Companies like Nestle in instant coffee, Mondelez in chocolates, Britannia, ITC, and Parle Products in biscuits and cookies, and Godrej Consumer in insecticides, fabric softeners, and washing liquids have been aggressively expanding in recent quarters. They are investing in new capacity, launching new products, and broadening distribution networks for good reason.
Household consumption for the above-mentioned categories (six in all) in calendar 2023, according to Kantar Worldpanel data, saw a significant jump versus the previous year, driven by stable urban demand. But there is another side to the story.
Out of the over 90 categories tracked by the market research agency, 50% experienced a decline in consumption in 2023. This includes segments like cooking oils, where household consumption dropped by 1.4 litres; washing powders, which lost 300 grams per household; Basmati rice, with a decrease of 180 grams per household; and salt, which saw a reduction of 80 grams per household, according to Kantar Worldpanel data.
The trend has continued into calendar year 2024, the market researcher says, as consumers seem to be spending on what they desire rather than what they need.
Consider this: Instant coffee grew 11% in terms of spends and 5% in terms of consumption in 2023, chocolates saw a 32% increase in spends and 30% jump in consumption, while households spent 20% more on insecticides helping push up consumption by a similar amount (20%) during the year.
“The FMCG household consumption has been mixed in part because of the skew visible in urban versus rural demand,” says Krishnarao Buddha, senior category head at Parle Products, among the country’s leading biscuit makers. “Rural demand has been weak. In contrast, urban demand has been better, which has led to discretionary products exhibiting good growth,” he said.
Both NielsenIQ as well as Kantar have said in their respective FMCG outlooks for 2024 that the market will slow for the most part of the calendar year before a recovery in the December 2024 quarter. NielsenIQ also says that there is a sequential decline in FMCG value and volume growth, which was visible in the December 2023 quarter. The gap between urban volume growth and rural volume growth is also narrowing, it says.
In a recent earnings call, however, Britannia’s vice-chairman and MD Varun Berry said that urban growth was outpacing rural growth for his company. “This is reflecting in our premium portfolio which is doing well versus our value segment which is under pressure because rural demand is lagging,” Berry said.
Nestle India’s chairman and MD Suresh Narayanan said in a media roundtable last month that demand for essential or “common man” products was muted versus discretionary items.
“If you are a mainstream product, you are facing the vagaries of a combination of job losses and food inflation which continues to be choppy. But discretionary products are doing better,” he said.
This polarisation in consumer demand has prompted Nestle, Narayanan said, to keep its investments going in the Indian market, given that its products have an urban skew. The maker of Maggi noodles, KitKat chocolates and Nescafe instant coffee will invest Rs 6,500 crore on capacity expansion over five years – its highest investment in such a timeframe, Narayanan said.
Godrej Consumer is making an investment of Rs 515 crore in Tamil Nadu to set up a new manufacturing plant in the state over the next five years. The plant will help accelerate GCPL’s delivery timelines, optimise inventory management, apart from giving the company greater access to southern markets.
“It will serve as a manufacturing hub for a wide range of our products, such as Cinthol and Goodknight and bolster our market presence,” Sudhir Sitapati, MD &CEO, GCPL, said. The company has also launched a new liquid detergent brand called ‘Godrej Fab’ in the southern markets at Rs 99 a litre and has entered the Rs 1,200-crore anti-mosquito incense stick market with Goodknight Agarbatti in the last few months.