FMCG firms expect gradual recovery in 2025 amid easing inflation and rural growth

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India's fast-moving consumer goods (FMCG) companies, which faced a demand-led slowdown in 2024, anticipate a gradual recovery in 2025, with some improvements likely in the second half of the year.

Company executives and analysts cite easing inflation, the shift towards premiumisation, and the full impact of rural recovery among the reasons for the gradual growth.

"The outlook for consumption appears positive, with growth expected to pick up in the next one or two quarters. While food inflation has been a significant drag, recent signs of easing inflation, coupled with favourable factors, such as strong crop yields and increased government expenditure on infrastructure and rural initiatives, signal a recovery," said Harsha V Agarwal, Vice Chairman & Managing Director, Emami Ltd.

Furthermore, rising investments from both the public and private sectors are likely to enhance demand for skilled labour, potentially driving urban consumption. This combination of factors is expected to create a sustainable momentum for economic improvement in the near future, Agarwal added.

A surge in food inflation in 2024 disrupted consumption patterns across mass-category products.

Retail inflation peaked in October when the Consumer Price Index (CPI) reached 6.21 percent, rising from 5.02 percent in September. This marked the highest inflation rate in over a year and exceeded the Reserve Bank of India’s tolerance band of 2-6 percent.

Consumer demand from the lower-middle class and middle-class families remained subdued, thereby slowing volume growth for the companies, which struggled to reach double digits in the first half of FY25.

Premium categories to drive value growth 

However, sluggishness in the urban markets was soon offset by the robust rural recovery and rising trend towards premiumisation. While companies protected profits via price hikes, the willingness to pay higher for premium products helped drive their value growth.

"Certain sub-segments have grown tremendously, demonstrating micro-strategies aligned to changing consumer preferences is a bankable strategy. However, for companies operating at a large scale these green shoots have shown promise but not made a material impact," said Nikhil Sethi, National Leader Consumer Goods and Co-Lead Customer & Operations at KPMG.

Analysts expect the premiumisation trend to gather momentum as consumers are more willing than ever to invest in premium goods across categories like personal care, home care, and processed foods.

Rural recovery to support FY26 growth

"What we believe is that FY25 is unlikely to be a great year for FMCG demand recovery. However, we expect FY26 to show signs of improvement, driven by lower inflation and the full impact of rural recovery," said Preeyam Tolia, Analyst at Axis Securities.

"Government initiatives or easing inflation typically take time to translate into increased demand. The shift towards quick commerce has also led to significant channel corrections, particularly in the general trade segment. As a result, we don’t foresee a substantial rebound in FY25, but FY26 looks more promising," he added.

FMCG demand in rural India is projected to grow up to 400 basis points higher than urban demand, according to TeamLease.

Meanwhile, industry experts note that the shift from urban to rural markets is not a temporary trend.

"For brands in the FMCG and consumer durables sectors, this is an opportunity to build sustainable growth by continuously engaging with rural customers in ways that go beyond the festive season," said Akhilesh Chopra Director, Strategy & Growth at WebEngage, a customer engagement and retention platform that helps businesses deliver personalised communication across multiple channels.

For instance, soft drink brand Coca-Cola said it is expanding AI-powered tools like Coke Buddy in rural India to improve accessibility and convenience.