Economy

Declining rural demand hits FMCG sector

Nandana James Mumbai | Updated on August 06, 2019 Published on August 06, 2019

The declining consumption in rural India and the overall slowdown in the economy has led to plummeting year-on-year volume growth for FMCG companies plummeting in the first quarter of this financial year.

“The performance (of FMCG companies) has been mixed, as most companies have seen quarter-on-quarter (QoQ) and year-on-year (YOY) decline in volume growth. Rural demand, which was growing at 1.5x urban growth has come in line with the urban growth or in some cases is growing below urban growth also...The volume growth has been softening, more so in the past two quarters and the trend is across the board for most companies,” Amnish Aggarwal, Head of Research of Prabhudas Lilladher Pvt Ltd, told BusinessLine.

Subdued demand

According to data sourced from Prabhudas Lilladher, Hindustan Unilever Limited’s (HUL) volume growth in this quarter was 5.5 per cent, down from the year-ago period’s 12 per cent. Marico’s volume growth was 7 per cent this quarter, down from last year’s corresponding quarter’s 10.4 per cent.

Dabur India had a volume growth of 6 per cent this quarter, versus the year-ago period’s 21 per cent. Colgate Palmolive posted a volume growth of 3.5 per cent this quarter, compared to the year-ago period’s 4 per cent.

Also read: FMCG growth dropped to 10% in April-June quarter: Nielsen

Britannia Industries posted a volume growth of 6 per cent this quarter, compared to the year-ago period’s 13 per cent. Emami posted a volume growth of 2 per cent, versus the year-ago period’s 16 per cent.

Asian Paints posted a volume growth of 9 per cent this quarter, compared to the 12 per cent of the year-ago period.

“5 per cent volume growth is pretty decent for a large company... 5 per cent, while lower than what we had in the previous year, it is still a decent set of number,” Sanjiv Mehta, Chairman and Managing Director, HUL, had said while announcing the company’s results.

Talking about the slowdown in the rural economy, Mehta said that the rural market is still growing, and that it is growing at rates which are more or less similar to urban rates. “But, it poses the potential to grow at a larger rate,” he said.

Also read: Cars, shampoo tell a tale of India’s slowing consumption

He said that it was heartening to see the monsoons pick up after a slow start. He said that one has to see when the steps taken by the government, keeping the rural economy in mind, ( like subsidies, water, electricity, construction of new houses, rural roads) would translate to more money in the consumers’ hands. “Improvement of consumer sentiments is another factor,” he added.

Negative factors

Aggarwal said that the negative factors for the FMCG industry are average monsoons and poor sentiments post-Budget and a general slowdown in the economy. “There also seems to be some cutback in discretionary spending by consumers,” he said. “A lot would depend on how the monsoons, rural income and the push on increasing income levels at the bottom pan out, and the industry is mainly banking on the revival of demand in the festive season to push growth,” he added.

“Considering the rural demand growth was below the urban demand growth (earlier 1.5x in 2Q19 and 1.1x in 4Q19), companies with higher rural share have witnessed subdued demand growth. Though liquidity scenario has improved QoQ, it remains far from being satisfactory,” said Prabhudas Lilladher in its April to June 2019 quarterly preview report.

Mehta pointed out that there is a linkage between the FMCG growth and the state of the economy. He said that while the near-term demand outlook remains subdued, he is positive about growth in the mid to long term basis.

Published on August 06, 2019
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