When FMCG giants pushed on with a cartful of troubles

In India, the FMCG (fast-moving consumer goods) companies have a lot going for them: rising disposable incomes, rapid pace of urbanisation, growing aspirations and lower penetration of branded products. However, despite a vast growth opportunity, the FMCG companies struggled with various challenges in 2023 and hope to have a better 2024. Weaker-than-expected festive demand, rainfall deficit that hampered rural growth, unseasonal rains that dampened sale of beverages and higher commodity prices constituted a daunting landscape for India’s FMCG (fast-moving consumer goods) companies in 2023.

When inflation was at a record high, the FMCG industry had a high price-led growth in the last five-six quarters, though the volume was under stress. However, the trend has started reversing with the cooling of commodity prices.

While volume growth for the FMCG industry in urban India has been on a positive trajectory since April-June last year, rural markets have grown marginally this calendar year, according to market researcher NielsenIQ. In the September quarter, urban markets grew 10.2% year-on-year while rural grew 6.4%, it said. Before the Covid-19 pandemic, rural markets were driving overall growth, growing twice as fast as urban markets. But the demand has slowed down in the current quarter.

Overall sales of apparel and electronic products have been languishing for over a year now, while those of mass-segment electronic products have been low since the pandemic outbreak. According to researcher GfK, there was a slight pick-up in mass segment during Diwali.

Below are some of the challenges faced by the FMCG companies that attracted attention in 2023:


Birthed by inflation and plunging incomes, downtrading is a consumer behaviour where buyers switch from an expensive or bigger product to either low unit packs or lower-end brands.Consumption in five out of the six FMCG categories tracked by retail intelligence firm Bizom was impacted in the September quarter, reflecting the scars of downtrading from pre-festive months.High-value packs in branded commodities declined by around 5%, while low-priced products found favour with consumers — growing at 4.5% during the quarter. In packaged foods, the growth shifted from high-priced packs (-2.5%) to low- and medium-priced packs.However, downtrading in FMCG paused for a breather in October, with consumers shifting to higher value packs in three out of six categories, thanks to Diwali festivities. According to Bizom, a platform that automates retail execution at 7.5 million kirana stores, customers bought higher-value packs across branded commodities as prices remained low. An increase in contribution of gift packs drove higher-value packs in confectionery, with the pack size registering
a growth of 5.5% MoM, while the same in packaged foods grew by 2.1%.

Rural demand

Inflation and rainfall deficit have dampened rural demand which was growing faster than urban. In the September quarter, urban markets grew 10.2% year-on-year while rural grew 6.4%, research company NielsenIQ said in its quarterly sector update. Before the Covid-19 pandemic, rural markets were driving overall growth, growing twice as fast as urban markets.

However, the September quarter saw a turn after four quarters of subdued growth in rural markets, which had declined 2-5% as consumers either downtraded or did not purchase as many goods, impacted by soaring food and fuel prices, NielsenIQ said. The FMCG business grew 9% year-on-year in the July-September quarter by value and 8.6% by volumes, aided by higher spending in rural India. India’s villages, crucial for the health of the overall FMCG sector, grew 6.4% by volume, up from 4% in the preceding June-quarter, the researcher said. Villages contribute over a third of FMCG sales.

NielsenIQ attributed the growth to cooling inflation, a decline in unemployment and lower LPG prices. Economists said it needed to be seen if the trend would persist beyond festive season and that much will depend on agricultural output.

Locals flex muscles

As inflation started cooling down, the local FMCG brands began shining and growing at a faster pace than the big ones in all categories, from noodles to even dishwash bars. “Local brands couldn’t take price increases when raw materials became expensive. After two years of suffering, local brands have grown more than the national brands. It’s cyclical and this is the year in which we are seeing a resurgence of the local brands,” K Ramakrishnan, MD, south Asia, worldpanel division at Kantar, told TOI.

Hindustan Unilever’s CFO Ritesh Tiwari had said that local players were gaining ground. “When high inflation happens, we know there are players who vacate the market. We also know when commodity deflation happens, more players participate in the market at the local, regional level. That’s the reality of the industry and we have to live with it. Small players are growing ahead of the large players as we look at the data for the latest quarter,” Tiwari had told TOI.

During Covid, the local brands remained subdued because in a situation of uncertainty consumers tend to gravitate towards familiar or known brands. Local brands also faced logistical issues due to lockdowns. Moreover, rising inflation pushed commodity prices higher. Once the pandemic effect vanished and inflation started cooling off, local and regional brands gained strength. An added factor is consumers’ willingness to try new brands.

Kirana stores under stress

Fast-moving consumer goods sales have slowed down in kirana stores or traditional shops, due to factors such as fewer product launches than in e-commerce and organised retail, decline in credit from distributors and weakening of rural demand. This has prompted the companies to reinvest in kirana stores, which continue to account for four-fifths of the total FMCG sales in the country, top executives of companies such as Marico, Dabur, Emami and Bajaj Consumer told ET last month.

Kirana, or general trade, remains the mainstay of FMCG sales in India, despite the surge in ecommerce in the past three years since the outbreak of Covid-19 and high growth of modern trade led by retail chains such as Reliance Retail and D’Mart. In fact, during the pandemic, kirana stores outpaced supermarkets and even online grocers despite a high base. During Covid-19, most consumers opted to shop from local neighbourhood stores, especially when supermarkets operated with restrictions. But this is no longer the case.

Modern trade saw 19.5% year-on-year growth during the September quarter, as per NielsenIQ data, while traditional trade or kirana grew just 7.5%. However, the growth was largely due to a low base last year, when sales fell 2%. According to Bizom, which tracks retail sales and kirana orders, the number of kirana outlets in October declined 3.4% compared to August and was flat year-on-year. Besides, there was a pileup of inventory.

Companies are fine-tuning their product and distribution expansion strategy to revive sales through general trade, which is composed of about 12 million outlets across the country. Executives said they will focus on reviving growth in kirana stores by launching a few of their direct-to-consumer brands in general trade, investing in expanding reach in channels such as chemists and cosmetic stores, and direct distribution to general trade in rural areas.

(With inputs from TOI and agencies)

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