Nestle's newly appointed chairman and managing director in India, Martial Rolland, attributed the slow growth shown by the company to changing consumer spending patterns.
“There has been a shift in consumer spending towards asset building and non-food related lifestyle changes, driven by low cost credit available widely to consumers, and diverting some consumer demand from FMCG products,” he said in a release today.
With commodity prices easing up by the end of last year, Nestle posted a 68.4 per cent rise in net profit to Rs 76.5 crore for the quarter ended December 31, 2004.
The steep increase was also due to the fact that the company incurred certain non-recurring exceptional operating expenses in the last quarter of 2003. Nestle’s Net sales in Q4 increased by 7.8 per cent to Rs 576 crore with both its domestic and export sales looking up.
But poor consumer demand and high commodity prices persisting for most part of 2004, Nestle witnessed a four percent decline in its net profit to Rs 252 crore in 2004 compared with the previous year. The company’s sales too grew marginally by 4.1 per cent to Rs 2,227.5 crore in 2004.
Rolland’s predecessor Carlo Donati too had cited the changing consumer behaviour to explain Nestle’s topline slowdown during the first three quarters of 2004. In 2003 the company posted a sales growth of 11 per cent and its net profit increased by 30 per cent.
Nestle’s domestic sales growth of 5.3 per cent to Rs 1984 was offset by an identical decline in its exports during 2004. The company’s exports declined to Rs 243.5 crore primarily due to the shift in composition of instant coffee exports to Russia, from retail to bulk packs.
“These decreases are mainly due to the increase in commodity prices, particularly in milk solids, which have not been entirely passed on to the consumers. Hence, we focused on maintaining market shares, improving organizational structure, improving penetration into newer territories and controlling costs. The fourth quarter of 2004 witnessed a more favourable growth,” added Rolland.
The company said that its savings initiatives like Target 2004+, that focused on manufacturing processes, optimization of line efficiencies, raw materials and packaging materials mitigated the adverse impact of steep increase in input costs throughout the year.
According to Nestle, it once again emerged as the highest coffee exporter from India and the highest exporter of value added instant coffee.
The Company’s efforts to develop new products and geographies to widen its export portfolio have helped to reduce dependence on instant coffee exports to Russia.
“Initiatives to develop products for Indians living abroad helped to maintain a healthy growth in the export of culinary products. Export of Instant Tea continued to do well and export of infant nutrition products to neighbouring countries was also commenced during the year,” said Nestle.