FMCG companies are likely to continue facing headwinds of an economic slump for six more months as revival is only expected after Q3FY21.
FMCG companies are likely to continue facing headwinds of an economic slump for six more months as revival is only expected after Q3FY21. “With few definite signs of improvement in the economy in the myopic future, we do not expect much improvement in Indian FMCG sector until Q3FY21,” a CARE Ratings report said on Wednesday. While categories such as dairy and consumer goods are under pressure, the personal care category is expected to bear most of the brunt of a demand slowdown and its revival is expected at least after the next six to seven months, the report added. The production growth of products such as soaps, hair dye, hair oil and toothpaste has fallen steeply from Q2FY19 to Q2FY20. In the dairy segment, production of butter, milk powder and milk also dropped in the same period.
However, government initiatives will play a major role in shaping consumer sentiments over the course along with the way monsoon pans out. Government measures such as “tax rate cuts — including GST and personal income tax and announcements in the upcoming Union Budget FY21 in favour of rural economy will play a crucial role in uplifting consumer sentiments and bringing demand revival, the report said. Moreover, the government also needs to look into improving rural infrastructure such as roads, electricity and power, among others, as FMCG companies reel under challenges posed by distribution. “One of the largest FMCG companies considered to have the largest rural penetration has a reach to about 50,000 villages, while India has close to 7 lakh villages, showing how underpenetrated rural India is,” the report said.
Fast-moving consumer goods companies can also deploy several measures to lever demand and clear inventory. While introducing smaller packets helps as it encourages users to try new products, companies can also look into promotional activities such as discounts, rebates and sprucing up advertisement spends. This will improve visibility and persuade consumer purchases. Improving sales is especially pertinent for companies in the FMCG sector that survive on wafer-thin margins. Further, the companies can bank on the rising e-commerce rage as it ensures last mile delivery of products. In fact, according to a latest Kantar Worldpanel report, FMCG companies have been registering sevenfold higher sales on e-commerce as compared to kirana and other offline mediums.