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Last Updated : Aug 19, 2019 07:40 PM IST | Source: Moneycontrol.com

FMCG experts expect revival in rural demand on good monsoon

Rural growth is slowing down and is double that of urban in recent quarters

Himadri Buch @himadribuch
 
 
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Fast-moving consumer goods (FMCG) industry has been facing a major rural slowdown across all its products. However, there is a ray of hope; monsoons have turned out to be good.


“There is a gap between secondary sales and off-take because there is a little bit of liquidity issue in the channel because of which wholesalers are stocking less. Having said that rains that are good so far but we have to wait and watch what happens in the festive season,” said Saugata Gupta, Managing Director, Marico.


The current situation as far as the slowdown is concerned is more a short term phenomenon and partly cyclical and FMCG sector will come back on track, he said.


He was speaking on the sidelines of the three-day Motilal Oswal 15th Annual Global Investor Conference held in Mumbai.


Echoing his view, Prasun Basu, President – South Asia for Nielsen said slowdown is short term and we are expecting a turn around in the coming months.


RURAL SLOWDOWN


Rural India contributes 37 percent of overall FMCG spends and has historically been growing around 3-5 percentage points faster than urban on account of increasing affordability, availability and demand.


Rural growth is slowing down and is double that of urban in recent quarters.


This has brought rural growth closer to urban in Q2 2019.


For Hindustan Unilever, there was a 7bps dip in volume growth between the June quarter this year from the same period last year.


Britannia Industries, India’s second largest biscuit company, also recorded a 7 bps drop while for Dabur India, the slide in volume growth on a year-on-year basis during the April-June quarter was 15 bps.


Fall in rural consumption growth has been steeper than urban consumption, confirms Nielsen report.


Nielsen considers the calendar year for calculating quarterly growth.


According to FMCG research firm Nielsen, for Q2 (Apr-Jun) of the calendar year 2019 rural growth has been at 10.3 compared to Q2 (Apr-Jun) of calendar year 2018 growth of 20.3, thus a deceleration of 9.7 percent.


Overall, in Q2 (Apr-Jun) of 2019, FMCG value growth has dropped to 10 percent inching towards a slowdown; this follows the softening from the highs of Q3 2018 (16.2 percent).


According to Nielsen, the rural slowdown across all markets is due to key macroeconomic indicators such as a slowdown in rural output, reduced government spending, untimely rain impacting crops in most North Indian markets.


OUTLOOK


Nielsen estimated FMCG growth in July-September at 7- 8 percent and in the second half of 2019 (July-December) around eight percent. It cites monsoons, government policies and budget provisions and low base effect as factors that will impact the FMCG growth story.


The firm has estimated growth in 2019 to be in the 9-10 percent range for 2019.


Within this, food categories are expected to grow at a higher rate (10-11 percent), whereas personal care and home care are expected to grow in the 7-8 percent range.


FMCG consumption is sentiment barometer of the economic wheels of India. With a revival in sight, it's hoped the economy would be up and running in near future.



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First Published on Aug 19, 2019 07:40 pm
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