India’s organised retail stores, which contribute around 12% of overall fast-moving consumer goods (FMCG) sales, grew the highest in six quarters at 21.1% year-on-year during the April-June period, NielsenIQ data shows, on the back of a stable urban demand environment.
Steady urban sales across categories such as food, home care and personal care, the data insights and market research agency said helped modern trade outperform traditional trade, which grew at 6.2% y-o-y in the June quarter. NielsenIQ does not track e-commerce sales, but industry estimates suggest that the online channel grew at about 12-15% y-o-y in terms of FMCG sales in the June quarter.
For perspective, 8% of overall FMCG sales comes from e-commerce, while traditional trade contributes around 80% of overall FMCG sales in the country. The revival in traditional trade in the June quarter versus 1.9% in the March quarter has been led by a recovery in rural markets, NielsenIQ said.
At the same time, urban markets have not slacked at all, the market research agency said, which is reflected in volume growth figures over the last few quarters in modern trade. Urban areas, says NielsenIQ, have a higher concentration of modern trade outlets versus rural areas, which has more traditional trade or kirana stores.
From 5.5% in the March 2022 quarter, modern trade touched 8.1% in terms of growth in the June 2022 quarter, 14% in the September 2022 quarter, 12.7% in the October-December 2022 period and 14.6% in the March 2023 quarter.
Traditional trade, meanwhile, has gone from -4.9% in the March 2022 quarter to -1.5% in the June 2022 quarter to -2% in the September 2022 quarter, -1.5% in the December 2022 quarter and 1.9% in the March 2023 quarter.
“The softening in inflationary pressures has led to a confidence in spending in retail channels, notably, in modern trade, which is likely to sustain going into the festive season,” Satish Pillai, managing director, NIQ (NielsenIQ) India, said. Non-food categories, in particular, have seen an improvement in consumption in the June quarter, says Pillai, led by a price drop within home care and personal care.
Most companies from Hindustan Unilever (HUL) to Marico, Godrej Consumer and Dabur have been vocal about bringing their focus back on volume growth, as commodity inflation moderates. Price cuts in home and personal care have been in the range of 5-10% in the June quarter, with companies indicating that they are willing to undertake sharper price cuts to shore up volume growth.
“We are, at the moment, specifically focused on driving competitive volume growth. That at one level is the topline job. At the bottomline, we do have the tailwind of reducing commodity costs. If you look at our track record, we have grown two-third by underlying volume growth and one-third by price. This is the most virtuous thing to do,” Rohit Jawa, MD & CEO, HUL, said in an investor call last month.
Mohit Malhotra, CEO, Dabur India, said that with cost of products falling, spending was going up among consumers. “As inflation is coming down, cost of products are getting cheaper. There is therefore more money in the hands of the consumers,” he said.
Modern trade is responding with aggressive offers, buy one get one (BOGO) promotions and better in-store display of products to take advantage of the momentum.
The country’s top organised retailer, Reliance Retail, for instance, said that it would continue to leverage public sale events and festivals to drive business after reporting a 59% y-o-y growth in grocery sales in the June quarter. The country’s second-largest organised retailer Avenue Supermarts, which runs the DMart chain of stores, on the other hand, said that it would maintain focus on its everyday low price strategy to drive its grocery business.