Smaller towns have emerged as ‘heroes’ for FMCG major Nestle India during the coronavirus pandemic, playing a significant role in the company’s growth, offsetting ‘somewhat muted’ performance in large metros, company Chairman and Managing Director Suresh Narayanan said. While the tier II, III and IV towns are still counted as part of the urban market for the company, these smaller places are witnessing twice the growth rate seen in larger metros, even as the company has seen its rural markets outpacing urban counterparts this year.
“One of the themes I would be having for the future is our smaller towns — our tier II, III and IV towns which are towns with population of up to 5 lakh, up to 1 lakh and below a lakh population — have really become the heroes of this pandemic,” Narayanan said.
Stating that these places have “come back very strongly”, he said, “these have been really resilient and that has also accounted for the strong performance despite the fact that the large urban centres were somewhat muted.”
Narayanan said mega-metros and metros felt the adverse impact of the pandemic much more due to the lockdown, the stop-starts that have happened in the retail space.
On the other hand, he said the growth rate in the smaller towns is “at least twice the growth rate that we have in the large mega-metros and metros. The business holding up has been much better in the smaller towns for a variety of reasons.”
He said, “Most importantly, in terms of the (Covid-19) wave, (it) probably hit with less impact on some of these smaller towns as it has hit some of the larger metros and mega-metros. Therefore the operational efficiencies have been much better as a consequence of that.”
Narayanan further said increasing levels of e-commerce has also played a part in delivering products to consumers, who were looking out for good, safe, hygienic and nutritious brands during the pandemic even where the normal channels of distribution was somewhat stunted.
He said the company’s efforts to double “outreach points” from about 6,000 in the last three years has also helped in driving sales in smaller towns.
“We have what we call a wholesale hub in addition to distributors and re-distributors, which are auxiliary distribution points in smaller towns to enhance the geographic reach of distribution and also to have the width of distribution in terms of outlets. This is also something that is helping us and this is a conscious decision that we have made as part of clusterization,” Narayanan added.
Other than that, he said tweaking the company’s product portfolio “to the requirement of the consumer sentiment and to the purchase patterns in the smaller towns” has also helped.
Commenting on the growth witnessed in urban and rural markets, Narayanan said these were equal till the fourth quarter of 2019.
“In quarter 1 of 2020 we had a situation where urban growth surpassed rural growth quite significantly. Urban grew by almost 13% and rural growth was somewhere around 8-9%,” he said.
In quarter 2 for Nestle, the urban growth was about 0.7% and rural growth was 1.7%. In quarter 3 the urban growth was 6% and the rural growth was upwards of 12%, Narayanan said adding, “So this year there has been a reversal”.
He, however, said how long will the rural growth outpace that of urban remains to be seen as only time will tell how sustainable in the longer term will be the impact of monsoon effect, the kharif crop effect, and all the measures that the government has taken to uplift the rural sector.
For Nestle India, the urban market contributes about 75-80% of total business and remaining 20-25% coming in from rural centres, Narayanan added.
In order to enhance growth in the rural market, he said the company has enhanced its distribution network in villages.
“Last year we were close to about 40-45,000 villages. We have kind of doubled our distribution in the last 12 to 18 months to 90,000 villages overall. These have been on the back of creating some of the wholesale hubs. The wholesale hubs are also quite significant now, more than 7,000-8,000 have been set up nationally,” he added.