Rural market slowdown in September quarter points to woes for FMCG firms

  • Manufacturers, faced with inflationary headwinds, have been compelled to pass on price hikes and grammage cuts to consumers to safeguard margins. The steps have had adverse effect on demand

Suneera Tandon
First Published10 Nov 2022, 03:16 PM IST
Consumption decline in rural markets was led by both double-digit price increases and lower unit growth. (Photo: Mint)
Consumption decline in rural markets was led by both double-digit price increases and lower unit growth. (Photo: Mint)

NEW DELHI: Makers of fast moving consumer goods continue to report a decline in rural volumes, reflecting the impact that high inflation has on how rural households spend on basics such as soaps and packaged foods.

On Thursday, market researcher NielsenIQ said that rural centres recorded a 3.6% decline volumes in the September quarter. This compares to a 2.4% decline reported in June quarter volumes. Rural volumes have remained in the negative territory for the fifth straight quarter, according to historical data shared by the researcher.

Consumption decline in rural markets was led by both double-digit price increases and lower unit growth. With continued price increases, rural consumers remained more cautious than urban, according to NielsenIQ’s FMCG Snapshot for the September quarter.

Demand in urban markets, on the other had, continued to report positive trends growing both year-on-year as well as sequentially. In the September quarter, urban volumes grew 1.2% largely led by an uptick in demand for food items.

Overall, the FMCG industry in India grew 8.9% year-on-year in value terms during the three months ended 30 September—largely led by price hikes taken by manufacturers. However, value growth declined sequentially.

FMCG volumes, however, declined 0.9%, capping the fourth quarter of negative volume growth for the industry.

The slowdown in volumes can be attributed to double-digit price growth for the past six consecutive quarters.

NielsenIQ’s numbers point to both a weak consumer demand as well as the impact inflation continues to have on household consumption. Manufacturers, faced with inflationary headwinds, have been compelled to pass on price hikes and grammage cuts to consumers to safeguard margins. The steps have had adverse effect on demand.

“Overall, this quarter shows cautious consumption from consumers, primarily due to apprehensions of slowdown and continued inflation. While the pressure of inflation continues, there have been variations in rain fall across rural areas in the country have also led to a softening of indicators for rural markets,” said Satish Pillai, Managing Director, India, NielsenIQ.

Nielsen’s data corroborates with recently concluded earnings of large fast moving consumer goods makers, several of which reported stress in rural markets.

India’s largest packaged consumer goods maker Hindustan Unilever Ltd., said that September quarter volume decline for the FMCG industry was more pronounced in rural markets that urban. Inflation is biting rural consumption more compared to urban, the company’s top management said during a post-earnings call.

Consumers aside, traders too were exhibiting caution on the back of weakening demand.

“This sentiment also shows up in the cautious behavior of the retail trade. Traditional trade retailers have been keeping leaner assortment and lower stock levels to be agile, and manufacturers need to support the retail trade to alleviate this apprehension,” said Pillai.

In fact, growth in traditional trade remained sluggish in the September quarter as volumes dipped 2% year-on-year. “Modern trade showed double-digit value as well as volume growth,” it said.

Despite weak demand in rural markets, large companies are hopeful of a gradual recovery in rural demand albeit in the second half of the ongoing financial year.

Earlier this week in an interview with Mint, Saugata Gupta, managing director and chief executive, Marico Ltd., said rural consumption needs to report improvement. For the company, rural volume remained in the negative territory in the September quarter. “I believe it should get into positive territory in the next two quarters,” Gupta said.

Companies said that inflation needs to let off for volumes to improve.

Meanwhile, consumers in urban markets bought more packaged foods as well as staples.

“Overall in foods, staples categories comprising of non-refined oil, atta, rice are on an uptick—after being in the negative for the past three consecutive quarters. Impulse categories sustain their double-digit growth. With government measures like drop in taxes for edible oils and manufacturers dropping prices, this quarter has seen a sharp drop in price increases for edible oils which results into volume growth,” Nielsen IQ said.

For instance, overall volumes of packaged foods volumes grew 3.2% year-on-year in the September quarter in urban markets, while witnessing marginal decline in rural. Non-food consumption declined sequentially down 6.8% in the September quarter. Rural markets reported a greater dip in demand for such products.

Pillai said that typically the September quarter witnesses a consumption uptick, but this year despite the opening of the markets, consumption has not grown. “The indications are that festive season would be a little muted,” he added.

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First Published:10 Nov 2022, 03:16 PM IST
HomeIndustryRetailRural market slowdown in September quarter points to woes for FMCG firms

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