The slowdown in the FMCG industry is persisting even after more than a year with it being more pronounced in rural India than the urban areas.
The slowdown in FMCG industry is persisting even after more than a year with it being more pronounced in rural India than the urban areas. “Amidst a subdued demand environment, the Indian FMCG sector continued to post decline in revenue growth for the fourth consecutive quarter of Q3FY20,” a CARE Ratings report said on Thursday. Further, a sales slump has been witnessed in both food product items and household and personal care items. The same is also reflecting in the production growth of these companies with a marked fall in the production of items such as butter, milk powder, edible oils, cakes, fruit juices, soaps, toothpaste and hair oil from Q3FY19 to Q3FY20.
“The fall in demand was much higher for items that are discretionary in nature like hair oil and hair dyes. Certain consumer goods like toothpaste and soaps also witnessed down trading to low unit price points,” the report said. The 101 companies that were taken into account have posted sales growth of modest 5% in Q3FY20 while the same stood at 8.8% in the similar period last year.
Why is demand dropping?
Several reasons are contributing to the prolonged slowdown that the FMCG industry has been facing. With high unemployment rate and lower economic growth, there is less money available with the customers to spend. “Low economic growth has led to lower job creation and thereby, reduced spending by consumers,” the report said. Further, there has been a rise in the prices of key raw ingredients such as milk, sugar, potato, onion, etc. which has also flowed to the cost of production.
According to RBI’s report, the consumer confidence has slipped. As households expected a rise in expenditure in coming months, they reduced their spending on non-essential items, when compared with previous year, the report said. The liquidity condition in the market is also severe which has aggravated the situation for distributors by impacting working capital operations.