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NEW DELHI : Demand for packaged consumer goods in India’s villages dwindled in the September quarter as consumers bought less of or purchased cheaper cooking oil, packaged grocery, hot beverages and personal care products, pulling down overall industry volumes for the fast-moving consumer goods (FMCG) market, as per NielsenIQ’s third quarter snapshot on the FMCG industry.

The researcher follows a January to December year.

Nielsen pointed to a “slowdown" in rural markets that reported 9.4% value growth but saw volumes decline by 2.9% year-on-year (y-o-y). Rural India has seen a slowdown because of a consumption decline, though price has seen consistent growth because of high commodity pricing, it said. Rural markets reported price growth of 12.7%. Price growth refers to growth drawn on account of a range of factors such as higher prices across stock keeping units, lower grammage and discounts. 

In all, the FMCG industry reported a y-o-y value growth of 12.6% largely led by growth in urban markets as large cities reported an upswing in demand. Of this, volumes during the September quarter grew only 1.2% y-o-y with the industry witnessing a 11.3% price-led growth. The numbers reported a sharp decline sequentially. 

“The quarter ending in September saw consumer purchases inching back to pre-covid levels. However, the rural growth slipped on volume and consumption," said Diptanshu Ray, NielsenIQ South Asia lead. There continues to be pressure on the consumer, but this is offset by the uptick in modern trade in the urban markets, he said. 

Pricing action taken to mitigate higher input costs helped FMCG companies draw growth in the September quarter. Nielsen too highlighted severe inflation, especially in the household food basket. This was seen especially in staple foods such as edible oil, hot beverages such as tea, and impulse foods such as salty snacks and confectionary. 

“Overall, the Indian FMCG industry witnessed a significant price-led growth in the quarter on account of increasing commodity and raw material prices and high fuel prices leading to higher transportation costs. This led to a double-digit nominal growth, but a drop in consumption (volume) growth for the industry," it said. 

Large FMCG companies have flagged inflationary pressures as global supply chains function under stress, escalating prices of everything from fuel to freight and packaging material. In its September quarter earnings, Hindustan Unilever Ltd flagged a slowdown in rural growth citing industry data. Its top management said the company will “wait and watch" for a few more months to call out demand dynamics in the country’s hinterland. 

Companies such as ITC Ltd and HUL increased the prices of soap, detergents and tea. In its September quarter earnings, cookie maker Britannia Industries’ top management said the company “actioned price increases". Parle Products too announced a recent round of price hikes on brands such as Parle G, Hide & Seek and KrackJack. 

Consumers are “optimizing" and “rationalizing" their monthly shopping basket. “They need to manage within the incomes they have," said Ray. 

Products in the popular price segments reported an increase in contribution to overall sales in the quarter moving up to 59% from 56% in the first quarter of the last year, indicating that consumers moved down from buying more premium priced products to popular priced ones. 

“Some of the premium consumers are downgrading to popular priced products. A lot of mass consumers are moving out of the category or to unbranded products because of higher prices," said Sameer Shukla, customer success lead for NielsenIQ South Asia. 

Smaller manufacturers, who typically play in the mass market, are also unable to cope with higher commodity costs. Nielsen said several such players, who have higher salience in rural markets, have exited. This also contributed to a slowdown in rural demand. 

“In recent months, input cost pressure has forced manufacturers to increase prices especially of food products and cooking medium. This had a severe impact on small manufacturers in the September quarter, leading to 14% of them churning out of the market versus a year ago," Shukla said.

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