Monsoon, festivals seen driving FMCG sales

“In sync with the consumption revival, NielsenIQ’s forecast indicates a double-digit growth by the end of 2022 and is slated to be between 8-10% considering headwinds and tailwinds. These include impetus by the government, inflationary pressures, and other key macroeconomic factors,” the researcher said in a June quarter FMCG snapshot released on Tuesday.

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The first half of the year reported an 8% value growth. However, the growth rate for the full year is expected to be lower than the year-ago period when the FMCG segment grew 17.5%, albeit on a low base of 2020 when the covid pandemic hit the country.

The researcher said inflationary headwinds, as well as supply-side challenges, continue to persist.

“There are positive tailwinds going into the second half of the year, which always tends to be a more high-consumption period; that is, post-monsoon and a holiday season. But I think the other challenges are real,” said Satish Pillai, managing director, India, NielsenIQ. For the next six months, pricing will be a big part of growth, he said.

“Monsoon is critical and, therefore, what happens in the holiday season in terms of the expenses, that stuff is going to be very important, especially on the non-foods and non-essentials side,” he added.

Companies have also faced decade-high inflation in commodity prices over the past six months, prompting them to increase product prices.

High inflation has been eating into household budgets as well.

FMCG volumes improved sequentially in the June quarter but were down 0.7% from a year ago. Last year, the volumes had grown 21%, but on the shallow base of 2020.

Overall, FMCG sales grew 10.9% in the June quarter, largely led by price hikes.

Urban markets revived with positive volume growth of 0.6% from a year earlier, compared with a slower recovery in rural markets that were down 2.4%, NielsenIQ said.

The foods category reported 1.8% volume growth, led by a jump in impulse categories such as beverages, salty snacks and chocolates. Foods reported a value growth of 14.1%. Staples’ volumes were down 0.4% during the quarter.

Meanwhile, non-food products that contribute 31% to FMCG sales had a mixed quarter, with some categories still reporting a dip in volumes. The data points to consumers placing higher weight on essential goods. Household categories reported a 7.5% drop in volumes.

“Overall, this quarter sees a consumption revival across categories in FMCG, primarily led by a jump in unit growth. Urban markets have turned towards a positive consumption growth, and rural markets are following closely,” said Pillai. This beats the last two quarters of consumption decline and highlights the onset of cautious optimism among consumers, he added.

Interestingly, the data pointed to a revival of small manufacturers, who were ravaged during the pandemic. Nielsen counts small manufacturers as those with annual revenue of less than ₹100 crore.

Such manufacturers reported positive volume growth of 1.8% in the June quarter. Manufacturers of food items benefited in the period.

The researcher noted that consumers are buying more small packs, but also more units.

The shift to smaller packs is fuelled by high inflation, prompting shoppers to cut back on monthly spending.

In a recent earnings call, Hindustan Unilever Ltd’s top management said that consumers adjusted volumes of FMCG and prioritized essentials over discretionary to manage the household budgets in the face of high inflation.

“Consumers continue to prefer smaller packs, evident by the high unit growth. Grammage reduction is also a catalyst for this behaviour to a great extent,” said Sonika Gupta, customer success lead (India), NielsenIQ.

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