Rural FMCG sales decline in run-up to festivals, data shows

Representative image.

Sales of Fast-Moving Consumer Goods (FMCG) in rural areas declined last month in the run-up to the festive season as retailers kept inventory low amid concerns over inflation.

Sales in rural areas fell 14.3 percent in September compared to August, according to retail intelligence firm Bizom.

“Rural stocking was cautious in September 2022 given that consumer inflation worries haven't completely eased off and also kirana owners are looking to restock only after liquidation of the stock built up in the previous month. Last month (August), we saw a strong stocking of products across categories and in both urban and rural regions, in preparation for festive sales,” said Akshay D’Souza, chief growth and insights officer at Bizom.

Consumers cut spending as inflation accelerated. India's headline retail inflation rate, measured by the Consumer Price Index (CPI), returned to the 7 percent territory in August from a five-month low of 6.71 percent in July, according to official data released on September 12.

CPI inflation has now spent 35 consecutive months above the Reserve Bank of India's medium-term target of 4 percent and eight straight months outside the central bank's 2-6 percent tolerance range.

In addition, a rain deficit in some parts of the country may have impacted agricultural yields and rural incomes, D’Souza added.

The findings paint a grim picture for the FMCG industry ahead of the July-September quarterly earnings season. The hinterland contributes a significant share of FMCG sales in India, where rural areas have been a drag on the packaged consumer goods business for about a year now.

Companies had been anticipating a recovery in consumption in the hinterland after the monsoon set in, but below-average rainfall seems to have impacted incomes.

“While the monsoon was above its long-term average (LTA) overall, the East and North-East/North-West parts of India received less rainfall (17 percent/1 percent below their LTA), suggesting that rural recovery in these regions may be delayed. The area for Kharif sowing was nearly in line with LTAs and companies are hopeful of a rural recovery post-harvest,” said a note by Motilal Oswal.

Quarterly updates posted by FMCG companies such as Marico and Godrej Consumer Products, too, spoke of tepid demand in rural areas.

“In India, demand sentiment trended on similar lines as the preceding quarter during most of the quarter, with some signs of positivity in the last month. With retail inflation holding firm, downtrading in rural was still prevalent during the quarter,” said Marico.

Godrej Consumer Products experienced slower growth in rural areas compared to urban markets. “The Indian FMCG industry continued to remain soft during the quarter,” said the company.

Companies and industry experts are now counting on the festive season, including Diwali later this month, and higher crop realisation in the second half of FY23 to revive consumption.

“There remains a strong return to normalcy in terms of the festivities and many more people are out celebrating festivals this year as compared to the last two years. This could lead to a rise in festive sales as we build up to India's most celebrated festival of Diwali. Going by current trends, measures to reduce inflation will definitely reduce consumption headwinds and help improve sentiment during the upcoming festivals,” said D’Souza.

Urban areas, meanwhile, witnessed a muted one percent growth in sales in September compared to August. Overall, FMCG sales in the country declined by 9.6 percent in September compared to the previous month. The sales surged over 8 percent in September when compared to the same month last year, the data showed.

Almost all FMCG categories tracked by Bizom such as beverages, commodities, packaged foods, home care, and confectionary products declined in September compared to August. Sales of personal care products were little changed.

Commodities experienced the biggest decline of 14.5 percent in September followed by home care by 8.6 percent and packaged foods by 6.7 percent. Sales in the beverages category contracted 6.3 percent and confectionary by over 5 percent, said Bizom.

When compared to the same period last year (September 2021), except for commodities and packaged foods, other categories reported a decline in sales. The commodity category grew by 17.8 percent and packaged foods by 12.6 percent in September compared to the same month in 2021, said Bizom.

For the entire quarter ended September quarter, FMCG sales grew 12.3 percent.