Megacities Are Posing Unique Test For FMCG Companies, Says Nestle India MD

India's middle class is tightening its purse strings as persistent high food inflation strains household budgets, according to Nestle India Ltd. Chairman and Managing Director Suresh Narayanan. Traditionally viewed as a segment with considerable purchasing power, these consumers living in megacities are now spending less, a shift he describes as a trend that's "going out of style". This change is hurting consumer goods companies, leading to subpar volume growth, compared to the double-digit growth rates seen in previous years, he said.

"The FMCG market has become highly polarised," Narayanan told reporters at the company’s plant in Samalkha, Haryana on Tuesday. Metros and mega cities are now emerging as "pressure points", while affluent consumers continue to splurge, and rural markets hold steady aided by a good monsoon, he said. "It is almost like we are operating in two Indias."

He, however, doesn't see this as a long-term phenomenon. "If we [the country] have to grow the way our ambitions are on per capita income, we can't have a consumption growth of 3-4%. So, I reckon it is problem of a few quarters."

Tata Consumer Products and Dabur are among companies that have also called out stress in cities, that has been as a drag on their overall growth.

In the July-September quarter of fiscal 2025, the maker of Maggi instant noodles reported a 1.5% decline in volume growth. Categories such as milk and nutrition, chocolates as well as confectionary were particularly affected amid price hikes and rising regional competition, Narayanan said.

To revive volumes, he said that the first thing that the company has to do is correct the price-value equation. "But today, we are constrained as adjusting the equation would mean that I get into a loop of very low to negative returns, which will eventually hurt the company," he explained.

The chairman further said that Nestle's Munch was contending with increasing regional competition. "Going forward, this brand will be addressed more fundamentally, such as accelerating the premium part of its portfolio."

Besides, Nestle India is planning further price hikes of coffee and chocolates due to soaring commodities costs. Cocoa, for instance, has experienced a 2.5-fold increase in cocoa prices and there has been a 60-70% rise in coffee prices over the last year, Narayanan said.

The packaged consumer goods maker raised prices by 15-30% last year on large packs to offset cost pressures and vacated lower price points of Rs 5 to protect margins.

Narayanan, however, remains optimistic of a gradual demand revival. “Mega cities and metros will go through their own pain points. Once they come back—which will also play a role in overall economic revival—and rural starts to improve, then we are reasonably on the road to recovery,” he said.