food inflation: Food inflation here to stay, but demand to drive India story: Suresh Narayanan, chairman Nestle India

New Delhi: Food inflation is here to stay, but consumption will be the centrepiece of the India growth story, Suresh Narayanan, chairman of Nestle India, said at a round table on Friday.

“Consumption will be the centrepiece of India’s GDP growth. We will keep having blips up and down, but companies have to have a different mindset on how to engage with consumers,” Narayanan said.

The maker of Maggi noodles is investing ₹4,200 crore in the three-year period between 2023 and 2025 on manufacturing and capacity building, as it sees “fairly robust” demand in the coming years. “A good part of this investment support is from the Swiss parent firm Nestle SA,” Narayanan said.

The investments will be infused in noodles, chocolate, confectionery and nutrition. From the committed investments, Nestle has already invested ₹2,100 crore in current year. “What we had invested as a company from inception till 2020 is ₹7,000 crore. So, what we’re investing now in the last 5 years is probably as much as what we have invested in previous 60 years,” he said.

While commodities such as edible oils, wheat and packaging materials have softened, costs of other commodities such as robusta coffee remain elevated and are expected to be volatile. “Headline inflation has been under control, but food inflation will continue to wobble for a while not just because of expectations on crops but also climate. The kind of rains we’re seeing, what impact this will have on winter crops is anybody’s guess. So food inflation will stay, it’s not something we can wish away quickly,” Narayanan said.

The foods company reported its fifth consecutive quarter of double-digit growth for the June quarter, and 37% year-on-year increase in net profit at ₹698.3 crore. “Growth has been a mix of pricing and volume, and we continue to see aspirational demand from both urban markets, semi-urban and rural India, which is also showing growth now,” Narayanan said. Nestle operates nine factories and is among the top 10 global markets of Nestle SA. “We will play the game we are good at – penetration-led volume growth, and what has been encouraging is the uptrading by consumers. Small packs are also coming back, and we are stepping up distribution points in rural markets,” Narayanan said.He said the next phase of growth would come from semi-urban and rural markets. “Infrastructure development is also aiding growth and easing the distribution load on companies,” he said. Analysts said the company reported healthy numbers, but cited inflation as a continued key risk.”Nestle has multiple growth drivers in place, including low penetration levels, rising income levels, urbanisation and changing lifestyles. But risks remain, and a sharp rise in prices of key inputs could adversely impact margins,” brokerage firm Nuvama wrote.

Responding to queries on how the company viewed local fast-moving consumer goods brands growing at a faster pace in various categories such as noodles or dishwash bars as stated by researcher Kantar on Thursday, Narayanan said: “I’m happy local brands are playing the market and establishing their credentials. Some of the brands are doing a job; every competitor keeps me positively awake. It gives me the opportunity to do something better.”

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