Nestle, PepsiCo, Britannia to set up manufacturing plants despite slowdown

Nestle derives around a quarter of its annual sales from rural areas and has been working on improving this number via a distribution and manufacturing push

A slowing market can be an opportune time to step back and invest for the future. In the case of packaged foods, seeing signs of stress in recent months, players are doing just that.

In the past two weeks, three companies — Nestlé, PepsiCo and Britannia — have announced they are setting up new plants. While Nestlé will set up a Rs 700-crore Maggi plant in Gujarat, PepsiCo will invest Rs 514 crore in a new snacks factory in Uttar Pradesh. Britannia is keen to step up its presence in the east and north east, Chairman Nusli Wadia had said at the firm's annual general meeting in Kolkata this month.

Wadia said Britannia was looking at a new plant in West Bengal and would increase production capacity at factories in Assam and Bihar as it sought to get future-ready. “We are already No. 1 in biscuits by value share, market share, and profitability and want to further strengthen that,” he said.

Suresh Narayanan, chairman and managing director, Nestlé India, said: "Penetration level of categories we are in are on the lower side. We still have the runway for growth and we are looking to increase our rural presence."

Nestlé derives around a quarter of its annual sales from rural areas and has been working on improving this number via a distribution and manufacturing push. The Sanand plant, which will take two years to complete, is Nestlé’s ninth manufacturing facility in the country. It will also be the fourth unit to make Maggi in India, a key market for the brand.

Since the Maggi crisis in 2015, Nestlé has overhauled its manufacturing and marketing of the brand, fortifying it with nutrients and dwelling on its health benefits.

In PepsiCo's case, the strategy in chips, say experts, has been about driving penetration, pricing and new flavours. Ahmed El Sheikh, president and chief executive officer of PepsiCo India, said the new investment in snacks was in line with the company’s goal to double the business in the country by 2022.

Abneesh Roy, senior vice-president, research, institutional equities, Edelweiss, says: “Companies typically strategise for the long term and while the slowdown has been pronounced and has led to sluggish growth in fast-moving consumer goods, this phase will pass. Growth for the future has to be planned now and some companies are doing just that."

Naveen Trivedi, senior analyst, institutional research at HDFC securities, says capital expenditure cannot be halted though operating expenditure could reduce in a slowdown. “Companies may decrease their operating expenditure to protect margins, but capital expenditure has to keep going, given that the tide will turn in the future,” he says.

Most firms are hoping for a revival in sentiment with the government announcing a stimulus package on Friday.  Among the measures announced by Finance Minister Nirmala Sitharaman was a Rs 70,000-crore recapitalisation of public sector banks, which, she said, would generate Rs 5 trillion in additional lending in the financial system.

Sitharaman also said her government was working towards simplifying the goods and services tax further, apart from providing relief to sectors grappling with a slowdown.

While the festive season in India kicks off with Onam in Kerala, Ganesh Chaturthi in Maharashtra and Durga Pooja in West Bengal, it is Dussehra-Diwali that is considered the peak period of the season. Most companies are expecting sentiment to return in time for Dussehra-Diwali.