Nielsen on Thursday has slashed its annual growth forecast for India's FMCG sector to mid-single digits in the range of 5-6 per cent for the calendar year 2020, as the world grapples with the Covid-19 pandemic. It had earlier predicted growth to be in the range of 9-10 per cent for India's FMCG sector for the full year of 2020.
The research and insights firm, which follows the January-December period as a fiscal year, pointed to macro-economic conditions such as lower GDP growth rate predictions, rising unemployment levels especially in rural region as well as the severe impact on economic activity across sectors and supply chains, due to the Covid-19 pandemic, as key reasons for this forecast.
It also said that the intensity, severity and longevity of the lockdown would have significant implications for multiple industries, including FMCG industry, which had begun witnessing signs of revival in the first two months of the year. Prasun Basu, South Asia Zone President, Nielsen Global Connect said, "While manufacturers and brands are working to get back to normalcy as quickly as possible, there are pragmatic challenges as business performances are under extreme pressure."
According to Nielsen, while the all India FMCG value growth in the months of January and February, was at 7.5 per cent but the overall growth rate for the January-March period was dragged down to 6.3 per cent (versus 13.8 per cent in Q1 2019). Nielsen said this was the lowest first-quarter growth clocked by the industry in the past three years.
"The bellwether FMCG industry was bouncing back from a difficult but reviving economic situation with a 7.5 per cent growth in Jan-Feb 2020 as compared to 7 per cent in Q4 2019 (October-December)2019. The expectation of having a conventionally big March month hit a roadblock with COVID," the research firm said.
As early signs of stress on economic activity due to the pandemic began playing out in March, FMCG sector's overall value growth sharply declined to 4 per cent and volume growth was just at 0.5 per cent in the month, according to Nielsen.
In January and February, the sector witnessed an initial recovery in rural markets and metro cities driven by food categories, but smaller towns saw a slowdown. "In March, there was a significant slowdown across FMCG categories, more pronounced in Non-Food categories," it added.
Sharang Pant, Lead Retail Vertical and RMS, Nielsen Global Connect said that during the early stages of the lockdown in March, large companies (annual turnover of over ₹ 600 crore) continued to be resilient witnessing volume growth, mid-size firms were most impacted, while smaller players (annual turnover of less than ₹ 100 crore) showed agility.
Shifts in retail channels
In Q1 of 2020, while traditional retail's share to the FMCG industry sales declined to 86.3 per cent compared to 88.5 per cent in the same period last year, modern trade's contribution grew to 10.9 per cent (9.6 per cent in Q1-19). E-commerce channel's share in the FMCG sales in the first quarter stood at 2.8 per cent up from 1.9 per cent in Q1 2019.
Pant said that the channel shifts were more amplified in metros where traditional trade salience has dropped by almost five percentage points in the last one year (73 per cent in Q1'19 to 68 per cent in Q1'20).