Slowdown woes: FMCG growth rate tumbles down to less than half; rural demand at 7 year low

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Updated: October 17, 2019 4:35:43 PM

The FMCG growth rate in Q2FY20 has tumbled down to less than half of what it was last year as rural demand hits a seven-year low.

According to Nielsen data, the growth rate for small manufacturers has shrunk by 23% and small players leaving the business is also on a high.

The FMCG growth rate in July-Sep quarter has tumbled down to less than half of what it was last year as rural demand hits a seven-year low. “The India FMCG market is clocking a value growth of 7.3% in Q32019,” which is a slip from the previous 16.2% in the comparable period last year, Sunil Khiani, Head, Retail measurement service, Nielsen South Asia, said on Thursday. Further, rural growth has also shown the worst performance in seven years, dropping below the urban growth. Compared to Q3’18 when the growth rate touched 20%, the rural growth numbers have dropped to 5% in July-Sep months of 2019 while urban stood at 8%, down from 14% in July-Sep last year. Several FMCG companies are reeling under the woes of slowdown and some have even claimed that consumers are not even purchasing five-rupee products. 

“Rural India Contributes 36% to overall FMCG spends and has historically been growing around 3-5% points faster than urban,” Nielsen said in its recent FMCG snapshot report. While this was driven by a gamut of factors including increasing affordability, availability and conversion of the commodity to branding, in recent periods, rural growth is slowing down. 

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Small players exit on high

There has also been a shift in the way small manufacturers have been growing. According to Nielsen data, the growth rate for small manufacturers has shrunk by 23% and small players leaving the business is also on a high. “Small player exits have increased by 33% and new entrants in the market have fallen owing to strong inflationary pressures and increasing input prices,” Nielsen said. 

However, going ahead, Nielsen has upped its forecast for the Jan-Mar 2020 quarter, indicating that the beginning of the next year may finally see a sales revival, breaking close to a year of slowdown for FMCG companies. “We are now finally seeing early signs of the declining trends being arrested. The growth forecast for Q1 2020 stands in the range of 7.5% – 8.5%,” Nielsen said. For the current sales, Nielsen said that sales will spur owing to the tailwinds of the festive season and festive spendings that consumers end up doing during the season. Further, discounts, offers and festive sales on e-commerce platforms will also help in FMCG growth. 

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