FMCG volumes dip in Q4 as prices bite
3 min read 02 Jun 2022, 12:35 AM ISTRural areas feel the inflation pinch as sales volume declines 5.3%
PremiumNEW DELHI : Pricier soaps, shampoos and snacks forced consumers to trim purchases and switch to smaller packs in the March quarter, squeezing volumes at fast-moving consumer goods companies. Researcher NielsenIQ said packaged consumer goods sales volume fell 4.1% from a year earlier in the quarter, but the industry reported a value growth of 6%, thanks solely to aggressive price hikes.
Rural markets saw a 5.3% decline in sales volume, the steepest in the last three quarters, while urban volumes dipped by 3.2%. Rural markets reported a value growth of 6.6%, while urban markets clocked 5.6%, the researcher said.
“A decline in consumption is echoed across zones and the town classes, but is more prominent in rural markets, which saw a 5.3% dip, the highest consumption slowdown in the past three quarters. The south and north zones saw more than 5% volume decline," NielsenIQ’s quarterly report said.
Several large consumer goods companies have reported a consumption slowdown in the March quarter as inflation hurt household budgets. This was also evident in higher demand for small or so-called value packs and companies reporting softer volume growth.
Companies have also made aggressive price hikes to counter cost pressures. NielsenIQ pointed out that rural markets witnessed sharper price hikes than urban markets; prices rose 11.9% from a year ago in rural areas against 8.8% in urban markets. Bigger price hikes may have been taken on packs sold in rural India in the form of reducing grammage, leading to a steeper consumption decline in the countryside. “In continuation from last year, macro-economic indicators are still guiding consumption patterns for the Indian consumer, and they are feeling the impact of the price increase, especially in the food and essentials categories," said Satish Pillai, managing director, India, NielsenIQ.
According to Pillai, even as global macro-factors such as the war in Ukraine drive up commodity prices, any positive steps by the government, if supported by a normal monsoon, would be encouraging for the industry.
Although the decline in sales volume was spread across categories, it was more pronounced in non-food categories as consumers focused on essential items. For instance, packaged foods, which contribute 61% to FMCG sales by value, declined 1.8% from a year ago. In contrast, volumes in non-food categories were down 9.6% in the same period.
“Within foods, impulse beats the slowdown with positive volume growth of 1.5%, with consumers focusing on smaller packs in the category seen in salty snacks, chocolates and confectionery. The staples product basket with categories such as refined and non-refined edible oil, vanaspati, packaged atta has shown a nearly 15% price increase," it said.
Meanwhile, sales through modern trade have stabilized in recent quarters, NielsenIQ said. In the March quarter, FMCG volumes grew 5.3% through this channel. Traditional trade reported a 4.9% decline in volumes, led by a shift towards smaller packs. E-commerce grew 5.6% compared to a year earlier.
Sonika Gupta, customer success lead (India), NielsenIQ, said consumers scaled back more on discretionary spending within non-food categories. “Overall, there is an evident shift by consumers to smaller pack sizes to manage external factors for both foods and non-foods," Gupta said.
Companies too reported similar trends in the March quarter.
Vatika oil maker Dabur India reported a setback in rural demand. “For us, in the past couple of quarters, our rural was always firing ahead of urban. However, what we found in this quarter is a liquidity crunch and demand compression in rural India. Therefore, our credit (cycle) has also gone up in rural India. Rural is the one which is not doing so well for us at the moment," the company’s chief executive Mohit Malhotra said during the quarterly earnings call last month.
