FMCG hit: For the first time in 7 yrs, rural market grows slower than urban, says Nielsen report

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The rural India market, a major growth driver of FMCG companies, seems to have hit a trough.

The trend of rural growth surpassing urban may have reversed in  third quarter (July-September) 2019, says a report from market research firm Nielsen. This is happening for the first time in seven years.In fact, the rural market grew at 5 percent in July-September (Q3) of 2019, which is one-fourth as compared to 20 percent growth in Q3 of 2018.

In comparison, urban grew at 8 percent in Q3 of 2019 as against 14 percent growth in Q3 of last year.

On the rationale behind fall in rural growth, Nitya Bhalla, Data Science Leader, Nielsen said: "Rural wage growth adjusted to inflation is meagre 2 percent while the expenditure is increasing year on year. Thus, net disposable income available to consumer is much lower."

Nielsen considers calendar year (Jan-Dec) for calculating the growth numbers.

Rural India contributes 36 percent to the overall FMCG spends and has historically been growing around 3-5 percentage points faster than urban.

Overview

India's FMCG market clocked a value growth of 7.3 percent in Q3 of 2019 down from 16.2 percent in Q3 of 2018.

"The growth trend continues to be dampened by the drop in consumption which has moved to 3.9 percent in Q3 2019 from 13.2 percent in the same period last year. While price ped growth is sustained at 3.4 percent," said Sunil Khiani, Head Research Measurement Solutions (RMS) at Nielsen South Asia.

Outlook 

According to Nielsen, FMCG growth for Q3 2019 stood at 7.6 percent as against Nielsen estimation of 7-8 percent.

Further, with the growth in the e-commerce sector the year end (Jan-Dec 2019) forecast for  FMCG growth continues to be in the range of 9-10 percent

While, Nielsen expects last quarter (Oct-Dec) of 2019 to post FMCG growth in the range of 6.5-7.5 percent.

The growth forecast for Q1 (Jan-Mar) FY20 is expected to be in the range of 7.5-8.5 percent.

As per Nielsen, various factors that are influencing the growth trajectory so far are macro economic indicators, monsoons, government policies and budget provisions, onset of festive season, rise of e-commerce and high base effect.