Nestle bets on rural markets as next frontier for growth in India

INDIA – Swiss food manufacturing giant Nestle, is betting on rural markets as the next frontier of growth and has announced plans to reach around 120,000 villages over the next two-three years.

According to Nestle, the villages have an average population of over 5,000. In total, Nestle hopes to reach 600 million people through this initiative.

Nestle India Chairman Suresh Narayanan said that the focus on rural markets will be supported by the company’s distribution expansion and some portfolio tweaking.

To support the move, Nestle is also planning a communication thrust for messaging and advertising, which will be more rural centric.

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Small rural and semi-urban areas of tier II, III and IV have shown a greater resilience against the pandemic and have performed better than the big metros, which are still struggling.

According to Narayanan, a revival of the urban market is also important as a third of Nestle’s business clearly comes out of the large cities and metros, and there are signs of improvement as enterprises open up.

However, Narayanan said that it was difficult to say as to whether it would hit a double-digit growth as the pandemic is still here.

In the short to medium term, in the last couple of quarters, the company is witnessing normalisation in sales after pantry uploading during the sever periods of the pandemic.

Narayanan further noted that about 140 million households are expected to be added to the aspiring and affluent set of consumers by 2030.

To the head of India’s largest packaged foods company, this is “clear indication” of the growth potential of packaged consumer-facing brands.

He further noted that growth in rural and semi-urban India continues to outpace that of urban markets, making the company’s intensive investment in rural villages a sound strategic move.

 “We are unlocking new avenues of growth, higher investments in manufacturing, and renovation and innovation continues to be the core of Nestle,” he said.

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The firm is also focussing on capacity expansion to meet the projected increase in demand as a result of its renewed focus on rural India.

It will be expanding its existing facility at Samalkha (Haryana), apart from setting up a new plant in Sanand (Gujarat).

The company in its Q3FY20 results had announced a capex of Rs 26 billion (about US$353 million) over two – three years, highlighting the management’s confidence and intent to drive volume-led growth.

According to Kotak Institutional Equities (KIE), capacity expansion coupled with footprint expansion augurs well for sustained double-digit top-line growth, if not acceleration.

Nestle India Ltd. is also exploring options to sell directly to consumers as the pandemic forced people to turn to the internet to buy everything from staples to medicines.

“We are actively evaluating (direct-to-consumer) at the moment because we now have a pretty wide portfolio across categories… I think there is still a lot of runway space that we have as a company, and D2C could be a good platform for some of these engagements,” Suresh Naryanan said.

Nestle, however, didn’t elaborate on the channel it will use to sell directly to consumers.

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