Consumer Goods Sales Sluggish in Q2
A market research company says packaged goods sales fell for the fourth straight quarter in a row though FMCG itself grew by nearly 9%
Demand for packaged consumer goods have declined for the fourth successive quarter in the rural markets. This, in spite of a continued sequential growth of around 9% for the overall FMCG industry in the country. This dichotomy is a result of sustained inflation reducing demand, even as manufacturers hiked prices to meet higher input costs.
According to a study by NielsenIQ, the FMCG industry offtake was sluggish across rural India for the July to September quarter with the overall volume growth of packaged goods declining once again – the fourth quarter in a row. This time, the decline was marginally higher at 0.9% compared to 0.7% in the preceding quarter ended June.
Lower volumes and higher margins
The decline was largely attributed to a lower offtake of grocery and personal care products in the packaged consumer goods segment of the FMCG industry, which however, posted a growth of 8.9% during the quarter compared to 10.9% in the preceding one, thanks largely to the price hikes initiated by manufacturers to offset higher input costs and inflation.
In comparison, the industry saw a value growth of 12.6% during July-September 2021 that was led by higher growth rates in the urban markets, NielsenIQ said in its quarterly report on the FMCG industry. In fact, in terms of volume, the period had shown only a small increase of 1.2% over the previous year.
A period of cautious consumption is here
Satish Pillai, managing director of NielsenIQ India says the numbers indicate cautious consumption emerging as a pattern across both urban and rural India, driven largely by the apprehensions of an economic slowdown and the pressure of inflation that is leaving less money with the consumer to make purchases.
Demand for packaged consumer goods declined by 3.6% in rural India by volume for the quarter compared to 2.4% during the April-June quarter of the year. Given that the rural economy contributes more than 35% to the overall annual FMCG sales, the upcoming Rabi farm output could signal how the industry will go from here on.
Already there is talk of reduced offtake in the wake of patchy monsoons and overall higher rate of price rise in the economy post the Kharif season, which ended in October. The seasonal impact of farm output would define how the market moves over the next couple of months while the Rabi crop could determine the pattern for the first half of 2023.
Urban centers did better than rural areas
The market research agency says urban centers did better in terms of volumes which grew by 1.2% compared to just 0.6% in the preceding quarter, buoyed by the spike in demand for food products. The slower growth in volumes can be attributed to double-digit price growth for the past six consecutive quarters, NielsenIQ says.
According to Pillai, the inflation pressures would continue to rule for some more time with variations in rainfall across rural India contributing further to the softening of rural markets for FMCG and even electronics. This also results in a cautious behavior from retail trade as slower offtake tends to reduce manufacturing capacity too.
“Traditional trade retailers have been keeping leaner assortment and lower stock levels to be agile, and manufacturers need to support the retail trade to alleviate this apprehension,” says Pillai. Some of the companies that have a broad exposure to the rural market include Hindustan Unilever, Dabur, and Marico which announced lower rural demand in the Q2 earnings report.
