FMCG performance in rural India worst in 7 years: Nielsen

Our Bureau Mumbai | Updated on October 17, 2019

With steep drop in demand among rural consumers, small manufacturers worst hit

The country’s FMCG market, which clocked a value growth of 7.3 per cent in Q3 2019 — down from 16.2 per cent in Q3 2018 — has seen rural growth dropping below urban growth for the first time in seven years, said Nielsen Holdings Plc in its report on Q3 (July to September 2019) India FMCG Growth Snapshot.

The FMCG market has been witnessing a resurgence in modern trade, apart from divergent trends in the north and south zones of the country, it added.

Growth continues to be dampened by the drop in consumption, which has moved to 3.9 per cent in Q3 2019, down from 13.2 per cent in Q3 of 2018, while price-led growth has sustained at 3.4 per cent this quarter, said the report by the data analytics company. The rural market grew at 5 per cent in Q3 2019, which is one-fourth of the 20 per cent it clocked in the same period last year, while the urban market grew at 8 per cent (14 per).

Drop in demand

“Growth in sales per store in rural areas in Q3 2019 has become one-fourth vs Q3 -2018, which reflects a significant drop in demand among rural consumers. In addition, rural distribution growth has continued to inch downwards. Small manufacturers have seen the biggest drop in cumulative distribution growth which has moved from 18 per cent in Q3 2018 to no growth in Q3 2019, while for large manufacturers, the cumulative distribution growth has halved,” the report said. As for the diverging trend in zones, the north market witnessed almost a flat volume growth at 1 per cent in Q3 2019, as against a growth of 17 per cent in the same period last year. “A higher dependency on rural strata with 37 per cent contribution makes it a relatively more price-sensitive market as compared to other zones,” the report said.

It added: “Inflationary and slowdown pressure has forced the exits of small players who often offer better value propositions in north rural (the rural areas in the north). Also, in north urban, there is twice the increase in price-led growth in Q3 2019 vs Q3 2018, while consumption dipped.”

South sustains growth

The south zone has been able to hold on to the value growth in Q3 2019, the report found. “Macro-economic factors are helping the South sustain growth levels. Urban strata in the South has witnessed upside in growth from 10 per cent in Q3 2018 to 12 per cent in Q3 2019, while rural growth has dropped by 6 per cent during the same period. Food essentials categories emerge as key growth drivers for the South urban market through an increase in consumption. Small players, along with large manufacturers, have been able to sustain an overall value growth in the South,” it said.

Macroeconomic factors also contributed to these differences in the north and south zones, the report added. High per capita GVA (gross value added) clubbed with low unemployment are favouring sustained growth in the south zone as compared to the north zone, it explained.

The unemployment rate in the north has surged by 14 per cent, primarily driven by sectors like the automobile, ancillary and farm and non-farm lower income levels in rural, it said. Meanwhile, the unemployment rate in the south Zone is the lowest across zones, the report stated.

Modern trade is showing the first signs of recovery ahead of the festive season, the report said, and added that FMCG growth in this channel clocked 13 per cent in Q3 2019, against 8 per cent in Q2 2019. This growth in Q3 is 1.9 times of traditional trade, it added.

With the growth in the e-commerce sector, the year-end forecast for the FMCG sector continues to be in the 9-10 per cent range, it said.

“While we expect Q4 2019 to be in the 6.5- 7.5 per cent range, we are now finally seeing early signs of the declining trends being arrested. The growth forecast for Q1 2020 (Jan-Mar 2020) stands in the range of 7.5- 8.5 per cent,” it added.

Published on October 17, 2019

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