Why India is outpacing China as growth bet: 'Firms follow demographic, economic tailwinds'

PepsiCo, Unilever, and other multinational packaged goods companies are shifting focus from China to India as a key growth market, following an uneven recovery in China. With India’s economy growing at the fastest rate among major emerging markets, these companies are introducing new flavours and size variants to cater to the diverse tastes of India’s vast population and untapped rural market.

According to Brian Jacobsen, chief economist at Annex Wealth Management, the shift in focus from China to India is a strategic move to capitalise on demographic and economic trends.

“The last decade was about selling into China, but the next decade is about selling into India,” he told Reuters. “You have to go where the demographic and economic tailwinds are at your back.”

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Major consumer goods companies operating in India are very futuristic about the prospects for consumer spending in the coming quarters. All these companies are expecting that higher government spending, a favorable monsoon season and a rebound in private consumption will drive growth in the sector.

That is expected to boost the combined market share of the top five multinational companies - Coca-Cola, P&G, PepsiCo, Unilever and Reckitt - to 20.53% in 2023 from 19.27% in 2022, mainly in the baby care, consumer health, cosmetics, beverage and household categories, according to research firm GlobalData.

Their total market share in China is forecast to shrink to 4.30% in 2023 from 4.37% in 2022, the data showed.

“China went through an extended COVID … they even went through a brief period of negative growth, and after this, growth has been very sluggish. In comparison to that, the growth rate in India hovering around 4% seems like a healthy growth for total fast-moving consumer goods,” K Ramakrishnan, Managing Director, South Asia, at Kantar’s Worldpanel Division told Reuters..

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Both the urban and rural segments in India have seen growth, but rural has fared a little better, he said.

Consumer goods companies have also been pumping money into India with launches like PepsiCo’s Kurkure Chaat Fills, Coca-Cola’s packaging upgrades to increase the shelf-life of its products and Nestle’s plans to introduce its premium coffee brand Nespresso at year-end.

As a result, Coca-Cola’s household penetration in India increased by 24% for the 12 months ended June, PepsiCo’s by 12.7%, Nestle’s by 6.7% and Reckitt’s about 3.8%, data from Kantar showed.

Mondelez International is partnering with the Lotus Biscoff cookie brand to sell its products, and plans to launch new Oreo pack sizes this month. The company reported a mid-single-digit percentage growth in the chocolate category in India in the second quarter.

Coca-Cola also posted double-digit volume growth in India, while Unilever recorded sequential improvement in the country. PepsiCo’s Africa, Middle East and South Asia region reported a rise, with the company expecting India to be the “big growth space” there.

The results contrast muted volume growth in the region last year for most of these companies. On the flip side, China has seen feeble demand.

KitKat maker Nestle reported a fall in total sales in the Greater China region in the latest quarter and said overall economic and consumer sentiment there was “clearly weaker than expected”.

With inputs from agencies.