FMCG companies to drive focus on middle India: Nielsen
Nielsen reported visible signs of consumers either downgrading to more affordable offerings or shifting towards value-for-money large packs as the pandemic and ensuing lockdowns leave many households cash strapped
PremiumNEW DELHI: Middle and rural India will drive business strategies of fast moving consumer goods companies over the next few quarters as smaller towns and cities help push demand for packaged consumer goods, market researcher Nielsen said in its fifth FMCG forecast on Friday.
Nielsen defines middle India as urban but towns with population of less than 10 lakh, excluding rural centres and metros.
The market researcher also retained its forecast of -1 to 1% growth for the FMCG sector unchanged for the calendar year.
Nielsen reported visible signs of consumers either downgrading to more affordable offerings or shifting towards value-for-money large packs as the pandemic and ensuing lockdowns leave many households cash strapped.
Smaller towns are driving growth for FMCG, Nielsen said.
"Majority of the top executives that we interacted with in September said they would focus more on middle and rural India. Though some said metros remain important because of the contribution and the presence of competition, but very clearly middle and rural India will be high focus from the planner’s and executor’s stand point," said Sameer Shukla, executive director, retail intelligence, South Asia, Nielsen Global Connect.
India’s top metros draw 30% of value sales for FMCG, while rural centres contribute 38%. “FMCG consumption was the hardest hit in bigger cities in India during the lockdown period, the impact was the least in villages that retail close to 40% of industry sales," the report said.
Shukla said given the favourable monsoon this year, along with the government’s push on agrarian reforms to tide over the economic impact of the lockdown, FMCG companies are likely to draw better growth from middle and rural India at least for another few months.
Rural markets lagged urban for over a year between 2018 and 2019. In fact, in the 2019 September quarter, rural India grew at its slowest pace in seven years.
However, as the pandemic surged in India’s cities and stricter lockdowns urged people to return to their villages and towns, demand for packaged goods has seen an uptick in rural areas.
"There is definitely a strong tailwind for rural. Monsoon has been good...and all those reforms in the agrarian economy…is going to push rural growth," he said, adding that manufacturers and distributors will now have to expand reach in the markets to capitalise on consumption.
Nielsen has also reported a jump in consumer salience towards e-commerce in small towns or what it calls "rest of urban" with population less than 1 lakh where value contribution of sales to e-commerce was up 9% between May and August. Shoppers in smaller cities bought mobile phones priced at ₹10,000-15,000 while buying more electronics and appliances, it said.
E-commerce contributes 3% to overall FMCG sales in India, but the pandemic could change that as more shoppers take to online purchases.
The researcher reported a 17% jump in average spends per shopper to ₹1,184 on FMCG across e-commerce channels during December-February (when averaged) and July. Meanwhile, average number of items purchased was up 23% from 3.1 to 3.8.
However, the frequency of purchase on e-commerce remained flat at 1.6 times per month when Nielsen compared the average of three months of December to February and July.
"This clearly tells us that shoppers are not buying more frequently but buying a lot more in that same frequency which means that there has to be shift of consumption which was offline and is now moving towards online purchases and hence the habit is created more," said Kunal Gupta, lead, consumer intelligence, South Asia, Nielsen Global Connect.
Nielsen reported a significant surge in innovation in categories that are currently trending and in heightened demand among consumers.
As a result, over 1,890 products were launched between March and August compared to 102 launched between September 2019 and February this year. However, while companies go on a launch overdrive putting out sanitisers and soaps in the markets, some manufacturers and retailers are also heavily rationalising their portfolio, pushing those goods that are in demand. Nielsen reported a decline in assortment i.e. products stocked inside shops across biscuits, chocolates, shampoos and toilet soaps.
Launches in beauty products and more impulse purchase categories such as out-of-home snacks were down significantly as consumers went easy on buying these during the lockdown.
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