FMCG sector to see subdued growth till Sept quarter on demand slowdown, says study

The report noted persistent weakness in demand, affecting not only rural regions but also urban areas.

Fast-moving consumer goods (FMCG) are likely to see a slowdown till the September quarter of 2024 as sluggish demand in both rural and urban markets weigh on the business, according to a study.

The Kantar Worldpanel's FMCG Pulse report noted that persistent weakness in demand is affecting not only rural India but also the urban areas. The sector recorded a 4 percent growth rate at the start of 2023 on the back of a rise in the price of wheat flour or ‘atta’. A significant, double-digit growth in atta throughout 2023 seemed to have alone driven the sector to a 6,1 percent growth during the calendar year. But, take out atta from the mix, and the growth slows down to 2.7 percent.

The subdued growth in the FMCG space is caused by a host of factors, including a worldwide economic slowdown, minimal influence from the upcoming elections, and enduring repercussions of unforeseen weather patterns on the farm sector. With the anticipated El Niño effect prolonging the dry weather conditions in the first half of the year, the farm sector stares at a blend of challenges and opportunities across 2024, the report said.

Since the onset of the pandemic in 2020, there has been a consistent trend of value growth (excluding atta) consistently outpacing the volume growth by at least 4 percentage points in each quarter, up until Q4 of 2023. In the latest quarter of calendar year 2023, however, there was a shift in certain categories where value growth slowed down compared to volume growth. These categories include hand wash, body wash, shampoos, floor cleaners, and cooking oils, the report said.

The post-pandemic recovery appears to have hit a roadblock, with the average purchase quantities remaining stagnant for the second consecutive year. Despite this stagnation, there has been a notable increase in spending.

The report noted that the annual purchases (excluding atta) have remained steady at approximately 117 kilograms per household since 2021. Consumer spending during the same period, however, surged from Rs 15,513 to Rs 17,907, marking an 8.5 percent growth in 2023, despite retail inflation hovering on 5.7 percent.

Out of the more than 90 categories and sub-categories tracked by Kantar Worldpanel, 50 percent experienced either a decline in consumption or remained static. The most significant decrease in average consumption was observed in cooking oils, with households cutting down the purchase by 1.4 liters in 2023 compared to the previous year. Washing powders came next with a  loss of 300 grams per household, basmati rice with a decrease of 180 grams, and salt, which saw a reduction of 80 grams.