FMCG volumes report slower growth in June quarter across food, non-food categories; rural outpaces urban market: Nielsen

New Delhi: India's fast-moving consumer goods (FMCG) industry reported a sharp drop in volume growth in the food and non-food categories in the June quarter, largely due to a slowdown in sales of packaged foods such as salt, flour and oil, consumer intelligence company NielsenIQ (NIQ) said.

FMCG volumes grew 3.8% year-on-year in the June quarter, slowing down both sequentially and from a year earlier, NIQ said in its quarterly update on the sector released Thursday. Volumes increased 7.5% in the June quarter last year.

Rural growth outpaced urban demand for the second consecutive quarter, according to NIQ. The numbers, however, reflected weakening consumer demand due to broader macroeconomic headwinds, NIQ said.

“The Indian FMCG industry growth has been steady, reflecting its resilience and adaptability. The sector experienced a 4.0% value growth in Q2 2024, attributed to relaxed consumption patterns. This deceleration in volumes is largely due to macroeconomic headwinds. While rural volume growth at +5.2% continues to outpace the 2.8% growth in urban areas, both regions experienced softer consumption this quarter,” said Roosevelt Dsouza, head of customer success–India at NIQ.

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Overall, the sector reported a 4% jump in value growth and a 0.2% jump in price-led growth. The data suggests that companies did not rely on excessive price hikes to derive growth in the June quarter. However, the numbers are a drag in comparison to the year-ago period.

In the June quarter of 2023, the industry reported a 12.2% jump in value growth; volumes grew 7.5% while price-led growth stood at 4.4%. Last year, companies had increased prices to counter accelerating inflation. However, the price hikes have since eased. NIQ follows a calendar year.

Return of rural

Rural volumes grew at a faster clip in the June quarter, broadly reflected in the trends reported by several large consumer goods makers in their quarterly earnings. Urban volume growth eased from 10.5% reported a year ago.

In the quarter gone by, most companies were encouraged by the rebound in rural demand but cautioned against tepid consumer sentiment overall.

“I think overall the rural is coming back. If you ask me, it's a large long-term impact happening. Inflation going down, elasticity of demand working very well. As inflation goes down, price premium goes down, more traction happens in Discretionary & Staples… that's what is given and that is getting built up by good harvest, normal monsoon, government initiative of putting in a lot of infrastructure, more employment opportunities, MNREGA outlay going up… new schemes being announced by the government. So I think all that is leading to a better sentiment. And this better sentiment generally leads to better consumption,” MohitMalhotra, Dabur India’s chief executive officer said during the company’s earnings call.

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However, he added that not everything is “hunky dory” because the overall FMCG market continues to go down. The timely arrival of the monsoon coupled with a budget focussed on rural employment and infrastructure and agriculture will help in the gradual recovery of the sector, he said.

FMCG consumption growth in the June quarter was primarily impacted by a slowdown in foods, according to NIQ, with the category reporting a 2.4% growth in volumes compared with 4.8% growth in the previous year. Food accounts for 60% of FMCG consumption basket.

"This moderation in volume growth is attributed to staple categories—packaged salt, packaged atta (wheat flour), and palm oil. In non-food categories, the volume growth is at 7.6% in Q2’24 compared to last year, a drop from 11.1% in Q1’24. This downtrend in consumer demand for personal care and home care categories is observed in both urban and rural. In urban markets, personal care categories are witnessing a volume growth at 5.2% in Q2 '24 (vs. 9.7% in Q1’24), while in rural areas it is resting at 8.3% in Q2 '24 (vs. 10.6% in Q1’24). In rural areas, high contributing categories such as laundry and utensil cleaners witnessed slow consumption,” NIQ said.

Looking better

In its quarterly earnings call earlier this week, food company Britannia Industries said while rural demand marched ahead in the June quarter, demand trends are “not out of the woods completely.” The company said rural growth, which has been lagging urban for some time, is starting to come back and that will help overall growth.

“So the reasons for the same are obviously better monsoons, moderate inflationary conditions, as well as employment—there's some employment data which is showing that rural employment is at an all-time high. So things are looking a little better, still not out of the woods completely, but definitely better than what where we were,” said Varun Berry, managing director of Britannia.

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Meanwhile, categories such as soft drinks, packaged drinking water, prickly heat powder, and glucose powder reported strong growth in the June quarter, helped by an intense summer across India. Soft drinks grew at twice the pace of the broader FMCG category.

Within the FMCG industry, large companies continued to demonstrate stronger performance than then small and midsize entities. The smaller companies face challenges in keeping prices stable, thereby impacting their sales volumes.