Consumer goods companies brace for an uncertain 2025 but hope to cash in on premium cravings

After a year of fluctuating demand, particularly in urban markets, packaged consumer goods companies are cautious about business in the upcoming fiscal year. Although companies see demand rebounding only from the first half of fiscal 2025-26, they have their hopes pinned on a growing consumer craving for premium products.

“In terms of three or four megatrends that we are seeing—premiumization is something that every company is driving, while also focusing on the core," said Rajneet Singh Kohli, chief executive officer and executive director at Britannia Industries Ltd, adding that changing consumer preferences will drive packaged food companies to continue investing on innovation.

Companies are also adapting to changing channel dynamics, especially as competition in quick commerce intensifies.

“There is a channel shift that we are seeing," Kohli said.

“As a company, we are ensuring we reach out to consumers where they are. Our big distribution muscle is the kirana (neighbourhood) shops, which is 7 million outlets that we reach out to. We are also doing a lot of work on the rural expansion side," he added. “We are also doubling down on our e-commerce and quick commerce capabilities. Going forward, we would see channel specific launches."

India’s fast-moving consumer goods (FMCG) industry experienced a 5.7% growth in value with a 4.1% jump in volumes during the July-September quarter, reported NielsenIQ (NIQ), a consumer intelligence company. The industry had grown at a faster pace in the year-earlier September quarter—9% in terms of value and 8.6% in volumes.

Companies blame the slowing pace this year on flagging urban demand on account of high inflation and increased competition. Rural demand, however, made up for this, with a normal monsoon boosting incomes.

Also read | Godrej Consumer’s profit warning intensifies gloom in FMCG sector

The rural-urban divide

Indian households have been squeezed by rising retail prices, especially of food items.

Retail inflation based on the consumer price index (CPI) hit 6.21% in October driven by surging food prices, statistics ministry data showed. That was the highest since retail inflation reached 6.83% in August 2023.

Companies cautioned this could continue to bother households, at least temporarily.

“Whenever there are bouts of high food inflation, consumers tend to… downgrade on FMCG consumption. That’s what we are witnessing currently but this will smoothen out soon," Saugata Gupta, MD and CEO of Marico Ltd, which sells packaged food products and edible oil.

“Urban consumption slowdown is a temporary phenomenon and we expect it to stabilize in a quarter or two. Within urban areas, it’s largely the middle class and bottom of the pyramid segments that have been impacted by high food inflation; the upper end of the market is not impacted," he added.

Also read | Q2 results: How urban slump, input costs threw FMCG off gear

On rural demand, Gupta said it was positioned for “sustained and gradual growth" as rising real incomes drive increased consumption. “There would be some headwinds but there is a recovery from rural markets, supported by minimum support prices, good monsoon, and the government’s increased spending in rural areas," he said.

Mint reported last month, citing a report by researcher Kantar and advertising and marketing firm GroupM, that rural households had increased the size of their staples-to-shampoos basket by about 60% in two years, driven by income growth, better infrastructure and digital adoption.

Also read | Mint Explainer: How sustainable is India’s rural consumption boom?

A tough year ahead

The medium-term growth outlook for the packaged consumer goods industry remains intact, with sustainability, premiumisation and personalization emerging as key trends, said Gupta. “Innovation, affordability, and availability will be key drivers of growth going forward," he added.

Hemant Malik, divisional chief executive, foods division, ITC Ltd, too said the industry’s long-term growth prospects remained intact. In the short-term, though, there are some pockets of pressure, he said.

"We have confidence in India’s long-term growth story. I believe that the FMCG sector is resilient. While there may be some short-term pressures, we are optimistic that consumption will pick up over time. The premiumization trend is expected to continue into the next year. There is certainly an opportunity with presenting products with clear differentiation and consumer-relevant value propositions," Malik said in an interview with Mint in early December.

For ITC, which sells kitchen staples, spices, noodles, cookies, and snacks, the focus now is on driving volumes, Malik said, adding that the premiumization trend will persist, especially in the staples segment, where a shift from loose to branded products is accelerating.

Also read | Ghost of shrinkflation is back to haunt your snack pack

Companies are also expected to hike prices in the coming quarters on account of high commodity inflation. Several FMCG executives said their companies may shrink pack sizes or raise prices by 5-7%.

In a report earlier this month, Kantar said India was in a demographic and cultural sweet spot and ongoing social and cultural shifts could shape how companies market their products.

Smaller families, women prioritising self-care, and Gen Z (people in their early teens to their late 20s) establishing their own identity are all driving aspiration, Kantar said in its report, adding that brands, as a result, must focus on creating meaningful differences that resonate with consumers’ evolving identities.

“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," said Deepender Rana, executive managing director, South Asia, insights division, Kantar, adding that growth will be harder to come by. 

“Things are expected to be flat; nobody’s forecasting a big bounce back next year."

Also read | Rural India’s FMCG basket expands as digital push, income growth reshape spending