The fast moving consumer goods (FMCG) segment is expected to see a lower growth this year compared with 2018 on account of a slowdown in both rural and urban demand, said a report.
This comes amid inflation showing signs of inching up and the overall economic growth likely to be lower than projected.
According to Nielsen, a global market research firm, the current year is expected to see the FMCG sector grow at 11-12% or about 200 basis points (bps) lower than that of 2018.
“The FMCG industry growth outlook will be in the range of 11-12% in 2019, i.e., about two percentage points lower than that in 2018. The volume growth, which peaked in 2018 to 11%, is expected to be healthy but lower at 8.5% — 9.5% in FY 2019,” stated the report released by the market research firm.
Incidentally, the lower growth projections come on the back of another double-digit value growth of 13.6% in the first quarter of 2019, though it was lower when compared with the last quarter of the calendar year 2018.
The report further stated that while a slight drop was witnessed in urban growth, there was a significant softening of growth trends in rural demand, which was dampening the overall FMCG industry growth in the first quarter.
The overall drop witnessed in rural growth was majorly driven by a slow down in the packaged food category, as per Nielson.
While there was a slow down across various food categories in rural, the extent of drop was larger in essentials and impulse food categories that included products like packaged atta, refined oil, spices, biscuits, chocolates and confectioneries.
The firm, however, highlighted the fact that the slowdown was witnessed amid a lower GDP growth of 6.6% — lower than the earlier projection of 6.8% — and rising inflationary pressure of 2.9% in March from 2% in January.
While the outlook for the second quarter is pegged at 12-13%, factors like rural consumption and inflationary pressures would influence the growth trajectory in the year.
Also, rising input and crude prices, exchange rate, reduction in repo rate leading to further liquidity, policy dynamics, especially related to e-commerce, and sustained benefits from the Goods and Services Tax regime would have an effect on the demand during the year, according to Nielsen.