Nestlé India Notes Weakening Demand from Urban Middle-Class Amid Lagging Incomes

Urban Middleclass Concerns Emerge in India's Consumption Story

Mumbai: India's urban middle class may be facing a significant challenge in the consumption story, with its income growth failing to keep pace with inflation. This has prompted consumers to defer discretionary spending, according to Nestlé India chairman and managing director Manish Tiwary. The warning comes as fast-moving consumer goods (FMCG) firms have started hiking prices to offset higher input costs, raising concerns over the durability of the recent recovery in urban demand.

The challenge in India's growth story is more pronounced in urban areas, where inflation factors such as rising input costs have not been offset by growth in real earnings. This lag could affect discretionary spending, leading consumers to push out discretionary expenditure. However, Tiwary noted that the top of the pyramid, comprising about 30-40 million top-end customers, including the premium segment, remains extremely resilient.

Rural Market Continues to Do Well

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The rural market, which accounts for a major share of the volume growth for Indian consumer goods companies, is also continuing to do well. This is a positive sign for the industry, with Tiwary expressing confidence in the overall growth prospects. Nestlé India reported a 26% year-on-year rise in its standalone net profit at ₹1,114 crore in the March quarter of FY26, driven by a double-digit growth in volumes.

Comparison of standalone net profit of select FMCG companies in the March quarter of FY26 and FY25.

The recent recovery in urban demand has been described as "K-shaped," with premium consumers and rural demand holding up while the urban middle class remained under pressure. However, the West Asia war-induced supply disruption and price rise across segments are set to undo much of that benefit for FMCG players. Many companies, including Hindustan Unilever Ltd, Britannia Industries, and Dabur India, have started hiking prices over the last few months.

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India's retail inflation rate rose to 3.48% in April, up from 3.40% in March, while the wholesale price index-based inflation surged to a 42-month high of 8.3% during the month. Much of the inflationary pressure for the industry has been stoked by the disruption in energy supply from West Asia, where the crucial Strait of Hormuz remains blocked, disrupting crude oil supply. Even if FMCG firms may not directly use crude oil in manufacturing, its spillover effect across the economy is spiking production costs, compelling many companies to pass on some of the burden.

Nestlé has, however, been focusing on volume-led growth. "Especially during a crisis, if you really want to be resilient, the voice of your consumer has to be much louder," Tiwary said about the risks of implementing price hikes.