While a slow growth for big items such as cars and houses may not be indicative of a sluggish economy, the lesser consumption of daily staples is alarming.
The latest quarterly results of FMCG companies and management commentary on growth should be enough to scare the current and the next governments, as the slowdown previously seen in housing and then in automobile sectors is now hitting consumer staples as well, a report said. While a slow growth for big items such as cars and houses may not be indicative of a sluggish economy, the lesser consumption of daily staples is alarming with people not even having the money to buy day to day necessities such as hair oils, shampoos, and soaps.
As the Lok Sabha Election results draw near, the onus of reviving India’s economy will fall primarily on the incoming government. Taking India out of the alarming economic growth must be the priority for the new government, however, it will be a daunting task, Kotak Institutional Equities said in the report.
Corroborating the bleak outlook for the consumer segment in India, another Kotak research report pointed out to the shift in tone in the management commentary of major FMCG companies in Q4 from that in the previous quarter. The nuanced statements hint at the worse as the generally cautious Hindustan Unilever said that the FMCG sector is only recession resistant and not recession proof, Kotak research highlighted. The tonal shift is witnessed in Britannia’s statement as well which pins its hopes on the stability of the next government for revival of the FMCG industry.
What is killing growth?
The slowdown first started with the housing industry with the demand for houses low in last 5-6 years. This was then witnessed in the automobile industry where the demand has been worrisome since the second half of FY19. This has now passed on to the consumer staples industry in which many major FMCG brands are struggling to make it to double-digit growth.
While the slowdown in consumption can be indicative of sluggish economic growth, it also reflects that income growth has been shrinking. What is more troublesome for the economy is that the slowdown is recorded not only for discretionary items but staples as well, Kotak report said.
According to the same report, the gradual decrease in consumption is caused by insufficient income growth. The previous stable demand in consumer staples was a result of the fund shift from purchasing household to buying consumer staples. Now, as the income growth didn’t see a growth in these years, the “low-household income growth sapped consumption,” the report co-authored by Sanjeev Prasad, Sunita Baldawa and Anindya Bhowmik said.
FMCG giants testify, even if not directly
Britannia had recently released its Q4 results and the bread and biscuit maker company acknowledged that the food industry has seen a slowdown in the marketplace in the particular quarter. Varun Berry, Managing Director of Britannia, hoped that the marketplace slowdown in the last few months is expected to balance out with favourable monsoons and stable government.
In the previous quarter, the Dabur and Britannia both lamented their inability to not touch a double-digit growth while Godrej assured that they hope a strong performance next quarter riding on the new product launches.
It is not just the food industry though. A recent report by research firm Emkay also pointed out that the industry is currently reeling under sluggish demand due to which companies have made available various offers and cash back on electronic items such as refrigerators, washing machines and televisions. It has also led the players to cut the prices of these products.