The fast-moving consumer goods (FMCG) sector is expected to see volume recovery of 5-10% in the upcoming months on the back of improved rural demand and lower inflation, industry executives said. At the same time, pricing-led growth — the main highlight of the sector’s sales growth so far — is also expected to slow down in the coming months.
“Rural demand, which so far was sluggish, is seen picking up now and I am expecting rural volumes to grow anywhere around 3-5% going ahead on the back of good harvest and wedding season,” said Sanjeev Asthana, chief executive officer, Patanjali Foods. The overall volumes may improve by 5-7 % or even 10%, he added.
“We are expecting a volume growth of 8-9% this year,” said Krishnarao Buddha, senior category head, marketing, at Parle Products. “Most of the input costs, except wheat and sugar, are pretty settled now. And whatever necessary price hike, we’ve already taken. I really don’t think there is any further need to take any price increases. The focus now would be to capitalise and increase our consumer franchise,” he added.
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Parle would be spending big on advertisements and promotions in the next quarter to improve the depth of consumption and would also be giving some offers like 10-20% on certain products to help increase consumption.
The FMCG sector witnessed an overall volume decline of 0.9% in the September quarter and 0.7% in the June quarter, Nielsen data showed. This was primarily because of inflationary pressures that dented consumer demand. Within this, the rural markets recorded a volume decline of 3.6% in the September quarter and 2.4% in the June quarter because of double-digit price increases and lower unit growth. Urban markets, however, grew 1.2% in July-September and 0.6% in April-June, the report added.
However, now with cooling inflation, softening-to-steady raw material prices, market expectations of better crop yield, and realisations, coupled with no additional significant price hikes, rural demand is expected to recover. Rural markets are significant for the FMCG industry as they contribute around 38-40% of the overall FMCG industry’s volumes.
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On further price hikes, Patanjali’s Asthana said while price is a function of the overall market environment, he expects them be stable to marginally lower going ahead.
According to analysts at Nomura, while rural demand is expected to potentially recover henceforth, urban demand is seen improving steadily led by premiumisation, increase in working class population, and upward mobility in incomes.
Nomura expects the overall sales growth of the sector at 12% year-on-year in 2023, led by volumes and no further price hikes. Moreover, margin recovery is also expected during the year, it said. “We expect the price hikes taken to finally support margins after three years of gross margin compression and two years of Ebitda margin compression. We forecast 14% year-on-year gross profit growth and 19% y-o-y Ebitda growth for the sector, it said in a note.