FMCG giants face slow urban growth, commodity headwinds in Q4

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Urban sluggishness and commodity inflation (rising tea, palm oil, and coffee prices)  have yet again weighed down top FMCG firms like Nestle and Hindustan Unilever (HUL), who have  reported low single-digit sales growth for the year ended March 2025.

For HUL, volume growth stood at just 2 percent in the March quarter  and revenue growth at 3 percent. The company flagged persistent weakness in urban markets and continued pricing pressure in key categories like foods, personal care, and tea. Nestle too flagged challenges from higher coffee prices, but beverages still posted double-digit growth outpacing other categories, supported by strong traction in cold coffee products targeting Gen Z and millennials.

Both companies are navigating a two-speed consumption landscape — urban slowdown vs rural resilience — while banking on volume growth, product innovation, and rural expansion to defend margins and drive their topline.

Nestlé highlighted the growing contribution of e-commerce (8.5 percent of sales), strong gains in the pet care category, and new launches in health and nutrition as drivers. HUL, on the other hand, continues to focus on premiumisation, small-pack growth in rural markets, and is betting on a portfolio reset to maintain margins.

Meanwhile, Tata Consumer Products’ quarterly numbers were in line with expectations, signalling steady execution amid a tough macro backdrop. Despite facing growth and cost headwinds like its fast moving consumer goods (FMCG) peers, TCPL has emerged stronger with each quarter.

In Q4, the company reported strong double-digit consolidated revenue growth, driven by price hikes across its core tea and salt businesses. However, its margins were hit due to persistent inflation in tea prices, with the company absorbing 54 per cent of the increased  costs in the March quarter.

Demand trends

HUL is witnessing a distinct shift in consumption patterns, with rural demand beginning to outpace urban, particularly in the sale of small packs. This suggests a value-seeking mindset among rural consumers who are looking to upgrade their consumption experience.

“Every Indian wants a better quality of life... and we have the ability to offer consumers an improved product experience at an accessible price point," said HUL CEO and Managing Director Rohit Jawa.

At the same time, the company acknowledged that the premiumisation trend has slightly declined in recent quarters.

"In recent quarters, we see the premium end is not growing as fast as it was. But we must not concern ourselves only with a few quarters because if you zoom out, the general story is of consumers upgrading," Jawa added.

Strategy ahead

Despite headwinds, companies believe the consumption story remains strong. With macros expected to turn favourable, the industry is leaning into investments that prepares it for broad-based recovery. Companies are looking to leverage the ongoing premiumisation trend and continued growth in e-commerce for maximum reach and volume growth.

"Penetration, premiumisation, and innovation, combined with disciplined resource allocation, have been key in driving growth... We are investing approximately Rs 6,500 crore between 2020 and 2025 to develop new capabilities and capacity," said Nestle Chairman and Managing Director Suresh Narayanan.

HUL is also looking to accelerate investments to transform its existing portfolio as demand rebounds.

"We've strengthened our portfolio through acquisitions and deepened our capabilities. We believe this is a good time for us to  invest for growth and go all guns blazing in the market for the next few quarters," said Java.