Home / Industry / Retail /  FMCG volumes drop year-on-year in December quarter but improve sequentially

New Delhi: India’s fast moving consumer goods industry reported a 0.3% year-on-year dip in December quarter volumes as rural markets reported negative volume growth for the sixth straight quarter. Volumes improved sequentially following demand in urban markets.

The industry’s value growth was reported at 7.6%, but the pace of growth was lower year-on-year as well sequentially as companies reduced the intensity of price hikes that led to a dip in sales, NielsenIQ said on Thursday.

“A slower price growth (7.9% from 9.9% in Q3 2022) and flat consumption growth (-0.3% from -0.6% in Q3 2022) drove this slowdown," according to NielsenIQ India’s FMCG Snapshot for the October-December quarter.

To be sure, a price-led growth reflects via an increase in average price of goods compared to same period last year. Increase in average price can be due to direct price increases, grammage reduction, or promo reduction.

The FMCG industry reported a drop in price-led growth in both urban and rural markets, but in terms of volume growth, urban maintains stable growth at 1.6% year-on-year while rural volumes declined 2.8%, NielsenIQ said in a note released Thursday. While overall FMCG volume growth is negative, the absolute values as well as volumes continue to be above pre-covid levels, the market researcher added.

“Over the last one year, consumer spending was impacted primarily because of inflation—echoed by consumers in the shift to smaller packs, and by manufacturers via grammage reduction. Consumers in rural India have particularly felt this pressure the most, and rural markets see continuous negative consumption growth,“ said Satish Pillai, managing director, India, NielsenIQ.

However, it is encouraging to see positive notes in the organized sector, with modern trade growing double-digits in the last two quarters of the year, and absolute consumption levels continue to be higher than pre-covid, he added.

Demand during the quarter was largely led by packaged foods, especially categories such as staples and impulse foods. Non-food categories, on the other hand, continue to decline across categories; such categories have reported lower volume growth compared to pre-covid levels in the past quarters.

“This is also seen in lean assortments and downward trend for stock levels in retail spaces coupled with manufacturers cutting down on promos for categories like washing powder, detergent bars, toilet soaps, shampoo etc," NielsenIQ said.

The data from NielsenIQ comes as India’s large packaged consumer goods makers are announcing their December quarter earnings.

Earlier this month, consumer goods major Hindustan Unilever Ltd., reported a 5% jump in volume growth. In its earnings presentation, the company, that sells Dove soaps and Knorr soups, said that market growth during the December quarter was led by urban; rural slowdown was most likely bottoming out, it added.

Overall, FMCG volumes reported sequential improvement for the industry, it said.

NieslenIQ’s numbers too paint a similar picture, data from the market researcher points to sequential improvement in volume growth over the last four quarters.

For instance, overall volume growth during December quarter of 2021 was down 2.6%, it dropped further to 4.1% in the March quarter of the last calendar year. In the September quarter, FMCG volumes were down 0.6% while in the December quarter the number improved marginally, declining by 0.3%.

Announcing HUL’s December quarter earnings, Sanjiv Mehta, CEO and Managing Director at the company, said the worst of inflation is behind us. “This should aid in a gradual recovery of consumer demand," he added. Mehta said the company remains “cautiously optimistic" getting into 2023 but warned that it could be some time before rural volumes recover.

Meanwhile, commenting on retail channels, NielsenIQ said that modern trade maintained a double-digit value growth growing 23.3% year-on-year in the December quarter. Volume growth in modern trade outlets were up 12.6% year-on-year too indicating that consumer return to large stores.

Traditional trade, meanwhile, continued to report negative volume growth for the fifth consecutive quarter.

Consumers continue to favor small packs across both traditional and modern trade, it added.

“Consumers continue to feel inflationary pressure while manufacturers also continue to move away from promos to maintain the margins. Manufacturers should continue to support small packs in their portfolio as means to drive consumption, especially for bringing back relevance in case of non-food categories," said Sonika Gupta, Customer Success Lead (India), NielsenIQ.

Suneera Tandon
Suneera Tandon is a New Delhi based reporter covering consumer goods for Mint. Suneera reports on fast moving consumer goods makers, retailers as well as other consumer-facing businesses such as restaurants and malls. She is deeply interested in what consumers across urban and rural India buy, wear and eat. Suneera holds a masters degree in English Literature from the University of Delhi.
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