Business strategy needs to factor in war impact’

Nestle India’s CMD, Suresh Narayanan, has stated that the war in West Asia will bring challenges for businesses, including the impact on commodity inflation. Narayanan also highlighted the importance of penetration-led volume growth and cost efficiency management as key strategies for the company. While inflation has decreased, Nestle does not see a strong case for rolling back price hikes. The company will focus on the growing Indian middle class, which is expected to reach 700 million people in the next few years.

The war in West Asia will bring its own set of challenges and businesses will have to factor in its impact as they chart their growth strategies, said Nestle India CMD Suresh Narayanan. “The Russia-Ukraine one has now become a little bit old… it has been around for about two years. The latest conflagration in the Middle East and its manifestations… of what can happen to geopolitics is anybody’s guess.

All of this is clearly going to have its own challenges as far as the organisation and society and India is concerned, which is something, that we have to factor in as we look at the further course of our business,” Narayanan said at the company’s meeting with analysts and institutional investors on Wednesday. The escalation of war, for instance, could have a bearing on commodity inflation, Narayanan indicated. For Nestle India, portions of the commodity basket in terms of pricing are still of concern.

“If you look at the pace-(in) 2020-2021, inflation put together was less than in 2022. The one concern today is really green coffee. Packaging is stable but it’s up in the air in terms of the Middle East issue and what happens to oil… it’s an oil derivative in any case. Wheat is so far stable, there’s been a 7% escalation in the minimum support price that has been announced, that will get factored in but hopefully that’s something that the company can absorb. It is not something that will kill us. Everything else seems to be otherwise okay,” Narayanan said, adding that penetration-led volume growth will continue to be the company’s core growth strategy.

“In all the turmoil that we are going through and that we will go through, penetration-led growth will not fall off even for a day. We all know that volumes lead to organic growth and not the other way round. So, penetration-led volume growth, strong cost and efficiency management (will be the focus) because in the context in which we are, this is going to play an important role.” Even as inflation has come down, the FMCG major does not see a strong case for a roll-back of the price hikes, which it undertook across large parts of its portfolio last year.

“The pace of increase in prices has come down but that doesn’t mean that it is a decrease. Milk prices are up but the pace of increase in milk prices has come down. While inflation has come down, prices of these commodities are already at a fairly high level. So, the differences are purely marginal to be talking about any distinct roll back,” Narayanan said.

“If inflationary trends continue, discretionary budgets will be under pressure. Therefore, we are trying to put in bridging price packs to be able to take care of it.” Going ahead, Nestle will sharpen its focus on the growing Indian middle class. The market opportunity is big and the addressable size of the cohort for the firm is some 487 million people. “This will go up to 700 million in the next couple of years and it might become the consuming class by 2030. This consuming class is our focus. The primary bread and butter of this company will come from this 487 million people.”

Source : The Times of India Oct 26th 2023