Year-ender/ FMCG. Inflation remains a major worry, but FMCG companies hopeful of demand revival

The FMCG industry is entering the New Year under the cloud of inflationary pressures as the country braces for a third wave amidst rising Omicron cases. Leveraging on the learnings of the past two Covid waves, companies said they have far more agile and robust supply chains now to ensure essential supplies are maintained. At the same time, rural growth, which helped the FMCG sector maintain growth momentum in the two pandemic waves, has witnessed a bit of moderation.

Mohit Malhotra, CEO, Dabur India, said, “Inflation in the recent quarters has been truly unprecedented at over 9 per cent. We have taken up prices and undertaken several cost-saving initiatives to mitigate part of this impact. We are watching the situation now and if inflation continues unabated, we may look at another round of price increase in the early part of 2022. While inflation remains a big concern going forward, our intent is to mitigate this impact through calibrated price increases and cost-saving initiatives.”

Mayank Shah, Senior Category Head, Parle Products, said another round of price hike seems inevitable. “The quantum of inflation seen this year has been phenomenal. Most companies have had to take at least one price hike to mitigate the costs partially. But as inflationary pressures remain, we will see another price hike happening in December-February period across categories,” he added.

A spokesperson for ITC said while the company expects the overall inflationary trend to continue, it has seen discretionary spends pick up in the last few quarters in categories like snacks, juices, premium biscuits, deodarants and premium soaps.

“During the peak of the second wave, discretionary spending was reduced but we have since been seeing positive trends, and expect this trend to continue into 2022. There are also expectations across the board of raw material price inflation coming under control in the coming year,” added Poulomi Roy, CMO at RSH Global.

While demand in urban markets, which was badly impacted in the second Covid wave, has seen an uptick, there are signs of moderation in rural growth. But players said this can be largely attributed to higher base effect as rural demand had stayed strong through the two pandemic waves.

For most companies rural continues to outpace urban growth. Most FMCG companies have, in fact, stepped on the gas to grow their direct and indirect rural distribution footprint.

Vinod Rao, President-Sales (Consumer Care Division), Emami, said, “Rural demand is slightly softer but growing as a segment for Emami despite very high bases. Under Project Khoj we are on an aggressive rural distribution expansion drive and infrastructure augmentation and digitisation of our footprint will help us drive growth in the future.”

Online push

The pandemic accelerated the proliferation of new D2C and digitally native brands. Also, established players witnessed growth in contribution of online channels like never before. Most large FMCG players have been busy investing in online-only brands and D2C channels.

“Omnichannel presence by companies has now become more important than ever, especially in urban areas. Emerging channels like e-commerce are gaining traction with increased penetration and adoption,” said a spokesperson for ITC.

Omicron challenge

There are expectations of micro-lockdowns coming back as Omicron-induced restrictions increase. Players said they have stepped up focus to ensure safety, agility, regular monitoring and stress-testing their supply chains to ensure supplies remain uninterrupted.

“We do not anticipate supply chain disruptions to be as high as seen in the previous waves and there is a strong level of preparedness to manage supplies,” said Shah of Parle Products.

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