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Steep price hikes hit rural demand

Strap: 5.3% fall biggest in 3 quarters: Nielsen

The double-digit price hikes drove up the growth in the FMCG space by 6% y-o-y in the three months to March helping offset the contraction in volumes to the extent of 4.1% y-o-y.

A sharper rise in prices of consumer staples has resulted in a steep decline in consumption in the country’s rural markets. At 5.3% y-o-y, the fall in the January-March quarter is the biggest slowdown seen in the last three quarters.

Data from Nielsen shows that the rural markets witnessed higher price increases in the January-March quarter at 11.9% y-o-y compared to 8.8% y-o-y for urban areas. While the drop in consumption is evident across towns and zones, the fall has been more pronounced in the rural markets. The southern and northern zones reported a decline in volumes of more than 5% y-o-y.

FMCG companies have pointed out that high inflation is hurting rural demand. Saugata Gupta, MD and CEO, Marico, observed recently that rising prices continued to weigh down the consumer sentiment, especially in rural areas. Gupta also cautioned the near-term demand outlook was somewhat uncertain.

FMCG players have sought to protect their margins by resorting to price hikes and will likely increase prices further. Sanjiv Mehta, CEO and MD, Hindustan Unilever, indicated as much, saying some price increases may need to be taken. However, Mehta said that a large part of the problem of the input costs had so far been managed by reducing the grammage and that an “immediate price increase is our last resort.

The double-digit price hikes drove up the growth in the FMCG space by 6% y-o-y in the three months to March helping offset the contraction in volumes to the extent of 4.1% y-o-y. The de-growth in volumes was significantly higher for non-foods at 9.6% y-o-y compared with a contraction of 1.8% y-o-y for food. In the December 2021 quarter, the contraction in total volumes had been smaller at 2.6% y-o-y while the March 2021 quarter has seen volumes grow by 8%.

Adani Wilmar took an average price hike of 30-35% in the edible oil segment and an increase in the range of 15% in the wheat flour and rice during the quarter ended March.

The Nielsen IQ FMCG Snapshot Q12022 reveals the exit of small manufacturers has been on the rise during the quarter at 5.3% y-o-y. This is primarily due to their inability to pass on the higher input costs to consumers. With products from these smaller players missing from the shelves, the slowdown would have been exacerbated.

The price increases in home care and personal care products, of about 25-50% y-o-y, have been higher and have hit household budgets the most. Sudhir Sitapati, MD and CEO, Godrej Consumer Products, said that recently the company’s personal wash portfolio could see incremental price increases.

Satish Pillai, managing director India, NielsenIQ, observed that macro-economic indicators are still guiding consumption patterns for the Indian consumer. “They are feeling the impact of the price increase – especially in the food and essentials categories,” Pillai said.

Sonika Gupta, customer success lead (India), NielsenIQ, said that consumers are scaling back more on discretionary spends within the non-food categories. “Overall, there is an evident shift by consumers to smaller pack sizes to manage external factors for both foods and non-foods. Keeping this in mind, manufacturers and retailers need to ensure the right assortment of pack sizes across brands to account for this consumption shift,” she said.

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