Even as rural markets continue to drive demand for Nestle amid expectations that urban markets will turn “reasonably positive”, Suresh Narayanan, CMD of the India arm of the FMCG major said the next couple of months were critical to see how demand stabilises after the festive season.
“What we need to watch out [for] very clearly, is the post-Diwali phase. Up till Diwali, one was expecting that there would be consumption in festivities… I would really watch for the next 2-3 months, how things stabilise on the demand front,” Mr. Narayanan said during an online media interaction on Wednesday.
“Since we are just coming out of this terrible economic hole, I think we have to give ourselves some time to see whether things have really stabilised or whether the demand that we have seen has been largely… pent-up demand because I’m looking at it from a multi-sector point of view,” he added.
Nestle, which manufactures products including Maggi noodles, Nescafe coffee and chocolates like KitKat and Munch, saw smaller towns emerging as “heroes” during the pandemic, helping mitigate some impact of low demand from larger metros.
Mr. Narayanan said that in the first quarter of 2020, urban growth was at 13%, surpassing the rural growth rate of 8-9%.
“In Q2 2020, the situation changed. For Nestle, the urban growth was about 0.7% and rural growth was 1.7%. In Q3, the urban growth was 6% and the rural growth was upwards of 12%. So, this year there has been a reversal,” Mr. Narayanan said. However, he added that “only time will tell” how long will this growth sustain and what will be the impact of monsoons, kharif crop and the measures taken by the government.
Asked about expectations for urban market, he said urban India has been stressed mainly due to operational considerations and the impact of COVID-19 on jobs. “As we go forward…some of the operational issues that we face will critically start to come down, businesses will start to open up… there will be some semblance of commercial activity that will start to take place…We should start seeing the urban growth as well start to come back from next year. How strong it would be is difficult for me to put a number…but at least it will be reasonably positive once the economic activity starts to improve,” he added.
For Nestle India, the urban market contributes about 75-80% of total business and remaining 20-25% coming in from rural market.