Home / News / India /  Inflation eats into rural household budgets, dragging FMCG volumes
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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 oils, packaged grocery, and hot beverages, pulling down overall FMCG volumes, according to NielsenIQ’s FMCG snapshot for the third quarter of the current calendar year.

Value of fast-moving consumer goods sold in India’s villages grew 9.4% in the September quarter; however, volumes declined 2.9%, indicating rural consumers bought fewer or cheaper. Meanwhile, a surge in prices of fast-moving consumer goods led to a price-led growth of 12.7% in rural markets.

Pricing played a huge role in helping FMCG companies draw in value growth this quarter. Indian packaged consumer goods companies from Hindustan Unilever Ltd., to ITC and Marico are facing inflationary headwinds prompting them to raise prices of everything from soaps to detergents and tea.

In all, the FMCG industry reported a year-on-year value growth of 12.6% largely led by growth in urban markets. Of this, volumes during the three months ended 30 September grew only 1.2% with the industry witnessing a 11.3% price-led growth year-on-year.

The numbers reflect the growing inflationary headwinds companies are currently facing. Households are feeling squeezed too and are either shrinking their purchase basket or buying cheaper products or those on promotions and discounts.

This was seen especially visible in categories such as edible oils, hot beverages such as tea, and impulse foods like salty snacks and confectionery. Volume growth during the quarter was driven by packaged rice, breakfast cereals, butter margarines, and chocolates, the researcher said.

“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.

According to NielsenIQ’s FMCG snapshot for Q3 2021 the industry has grown at 12.6% over last year (Q3 2020)—and has seen an urban led growth, as metros have seen an upswing. Rural India has seen a slowdown due to consumption decline, although price has seen a consistent growth owing to high commodity pricing, the researcher said on Tuesday.

The news could spell caution for packaged consumer goods companies.

Food basket that contributes to 59% of FMCG industry witnessed a double-digit growth driven by prices. It added that macro-economic factors continued to impact consumption growth during the quarter with high Consumer Price Index.

"However, unemployment rate has eased out led by Rural India. The Index of Industrial production (IIP) growth looks good in the quarter albeit due to base effect as IIP had a sharp dip in Q3 of 2020. 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 resulted in a double-digit nominal growth, but a drop in consumption (volume) growth for the industry," it said.

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