industry

FMCG packs are back on urban India's shopping lists


Demand for packaged fast moving consumer goods (FMCG), including soaps, toothpaste, food and beverages, revived in the June quarter in urban markets, as consumer sentiment turned positive after two quarters of decline. It stayed negative for rural India as people opted for smaller packs, impacted by steep inflation, research company NielsenIQ said in its quarterly update. The rural market is expected to revive, with a normal monsoon and other factors.

India’s FMCG sector grew 10.9% in April-June by value, versus 6% in the previous quarter. Urban markets revived with a positive volume growth of 0.6%, against slower recovery in rural markets, which stayed negative at -2.4% for the quarter, the researcher said.

“This beats the last two quarters of consumption decline and highlights the onset of cautious optimism among consumers,” said Satish Pillai, managing director, NielsenIQ. “Also, consumption recovery and promising macro factors support NielsenIQ’s forecast of double-digit growth for 2022.” The researcher predicted double-digit growth by end of 2022, at 8-10%, and attributed it to government measures, easing of inflationary pressure and other key macroeconomic factors.

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“Overall, the June quarter has seen consumption revival across categories in FMCG, primarily led by a jump in unit growth,” Pillai said. “Urban markets have turned towards a positive consumption growth, and rural markets are following closely.” Sustained revival in rural demand, which started slowing last September, remains crucial, executives said. The slump came amid steep inflation in food, other daily essentials and fuel, as well as declining wages, forcing a switch to cheaper products or an end to some purchases.

Expanding Direct Distribution

India’s villages contribute around 35% to overall FMCG sector sales.

“We have accelerated our rural strategy that is beginning to uptick and penetration is happening in those markets,” said Suresh Narayanan, chairman of packaged foods maker

. “The good news for us is that our brands are getting accepted and that is why the last three to four quarters, together with infrastructure and investments in brands and communication, we have been able to build traction.”

Large companies including Nestle,

, , , , and Tata Consumer have said they are expanding direct distribution in villages in the expectation of a good monsoon and harvest, higher capital investments and agri prices, and additional spending in government programmes such as the rural jobs scheme.

HUL, ITC and Nestle, among the companies that have so far declared June quarter earnings, signalled an optimistic recovery trend. ITC’s FMCG revenue grew 19% year-on-year despite inflationary pressure, with management commentary indicating strong growth in discretionary and out-of-home categories, along with resilience in staples and convenience foods.

“Rural demand still remains weak, though demand from urban markets has been slowly recovering in few geographies,” said Jaideep Nandi, managing director of

, which makes half its sales in rural India.

Overall Buoyancy

Overall FMCG volume in the June quarter declined 0.7% from the year earlier and 4.1% from the preceding one, as there was a significant drop in average pack size, NielsenIQ said. Absolute unit growth grew to 8.9% versus 1.5% quarter-on-quarter, as consumers bought smaller packs, but more units.

Unit growth is the extra number of units of a product sold in a specific period, compared with the same period a year ago.

The researcher said the industry saw positive momentum in volume along with price-led growth, adding that this is expected to stay in double digits through the full year on account of the upcoming festive season and recovery in rural demand.

“The first half of the year saw an 8% value growth, which indicates an overall positive outlook for January-December 2022,” said Rajesh S Shirali, data science market and client engagement lead at NielsenIQ India. “As we have seen historically, the second half of the year will be driven by the festive season and normal monsoons, which will give the necessary push to consumption patterns for the sector.”

Modern trade outlets grew 7.8% in April-June over 5.5% in January-March by volume, while traditional trade, or neighbourhood grocery stores recovered from -4.9% in January-March to -1.5% in April-June.

Non-essential personal care categories – such as perfumed deodorants and colognes – recorded more than 40% volume growth amid summer demand. Skin creams, coconut oil, hair dyes and talcum powder, too, showed positive volume growth over the earlier year.

“Consumption recovery was led by unit growth, as consumers move to smaller pack sizes and grammage reduction from manufacturers in key price packs,” it said. “Small manufacturers showed positive volume growth after three quarters.”

Small manufacturers, or companies with less than Rs 100-crore turnover, are back on track with positive volume growth of 1.8% in the three months ended June, against 8.5% decline in the year-ago quarter, while volume decline continues for medium and large manufacturers, it said.



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