Leading packaged food company Nestle India on Friday said that it has forayed into the organic food category, in line with its innovation strategy to tap new consumer opportunities.
The company will launch three products in the organic food category which include an organic variant of its kids cereals brand Ceregrow.
Demand slowdown
Nestle has recorded a double-digit growth in its sixth quarter, in terms of domestic sales in the January-March period, at a time when the FMCG industry has expressed concerns about rural demand slowdown.
Addressing reporters at a roundtable, Suresh Narayanan, Chairman and Managing Director, Nestle India, said: “Overall from the FMCG industry perspective, there has been a rural slowdown, with issues due to credit flows in the market and aberrations with certain channels.”
He added, “But it’s too early to say that it’s a systemic issue and I believe the fundamental view on strong consumption led-growth cannot be dismissed.”
The CMD said, “Where Nestle has come out stronger as compared to our peers, in terms of volume growth in Q1, is due to the fact that about 25 per cent of the company’s sales come from rural regions, while 75 per cent sales come from urban regions. Urban growth rates were consistently maintained.”
However, Narayanan said that below-than-normal levels of monsoon could pose challenges in terms of prices of agro-commodities for the industry. Replying to a query, he said, “If monsoons are going to be less-than-optimal, there would be a dampening effect as far as the rural demand is concerned. In terms of agro-commodities, the trend is clearly going upwards for raw materials such as milk and wheat. This will exacerbate if the monsoons are not as good as predicted.” He pointed out that India’s relatively stable performance has been due to low levels of food inflation in the past couple of years and that “could change if the monsoon situation becomes difficult.”
“In the last two quarters we have noticed that because of the scarcity of credit, the level of stocks — for example wholesale channels that are either buying or stocking — has come down,” he said.
Narayanan added, “It has not been serious enough for Nestle India’s growth because our wholesale footprint is relatively small.”
He also said that the foray into the organic food segment is in line with the company’s focus on strengthening its food and nutrition portfolio.
“We are working with farms with expertise in organic farming capabilities in Rajasthan, Andhra Pradesh and Karnataka, to procure organic raw materials. Now that we have built expertise in terms of sourcing and procurement, we will look at expanding our organic food portfolio,” he added.