Several major consumer goods corporations such as Nestle, Dabur, Coca-Cola, Mondelez, and Procter & Gamble are planning significant investments in India to expand production capacity and promote higher-end products, despite a prevailing downturn in demand, especially for mainstream products.
Several of these companies are increasing their investments significantly, driven by optimism for a demand resurgence in the upcoming fiscal year.
“We are investing 7-8% of our turnover on capex, which is much higher than it ever was,” Nestle chairman Suresh Narayanan said.
“Despite stress points in demand, there’s a wealth effect phenomenon that is taking place. Stock markets have been booming and those at upper middle class and middle class, they feel good about what they are buying,” he said. “Food inflation is hurting but we are hopeful that once inflation abates, things will be better,” Narayanan added.
The manufacturer of Maggi noodles and Nescafe coffee has committed investments of INR 6,500 crore into the Indian market by 2025, covering a five-year window.
Two weeks ago, Dabur revealed its second-largest capital expenditure in India, totaling INR 135 crore, for establishing a greenfield plant in South India.
Continue Exploring: Dabur announces INR 135 Crore investment for new greenfield facility in South India
“We expect the demand situation to improve as we enter the new financial year; we are looking at both urban and rural markets to drive growth,” Dabur’s chief executive Mohit Malhotra said.
He mentioned that the new facility will cater to rural distribution, innovation, premiumization, and the increasing demand in the southern region, representing 18-20% of the company’s annual domestic sales.
While the demand for mainstream products has been lackluster, demand for premium categories, particularly in urban markets, has remained stable.
According to a report released last Tuesday by research firm NielsenIQ, the FMCG sector’s value growth, which experienced two years of growth, is expected to decrease by half to 4.5-6.5% this year, compared to 9.3% in 2023 and 8.4% in 2022. This decline is attributed to factors such as inconsistent rains, an extended rural slowdown, and food inflation, resulting in a slowdown in sales across consumer staples and daily essentials.
Continue Exploring: NielsenIQ forecasts 4.5-6.5% growth for FMCG sector in FY24; volume surges by 6.4% in Q4 2023 as urban-rural gap narrows
During the October-December 2023 quarter, the FMCG industry witnessed a 6% year-on-year increase in value and a 6.4% rise in volumes. However, sequentially, both value and volumes experienced a decline throughout the quarter, as reported by NielsenIQ.
The industry is banking on a revival in the new fiscal year, anticipating an increase in mainstream volume and value growth, supported by the injection of incomes into the economy. This optimism is bolstered by factors such as the upcoming general elections, a push in capital expenditure, and the stabilization of commodity prices.
Continue Exploring: FMCG firms optimistic about rural recovery amid macroeconomic improvements
Hindustan Coca-Cola Beverages (HCCB), the bottling partner of Coca-Cola, has revealed plans to invest INR 3,000 crore in Gujarat to produce juices and aerated drinks. The new capacity is expected to become operational by 2026.
Procter & Gamble and Mondelez’s investments of INR 2,000 crore and INR 4,000 crore, respectively, in new plants are progressing as planned and are slated to be operational in the coming years.