Premium| Listen to this article |
NEW DELHI : Sales volume of fast-moving consumer goods fell 2.6% in the December quarter from a year earlier, with inflation causing a sharp dip in rural demand after five quarters of positive growth, according to industry data released by NielsenIQ.
Higher inflation during 2021 led to three consecutive quarters with double-digit price increases resulting in a consumption slowdown in urban markets and consumption degrowth in rural markets, the market researcher said in its FMCG Snapshot on Wednesday.
NielsenIQ, which follows a calendar year, reported a more “accentuated" slowdown in rural markets, with volumes down 4.8% during the quarter. This slowdown comes after rural markets drove demand for FMCG companies in the initial months of the pandemic. Inflation is hurting rural households, it said.
“Categories such as staples, or OTC, have seen a high price increase in last two quarters, leading to larger price growth in rural markets and, hence impacting the volumes," the researcher said in its report.
Companies have been warning of an impending rural slowdown over the last two quarters. “We had cautioned about rural growth in our September quarter earnings call, and we do see the deceleration taking hold. With very high levels of inflation that consumers are witnessing, volumes in the market have declined, and this decline is more accentuated in the rural markets and in those categories which have been impacted more by commodity inflation," Sanjiv Mehta, chief executive officer and managing director, Hindustan Unilever Ltd said during the company’s December quarter earnings call.
Diptanshu Ray, South Asia cluster lead, NielsenIQ, said consumers in rural India are going back to small pack sizes to cope with inflation.
However, the December quarter saw 9.6% year-on-year growth in value terms for FMCG in India on account of successive price hikes taken by large companies. For the full year, the FMCG industry reported a smart 17.5% growth, albeit led by price increases.
“During the fourth quarter, the country’s macroeconomic factors continued to witness softness, and there is a long-term impact because of global inflationary pressure. Within this environment, the calendar year has seen double-digit growth, though there has to be a watch out for continued consumption degrowth impacted by price increases," Ray said.
He said inflation across edible oils and staples is hurting household budgets. As a result, consumers spend less on non-food categories such as home and personal care.
Non-food categories such as personal care and home care reported a year-on-year volume decline of 5.9% in the December quarter, while volumes of food items were down 1.2%. Non-food categories, said NielsenIQ, are experiencing stress in volumes.
“Consistent inflation is happening in cooking mediums and staples. We have seen a drastic price increase in the last two quarters; this is basically taking the price-led growth up. Consumers are optimizing their baskets and rationalizing spending on non-foods. This is primarily happening in rural, which is not a good sign at this point in time," he added.
Meanwhile, inflationary headwinds continue to impact small manufacturers. The number of small manufacturers or those with sales below ₹100 crore dropped by 13% during the quarter. This was due to the difficulty of continuing operations with higher costs. Large and medium manufacturers stayed stable through the year.
**************************
Kirana nos up 4% in 2019-21
NielsenIQ on Wednesday also released its Retail Establishment Survey in Q421 that tracks the total number of FMCG stores in India. The total number of stores selling FMCG in India grew at a compound annual growth rate, (CAGR) of 4% over 2019-21. The market added 800,000 stores in the country. Interestingly, 60% of these opened in rural India.
“The usual annual rate of growth has been approximately 1-2% in pre-covid-19," the researcher said.
Never miss a story! Stay connected and informed with Mint. Download our App Now!!