Jan 1, 2020
Traditionally ahead of urban sale in the year 2019, the FMCG industry witnessed slowdown in the rural area sales since then. Due to market influences of liquidity crunch in the sales and drop in gross domestic product (GDP), which has dipped the household consumption, rural sales slipped in the last two quarters and resulted in half of the urban sales
The year 2019 has spent the entire time battling relentlessly for growth unproductively. The FMCG industry is hoping a revival movement in consumer demand and household consumption by the second half of 2020, predominantly from the rural sales that has faced a severe setback in the yester year.
Traditionally ahead of urban sale in the year 2019, the FMCG industry witnessed slowdown in the rural area sales since then. Due to market influences of liquidity crunch in the sales and drop in gross domestic product (GDP), which has dipped the household consumption, rural sales slipped in the last two quarters and resulted in half of the urban sales.
To tackle the situation, FMCG producers have launched less denomination price packs in multiple categories to offer their products at affordable rates and have also introduced multiple promotions and offers.
The FMCG is under notion that slowdown is just a short-term obstacle and is expecting the market to be back on high single digit growth in H2 (July-December) of 2020. This back-to-normal scene aided by the factors like government spending in infra projects and increased rural spending. Conversely, the experts say that it will also depend on GDP growth, commodity inflation, good monsoon, among others.
The analysts also predict a high double digit growth a distant dream in 2020 for the FMCG sector.
“It should (FMCG) recover after two quarters. One or two quarters, will remain tough and this all would be linked to GDP. If GDP growth comes back to 6.5 to 7 per cent, then the recovery would happen. I do not see any big recovery in the first and second quarter,” said Edelweiss Financial Services Executive Vice President Abneesh Roy.
According to an ITC Spokesperson: “India is a growth market and we are confident that consumption demand will pick up over time given the low levels of penetration and per capita consumption as well as the slew of recent measures announced by the Government”.
EY Partner and National leader, Consumer Products and Retail, Pinakiranjan Mishra said it would take some longer time to revive.
“FMCG would take a little longer time,” he said, adding “the positive thing is that there is little bit of inflation also. Consumer companies also need inflation, which is inching a little bit”.
Ratings agency Nielsen said, “The growth forecast for Q1 2020 (Jan-Mar 2020) stands in the range of 7.5 – 8.5 per cent and there are various factors that are influencing the trajectory, which includes macro-economic factors such as inflation”.
Consumer companies are also taking steps as they have lowered the prices significantly, Mishra said.
“To help the trade and consumers cope with the downturn we have introduced Low Unit Price packs in multiple categories to make our products affordable to a much larger audience and induce trials. We have also introduced multiple promotions/consumer offers and Communication of the same has been sharpened to highlight benefits to consumers in terms of lower prices or promotions,” according to ITC.
Harsha Razdan, Partner and Head – Consumer Markets and Internet Business, KPMG in India said, “FMCG manufacturers are also trying to leverage the consumption appetite of small tier-two plus cities with a select range of their premium products packaged in more affordable formats”.
“While, we did witness a brief slowdown last year, increased Internet penetration and use of smartphones have ensured that rural regional markets are now at the forefront of the consumption race. They are tech-savvy, digitally aware and already have a sense of the product/brand that the market offers. FMCG companies are trying to leverage this consumption appetite of smaller cities with a select range of their premium products packaged in more affordable formats” said Razdan.
With no jobs on hand and salary hike muffled in 2019, liquidity pressure, consumer sentiments, floods in several parts impacted rural demand and high food inflation due to spike in milk and onion prices. All this aggregately dented consumer spirits and impacted their wallet adversely.
“Rural growth is normally ahead of urban growth (in FMCG) but in the last six months, it was below urban and especially in the last four months, it was half of urban,” he said.
Report from rating agency Nielsen, rural India contributes 36 per cent to overall FMCG spends and has historically been growing around 3-5 per cent points faster than urban. In recent times, rural growth has slowed down at a much faster rate compared to urban.
While releasing the July-September statement for the FMCG industry, Nielsen had said that it was the “worst performance by rural India in last seven years”.
“For the first time in the last 7 years, rural growth has dropped below urban. Rural is growing at 5 per cent in Q3’19, which is 1/4th as compared to 20 per cent in Q3’18, while urban is growing at 8 per cent as against 14 per cent growth in Q3’18.,” it said.
“Rural has to catch up with urban India. Food inflation is back, commodity inflation is back and this is good for FCMG companies from price prospective. Last one year price growth in FMCG was very minimal as it was not required. Now, milk and palm oil are up, which means that there would be price growth of 3-4 per cent for many of the companies,” he said.
Some companies, Like Nestle, which has lesser presence and exposure in rural areas, performed well in 2019 and it saw double-digit domestic growth between January and September.
According to IBEF report, FMCG sector is the fourth largest sector in the Indian economy with household and personal care accounting for 50 per cent of FMCG sales in India.