Fast-moving consumer goods (FMCG) companies continued to see sluggish growth in October-November, led largely by an urban slowdown. While most company executives that FE spoke to said they expect a turnaround in market growth rates by March-April next year, they added that the picture is dismal for now.
“There is not much of a demand surge in the FMCG market this (December) quarter. October-November hasn’t been that good at all. Sluggish economic conditions are also showing up in FMCG, which is a barometer of overall consumption. FMCG offtakes are not looking too good, there is cash-strapping by retail and wholesale trade. All of this will weigh on the overall growth for the (December) quarter,” Mohit Malhotra, chief executive officer, Dabur India, said.
While NielsenIQ data for November is not out yet, October FMCG numbers, say executives, are not strong despite the festive season. The overall FMCG growth for October is around 4-5%, volume growth is around 3%, and price growth is around 1-2%, executives said, quoting Nielsen data for the period.
“October-November has been stressful in terms of demand. Sentiment has been muted. We were expecting high single-digit overall FMCG growth for the two months, but what we are seeing is mid-single-digit growth, about 4-5% in terms of overall FMCG growth,” Mayank Shah, vice-president, Parle Products, said.
Both Shah and Malhotra pointed to urban slowdown concerns for the sluggish growth rates visible in FMCG for October and November, saying that this trend will continue for the next few months.
Executives from Hindustan Unilever (HUL), Nestle, Britannia and Tata Consumer have all indicated the same, adding that a combination of factors–from increasing real estate costs in cities to food inflationary pressures as well as a slowdown in wage growth–are straining middle-class budgets.
“The middle class of the country seems to be shrinking. The ones who are offering reasonable value in the middle segment are finding their fortunes temporarily shrinking,” Suresh Narayanan, chairman & MD, Nestle India, said.
While premium FMCG growth continues to be strong, the lower half of the market will remain weak, experts said.
“Value growth of the FMCG market in general is falling while input cost inflation is on the rise. Price hikes will help shore up margins, though inflation has been far more than we expected in wheat, palm, and cocoa,” Varun Berry, vice-chairman and MD, Britannia Industries, said.
With the high base effect in terms of urban sales growth kicking in this year, companies are not optimistic of an urban revival anytime soon. Rural growth, on the other hand, will continue to recover.
Urban sales contribute to two-third of the overall sales from a value standpoint, while rural contributes to a third.
“There are macroeconomic factors that are a concern plus the high base effect within urban is also there. In contrast, rural has strong tailwinds from the monsoons and good harvest this year. So, the rural engine of growth should continue,” Rohit Jawa, CEO & MD, HUL, said.
