Nestlé India feels the middle-class pinch 

Nestlé India, which reported its slowest quarterly growth in eight years last week, is feeling the heat due to reduced spending by middle-class Indians, impacting it in the last few quarters. However, the FMCG giant doesn’t see it as an endemic issue, with a hope of demand revival in the coming months.   

One of the major FMCG players, the company saw volumes decline by 1% over a year, with the largest hit being the milk and chocolates segment.  

Suresh Narayanan, chairman and managing director of Nestlé India, said the market has become polarised, with premium consumption remaining fairly strong but the middle segment, where most FMCG players used to operate, shrinking.  

“There is a top-end and people with money are spending like that is going out of style. The middle class of the country seems to be shrinking. The ones who are offering reasonable value in the middle segment are finding their fortunes temporarily shrinking,” Narayanan told reporters in a select media briefing at the company’s plant in Samalkha, Haryana on Tuesday.

Narayanan, who is set to retire in July 2025, is confident that it is not a long-term phenomenon and demand is set to revive in the coming months.

“Today, the pain point has been felt by most FMCG as the middle segment is becoming a little tight. Once upon a time, it (weakened demand) was for a quarter, but now the last 2-3 quarters have been weakened. I don’t see it as endemic issues,” he said.

Other major FMCG players have also flagged slow growth volume with shrinking demand.

For the quarter ended September 30, the company’s consolidated profit Rs 899 crore was slightly down from Rs 908 crore reported in the same period last year. The revenue from operations was Rs 5,104 crore, reflecting a 1.3% increase compared to Rs 5,037 crore in the corresponding quarter of the previous financial year.

The Switzerland-headquartered company has seen 6-7% volume growth per annum, 20-21% operating margin and 15-16% profits. “For the last 8-9 years, we have been able to deliver growth by a single-minded focus on volume and I don’t mind if, in a few quarters, I don’t make the margins that I made in the past but If I can get the volume growth back and that will be good for the long-term story of the company,” adds Narayanan.

He also expressed concern about food inflation but hopes a good monsoon this year is set to revive the rural demand.    

“I am optimistic, let the Kharif crop come in and once the signs of food inflation tapers a bit, then we look at improvement in rural incomes and we will start to see revival. Megacities and metros will go through their pain points, if you take out these two, the other two classes are doing reasonably well. It is like we are operating in two India’s. Overall, economic revival will play a role in kick-starting consumption and rural revival, then we are reasonably on the road to recovery it may take a quarter more,” he added.  

Facing regulatory wrath over sugar content in baby food, the company launched ‘no-added sugar’ variations in the market and is set to launch more products in the Indian market.