Inflation and rural stress hit Q2 FMCG growth: NielsenIQ

Demand for packaged consumer goods continued to decline in rural India in the July-September quarter dragged down by persistent inflation, research and analytics company NielsenIQ said in its quarterly FMCG update.

Overall volume growth for packaged consumer goods fell for the fourth quarter in a row, declining 0.9% in the quarter, compared to 0.7% in the preceding quarter ended June, as consumers bought less of grocery and personal care products. By value, the fast moving consumer goods (FMCG) industry grew at 8.9% sequentially in comparison to 10.9% in the previous quarter, largely led by price hikes taken by manufacturers.

This compared to value growth of 12.6% in the July-September 2021 quarter, which was led by growth in urban markets, NielsenIQ said. Volumes during the corresponding year-ago quarter, however, had grown only 1.2%.
"Overall, this quarter shows cautious consumption, primarily due to apprehensions of slowdown and continued inflation," said Satish Pillai, managing director-India, NielsenIQ.

Rural demand for packaged consumer goods declined 3.6% by volume sequentially in the quarter, compared to 2.4% in the preceding April-June quarter. India's villages, which contribute more than 35% to overall annual FMCG sales, are reeling under inflation-led price hikes and patchy monsoons.

NielsenIQ said urban markets did better in the quarter, with urban volumes growing 1.2% compared to 0.6% in the preceding quarter, largely led by an increase in demand for food products.

The slower growth in volumes can be attributed to double-digit price growth for the past six consecutive quarters, NielsenIQ said.

Kantar Worldpanel too said in data released on Wednesday that FMCG volumes declined 0.5% year-on-year in the September quarter.

"While the pressure of inflation continues, variations in rainfall across rural areas in the country have also led to a softening of indicators for rural markets," Pillai said.

NielsenIQ flagged that the subdued sentiment also shows up in the cautious behaviour of the retail trade. "Traditional trade retailers have been keeping leaner assortment and lower stock levels to be agile, and manufacturers need to support the retail trade to alleviate this apprehension," Pillai added.

Companies with large exposure to rural markets including Hindustan Unilever, Dabur and Marico have flagged continued sluggish rural demand in their September quarter earnings.

Parachute hair oil maker Marico said in a management commentary that divergence in rural and urban growth grew starker with rural reeling under inflation and liquidity pressures. For the July-September quarter, Marico reported 3% year-on-year growth in domestic volumes.