Head of Nestle India, Suresh Narayanan, informed us that 2022 will likely be a “difficult year” as commodity prices are expected to rise and result in the spectre of food inflation for manufacturers.
In the past months, Nestle has seen an average price hike of 1-3 per cent. In terms of commodity pricing, the first half of 2021 was relatively more secure and quiet, with the exception of packing materials and crude oil, as milk and wheat prices remained broadly stable.” But in 2022, it clearly looks to be promising to be a difficult year. There is clearly an uptick as far as milk prices are concerned, ” Narayanan said.
Apart from disruptions caused by the coronavirus pandemic, non-replacement of milch herds on-time across the country has also resulted in a depleted supply base. Similarly, globally, coffee prices are also going up “quite significantly” as there have been adverse impacts in Vietnam, which is the largest grower of coffee, due to the pandemic and disruptions there, Narayanan said.
Definitely, there is going to be the spectre of food inflation that will be staring at us, ” he said, adding that there will be pressure on raw material supplies going forward as large economies are opening up quite strongly. Worldwide, there is around a 5 per cent uptick in commodity prices, and there will be an impact. This is an area that the company is watching out for, he added.
With commodities likely to become more expensive, Nestle India expects to ease some of the effects by using its scale as a large player in the industry.
The only silver lining that I see in the context of India is that the rabi crop will be decent because the monsoons have been fairly robust across the country. As far as the agricultural sector is concerned, there might be some mitigation that we have as far as this inflation is concerned. About demand, Narayanan said there are three big trends seen in the market: the middle class and urban consumers are sticking to trusted brands; products that offer some benefit in terms of nutrition and immunity, and there is also pressure on the overall household budgets. “There is an unleashing of exuberance that is happening. The last festive season was kind of rooted for many of the other players. Going forward, there is a strong expectation that this Diwali will definitely be much better than the last Diwali.
Nestle India is also expanding its rural coverage and targets to cover 1.2 lakh villages, which has a population of 5,000. Presently, it covers around 90,000 villages and around 25 per cent of its total sales come from rural markets. There will be a fairly rationally strong comeback in consumption in mega metros and metros. Even if there is a complete normalcy in the urban market, “rural markets are not going to meltdown in a hurry, there could be some growth.
Nestle India witnessed strong growth in the e-commerce segment during the pandemic and the segment contributed nearly 6 per cent of the company’s total sales. Narayanan noted that sales through other channels are also expected to stabilise, but e-commerce will still remain relevant to a lot of consumers who have now gotten into the habit of buying online. Nestle India, which plans to invest around Rs. 2,600 crores in India in the next 3-4 years, has also applied for the government’s production-linked incentive scheme for the food processing sector.