High inflation likely to keep consumer demand muted in 2025: Kantar report
- The urban middle class, once the cornerstone of the consumer goods market, has become the smallest cohort. Real incomes have been under pressure, leading to stagnating consumer confidence. Consumption in the urban areas has slowed more sharply than in rural regions, Kantar said.
New Delhi: Demand for goods is likely to remain subdued next year, as high inflation hurts real incomes, eroding consumer confidence, market research firm Kantar said in its outlook for 2025 released on Thursday.
India’s socio-economic landscape has altered significantly, post-covid. The urban middle class, once the cornerstone of the consumer goods market, has become the smallest cohort. Real incomes have been under pressure, leading to stagnating consumer confidence. Consumption in the urban areas has slowed more sharply than in rural regions, Kantar said.
The London-based marketing data and analytics company released its ‘India at Crossroads’ report, looking at the future of marketing in India in 2025. The report highlighted the rapidly-evolving landscape marked by social and demographic shifts, unpredictable consumer sentiments, and the continued adoption of technology.
Also read | Investors shy away from FMCG stocks but embrace quick commerce platforms: Why?
"As we look forward to 2025 and beyond, India indeed finds itself at a crossroads. This year has proven to be a challenging one for many brands and categories, with volume growth slowing down and consumers unable to take further price hikes,” Deepender Rana, executive managing director, South Asia, insights division, Kantar, said.
The report said that consumers would rather spend on experiences such as travel and musical concerts, than on buying goods, in a sign of growing challenge for the fast-moving consumer goods (FMCG) companies.
Flat volume growth
Rana said that volume growth for the FMCG sector could be “flat” in the coming year.
“We can see some bigger headwinds. In the beginning, we saw only a very selective slowdown, which was limited to mass packaged goods; premium categories were still doing well. Now, some of the premium categories have slowed down as well in a worrying trend,” he said in an interview with Mint.
Large packaged consumer goods makers warned of a sharp slowdown in urban demand in the September quarter, citing a slump in demand among the middle-income households.
Rana said that high inflation continues to bother households; those at the more affluent end continue to spend on experiences. As a result, growth will be harder to come by, he said. “A lot of it is still dependent on how rural demand picks up. Otherwise, things are expected to be flat; nobody’s forecasting a big bounce back next year,” he said.
Also read | Rural FMCG basket expands as digital push and income growth reshape spending
India’s packaged consumer goods industry industry posted a year-on-year volume growth of 4.1% in the September quarter. Volumes in rural markets grew at double the pace (6%) of urban markets (2.8%) and surpassed urban areas for the third quarter in a row.
Companies echoed the concern around inflation. “Inflation is catching up. The core categories like staples may not get impacted but within discretionary, there will be a down-trading happening and it’s visible in several companies’ portfolios,” Angelo George, CEO, Bisleri International, said. George called the slowdown cyclical, but said inflation continues to be a cause of concern.
He declined to give forward-looking forecasts.
Rural performance improving
Analysts at Motilal Oswal said that with the rural performance improving, there was expectation for a sequential improvement for staples companies in 2QFY25. “However, extended monsoon, disruption in supply chain, adjustment in general trade inventory, and slow urban demand limited the desired pickup." they said. The brokerage anticipates a “gradual improvement” in volumes in the coming quarters, supported by a healthy monsoon season, consistent rural pickup and better portfolio play for emerging channels.
Meanwhile, Kantar said rural demand continues to be “buoyant”. There is a surge in spending on small indulgences such as soft-drinks and convenience products.
Also read | Urban demand growth rate fall hurts FMCG as food inflation rises — expert advice
Meanwhile, commenting on the broader changes underway within the country, Kantar said India is in a demographic and cultural sweet spot. It also highlighted the growing clout of Gen-Z consumers that it said was leading to fragmentation in consumption, with more young consumers opting for differentiated brands than existing ones.
“Smaller families, women practising self-love, and Gen Z establishing their own identity are all driving aspiration. But the mix of aspiration is changing and so are the entry points in the aspirational ladder,” according to the report.
As a result, driving “difference” at a brand level will be critical.
"Marketers cannot be passive. They have to make things happen, whether it's with respect to their brand or whether it's respect to category growth and category creation,” Rana said.
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Business NewsCompaniesHigh inflation likely to keep consumer demand muted in 2025: Kantar report
First Published:5 Dec 2024, 04:43 PM IST
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