlier this situation lasted for a quarter, then it rebounded, and now it lasts for two or three quarters.

Last week, Nestle India reported its slowest quarterly growth in eight years. The company said this was primarily due to weak demand and high raw material costs.

“The pressure points come from megacities and metros,” Narayanan said. “It is almost as if we are operating in two Indias,” he added.

The most successful categories were milk and nutritional supplements and chocolate and sweets. However, its core products such as Maggi, KitKat and Milkmaid continue to grow at double-digit rates.

In terms of raw materials, he said the cost of coffee has increased by about 60% over the past year. To cope with this, the company increased the prices of its coffee by 15-30%. However, if inflation remains high, the prices of coffee products may increase.

During this quarter, Nestle India’s e-commerce segment was one of the fastest growing at 38%. Of the total e-commerce volume, almost 50% alone comes from fast trading.

However, Narayana said the company will maintain a balance between all channels. “We always maintain that all channels are important to us,” he said.

However, for the current festive season and quarter, Narayanan said he hoped more growth would come from organized trade.

“General retail is doing quite well. E-commerce is doing great. Organized retail has seen decent growth but still has room for more growth. “I hope we will be able to see the benefits of the holiday season,” he said.