FMCG slowdown: Rural growth stable; urban decelerates

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The FMCG sector is in a trough and data from Nielsen India indicates that it will take some time for the sector to emerge from it.

According to Nielsen, in Q4 2019, rural growth remained stable at low growth levels at 5.2 percent as against 5.3 percent a quarter ago, urban, continued to decelerate further from 8.4 percent in July-September 2019, to 7.4 percent in October-December, 2019.

"The downward trajectory in rural and urban markets can be attributed to shrinkage in consumption by the consumer today," said Prasun Basu, South Asia Zone President, Nielsen Global Connect.

He feels the key factor influencing the trajectory so far is inflation.

Inflation in December 2019 reached a 5 year high at 7.3 percent, breaching the upper limit of 6 percent set by Reserve Bank of India.

Additionally, rural inflation was at similar levels with urban inflation on account of rising food prices.

With food inflation for All India at 14.1 percent the inflation upsurge was driven by rise in prices for essentials such as vegetables, pulses, meat and fish and eggs.

"While inflation is at an all-time high, the silver lining in the cloud is that if vegetables are excluded, CPI inflation is 4.1 percent.With new crops coming in and onions supply stabilising inflation is expected to go down in coming months," Basu said.

FMCG companies refused to comment on this trend, claiming silent period ahead of the quarterly result season.

A year earlier, rural growth was faster than urban consumption, which added edge to volumes and product diversification for FMCG  companies.

Traditionally, rural India nearly is three fourths of India’s population and contributes to 36 percent to overall FMCG spends, historically grown around 3-5 percent points faster versus urban.

In the last October-December period, the North, East and South maintained stable growth against the previous period. However, the West Zone showed a decline.

The west zone had a 4.6 percent value growth down from 15 percent in Oct-Dec 2018 and 6.3 percent in Oct-Dec 2019.

"The slowdown in the zone was led by shrinkage in volume growth which has become almost flat at 1.1 percent in Q4’19 (11 percent in Q4’18). The urban market and General Trade are the key drivers of the slowdown in the west while Modern Trade continues to grow," the report said.