Fast-moving consumer goods (FMCG) companies are counting on multiple factors for growth in the coming year.
Fast-moving consumer goods (FMCG) companies are counting on multiple factors for growth in the coming year. This includes commodity inflation, which is projected to keep product prices in check, the prospect of a favourable monsoon to boost rural growth, and the long-term trend of premiumisation, which is expected to keep urban growth going.
The year 2023 was marked by lower-than-expected festive demand, rainfall shortfall that limited rural growth, unseasonal showers that hampered the sale of beverages and ice-creams throughout the summer months, and inflationary pressures that kept rural customers mainly out of the market.
Saugata Gupta, MD & CEO, Marico, said: “We expect the demand situation to improve by the next couple of quarters. Large players have increased their pace of innovation and premiumisation in urban areas. At the same time, players have focused on expanding rural distribution. Companies have also taken pricing action which should aid in good volume growth in the quarters ahead.”
The domestic FMCG market had reported a 9% year-on-year jump in September 2023 quarter sales and an 8.6% rise in volumes for the period, market research agency NielsenIQ (NIQ) said in November, led by urban markets. Rural markets, despite showing indications of progress, still had a long way to go before fully recovering, according to the market research firm in its quarterly market analysis.
These signs of stress were apparent in kirana channel sales, which constitute 80% of an FMCG company’s business in India. Modern trade comprises 12-13% and e-commerce around 7-8% of sales for an FMCG company.
The festive season of October-November, an important period for consumer companies, was lack-lustre for kiranas as the offtake of products such as beauty, cosmetics, chocolate and confectionery was weak. This happened as consumers chose to cut back on expenditure in rural and semi-urban areas, officials at the All India Consumer Products Distributors’ Federation (AICPDF), an apex body of FMCG distributors, said.
A recent study by the Confederation of Indian Industry (CII) and the Boston Consulting Group said that while inflationary pressures and weather uncertainty had hurt rural consumption in 2023, an improvement in supply-side constraints and more people getting into the consumption basket could help reverse the trend in the future.
Companies have taken note of these changes saying that they are putting more feet on the ground to push their direct retail reach, especially in rural areas. At the same time, firms also saw the importance of revitalising general trade by pushing affordable packs, increasing innovation at the bottom-of-the-pyramid and reducing inventory pressure and clutter within stores.
“Though green shoots of recovery are visible, rural demand is still behind urban markets. There have been liquidity pressures in rural areas, which are reflected in poor offtakes during the festive season. However, we are hopeful of rural markets posting a strong recovery in the quarters ahead,” Mohit Malhotra, chief executive officer, Dabur India, said.
Prabha Narasimhan, MD & CEO of Colgate Palmolive India, says that companies need to focus on both urban and rural consumers to drive growth in the future.
“We have become good at price-point packs with business being generated from them as they address consumers who have limited money. The other end of the spectrum are consumers who have money; I would urge companies to address those consumers and see if we are providing an adequate range of products,” Narasimhan said.
Asif Malbari, chief financial officer at Godrej Consumer Products, said he remained optimistic about growth in the coming year. “In 2024, we expect an improved economic environment and lower volatility in commodity prices. We remain optimistic that our focus on market development will enable us to deliver market-beating volume growth,” Malbari said.
K Ramakrishnan, MD, South Asia, Kantar WorldPanel, said that growing categories had a strong rural and urban focus and that they were also active in terms of innovations at regular intervals.
“Brands in the growing categories are great responders to macro occurrences. They tailor-make perceptions around these trends,” Ramakrishnan said, citing the growth in hygiene and healthcare products during the Covid-19 pandemic.
Post-Covid, the “hygiene-aware” and “snacking intense” consumer had pushed up category contribution of segments such as noodles, biscuits and insecticides in overall volume change, Ramakrishnan said.
While packaged noodles had touched 78% in terms of contribution, biscuits and insecticides had touched 67% and 64% each in terms of contribution to volume change within FMCG, he said.
Source:financialexpress.com