In terms of regions, the North market has seen maximum impact where volume growth is almost flat at 1% in July-September 2019, against strongest growth of 17% in July-September 2018. The North is a relatively more price-sensitive market as contribution of rural is at 37%.
Demand for consumer goods in rural India recorded its worst performance in the last seven years, as growth dipped to 5% in the September quarter of 2019, from 20% in the corresponding quarter last year, according to Nielsen’s India FMCG Growth Snapshot. Rural spends account for 36% of total expenditure on FMCG products in India. Historically, this market has grown 3-5% higher than urban India. However, in the September quarter of 2019, urban demand grew by 8% against the 5% clocked by rural. While this is largely due to a sharper slowdown in rural demand, Nielsen’s report also noted that distribution in the hinterland has steadily inched downwards.
According to Nielsen, India’s FMCG market clocked a value growth of 7.3% in July-September 2019, down from 16.2% in the corresponding quarter. The growth trend continues to be dampened by the drop in consumption, which has moved to 3.9% in the period, down from 13.2% in July-September 2018. Price-led growth is sustained at 3.4% this quarter. The trend is not likely to be very different for January-March quarter of 2020. Nielsen expects FMCG growth to be between 7.5-8.5% in Q1 2020.
Speaking on the findings, Sunil Khiani, head (retail management services), Nielsen, said, “Distribution is moving down in rural India, which means less products are reaching to the outlet, which impacts the intermediaries”. Also, the per dealer offtake in rural India is significantly slowing down, which means that they are selling less and stocking less, which impacts the trade. “It is not just the end kirana store or trader getting impacted but also everyone in the chain will get impacted,” he said.
In terms of regions, the North market has seen maximum impact where volume growth is almost flat at 1% in July-September 2019, against strongest growth of 17% in July-September 2018. The North is a relatively more price-sensitive market as contribution of rural is at 37%. Inflation and slowdown pressure has forced some of the smaller and more affordable category players to exit. In contrast, urban South has been reported higher growth at 12% compared to last year’s 10%. Headline rural growth at 5% in July-September 2019 suggests that the growth in this segment is slowing much faster, as it is a quarter of the growth recorded in the corresponding period last year. This is a sharp reversal in trend, as urban growth at 8% has come in higher compared to that of rural, although about half of the 14% urban growth registered in July-September 2018. Since the global financial crisis in 2008, consumer companies improved penetration into rural India, which helped them combat slowdown in the urban markets. Rise in rural disposable incomes increased affordability and rise of modern trade resulted in higher demand. Also, government-led investments in rural India propelled this growth at that time. However, in recent periods, rural growth is slowing down at a much faster rate compared to urban.
Growth in sales per store in rural areas has come in at a fourth of July-September 2018, which reflects a significant drop in demand amongst rural consumers. In addition, rural distribution growth has continued to inch downwards. Small manufacturers have seen the biggest drop in cumulative distribution growth where it has moved from 18% in the third quarter of calendar year 2018 to no growth in the same period this year. For large manufacturers, cumulative distribution growth has halved.
Khiani observed that the cash crunch and lack of disposable income has hit consumption, which is a “concern”. In terms of regions, growth in north India is impacted more compared to southern India, given its dependency on rural, which is seeing a rise in unemployment. “Slowdown in auto and auto ancillary units is another sector that is slowing down which adds to the unemployment and fall in disposable incomes in the North,” he said.
However, Nielsen has maintained its guidance on FMCG growth. For July-September 2019, growth was in line and came in at 7.6% against a prediction of 7-8%. With the growth in the e-commerce sector, the year-end forecast for all-India FMCG continues to be in the 9%-10% range.