Inflationary pressures, heavy rains and subdued consumer spending have managed to take the steam out of the fast moving consumer goods (FMCG) industry.
Earlier this year, several leading FMCG companies and analyst reports had predicted a 15% growth for the category in the current fiscal. However, far from that target, the Rs 1.27 lakh crore FMCG sector has shown an average growth of only around 10.5% in the first two months of the current quarter over the year-ago period. This is down 2.5 percentage points from the 13% average growth witnessed in the first quarter of the current fiscal (April-June). On a month-on-month basis, the sector witnessed an average growth of less than 2% in the last three months, putting pressure on the profitability of leading FMCG companies, analysts said.
Experts feel the sector will not show a growth of more than 11% in September. In that case, in order to achieve an overall growth rate of 15% for 2010-11, the sector will have to grow at close to 17% in the remaining two quarters, a tall order going by the current trend, experts said.
As a result of the slowdown in both sales and volume growth, the consumers may have to shell out more for their favourite brand of biscuits, soaps, oil and other products.
?Increase in raw material costs, pressure on margins and lower-than expected consumer spending are all recipe for FMCG firms to jack up prices across categories in the next couple of weeks,? said a Mumbai-based FMCG analyst. Industry sources have confirmed that several FMCG companies have drawn up plans to hike prices.
?Profitability of FMCG firms are under pressure in the second quarter. Price increase in categories like hair oil, packaged atta, toilet soaps, shampoos and salty snack categories are inevitable,? said an analyst tracking listed FMCG firms.
However, there is a silver lining: On an annual basis, August saw the rural market growing at 13.3% compared to 9.7% growth registered by urban India, as per Nielsen data. The rural FMCG market is pegged at about Rs 44,000 crore, nearly half the size of the urban market.
Driving the rural market were categories like refined and non-refined edible oils. Both categories have recorded blazing growth of 36.4% and 29% respectively in the rural market driving the overall growth of the category, even higher than in the April-June period, Nielsen data said.
The top growth categories were packaged atta and packaged rice. Packaged atta, which is pegged at Rs 2,000 crore, witnessed a 20% jump in sales in August compared to May-June period indicating a clear shift in the consumption habit of both rural and urban markets. ?The trend has been building up gradually as far as consumption of packaged food items including atta goes. It also shows significant shift in the marketing and sales strategy in pushing packaged atta in both rural and urban markets,? a senior analyst said.