Social distancing to impact manufacturing; consumption may be constrained: Nestle chairman

New Delhi: Social distancing will affect Nestlé’s production in terms of both output and cost, chairman Suresh Narayanan said on Tuesday.
“Deployment of workforce can never be 100% at plants and we can reach a maximum of 75%. Companies which are unable to do so will have to bear an enhanced cost to the bottom line,” Narayanan said at an online media roundtable.

The India unit of the world’s largest packaged foods maker is adopting technology to fill workforce requirements, which will help in mitigating the shortage of food supplies.

Narayanan said PM Narendra Modi’s call on “vocal for local” has been interpreted differently by some, and asserted that Nestle is all about made in India and for India. The MHA had issued an order following Modi’s statement, asking all police force canteens to sell only indigenous products beginning June 1.

Narayanan said police canteens have asked for details on whether the products and raw materials are made in India. “It is a very very clear list that they have asked for, which we have provided. I do hope that there will be clarifications on this soon.,” he said.

The maker of Maggi noodles and KitKat chocolates was also cautious about consumption in the months ahead.

“Consumers may hold back on indulgences and we expect consumption to be constrained in the next two quarters. Buying patterns would change,” Narayanan said.

Nestlé reported a 10.7% increase in domestic sales for the March quarter at Rs 3,124.2 crore. The Swiss packaged foods maker had reported its best quarterly sales growth in almost five years globally in the January-March quarter as consumers stocked up on packaged food amid lockdowns. India started its lockdown on March 25.

Narayanan said demand for Maggi instant noodles, Milkmaid condensed milk, KitKat and Munch chocolates and Nescafe coffee had surged since the lockdown and that pantry-loading would increase with in-home consumption of foods on the rise even after the lockdown.

“There has been a lot of interest in our brands because in-home consumption has gone up. We have digitally engaged with consumers,” he said.

However, he also expects downtrading among a large set of consumers for whom the frequency of indulgences will be lower, with smaller packs likely to do better in rural and semi-urban markets.

Immediately after the lockdown in India, manufacturing and supply chains had come to a standstill.

“In the first quarter, most companies already had stocks. Now there are labour deployment and infrastructure constraints. Supplies from SMEs are also a big challenge,” he said.

As reported by ET last week, India’s top consumer goods companies have written to the government through the Confederation of Indian Industry seeking clearances to run facilities with a 75% cap on worker deployment in green and orange zones, and a 50-60% cap in red zones, excluding containment areas. The current cap is 33%.

On the shortage of labour, Narayanan said initially there was a fear but a significant number of the workforce has started to return and that truck availability was chaotic but improving.

“Getting permits and e-passes can sometimes prove to be a little difficult still. Things are not back to normal but getting better,” he said.

Nestlé has put production of low-traction packs on hold following an assessment of what innovations in the pipeline can be taken forward, but said its innovation cycle will not stop.

All the company’s eight factories are operational and it has covered 45% of the retail markets.