Consumption before festival season was bleak; but things could improve

| Updated on October 25, 2019

The Nielson report states that FMCG sales can revive by the end of this year as the festival season progresses and e-commerce sales increase

The fireworks were missing as the festival season began this year due to concerns regarding slowing growth and tight liquidity conditions. Growth in private final consumption in the June 2019 quarter slid to 6.2 per cent, down from 14.1 per cent in the September quarter of 2018; industrial production contracted by 1.1 per cent in August, wholesale price index moved close to zero, and Markit India Services PMI crashed to 48.7 in September. These dismal numbers were expected to impact the annual shopping binge that helps shore the revenue of most consumption-oriented industries. But as the festival season progresses, silver linings are beginning to emerge.

The slowdown seems to have impacted rural consumption of fast-moving consumer goods. Nielson Holding Plc’s report on the FMCG segment for the September 2019 quarter has pointed out that overall growth in value of FMCG sales halved in the September 2019 quarter, compared to last year. Growth in FMCG volumes has dived from 13.9 per cent in the third quarter of 2018 to 3.9 per cent this year. What is of greater worry is that rural sales grew 5 per cent in the recent quarter, much slower than the growth in urban sales, which was 8 per cent. The Confederation of All India Traders is also of the opinion that the consumption slowdown, along with shift to online purchases, has affected festival sales. Gold-jewellery makers have been hurt by the sharp increase in gold prices dampening demand. This, along with the higher import duty, is said to be behind the lacklustre sales in the period before Diwali this year. However, there is optimism among jewellery makers that with the wedding season to begin soon, jewellery sales can revive in the penultimate months of this calendar. Automakers are also adopting a positive tone in their management notes, stating that the foot-falls in show rooms have improved in recent months.

A bright spot in the festival season sales in 2019 has been online sales. E-commerce majors including Amazon and Flipkart have claimed a lofty 33 per cent growth in festival shopping over last year, towards the beginning of October. These sales are said to be led by loans by banks, attractive EMIs and exchange schemes, and availability of a wide range of products. What is heartening is that demand from rural customers has been robust in online sales, with Amazon India claiming that 88 per cent of its customers were from smaller towns and rural areas. The Nielson report states that FMCG sales can revive by the end of this year as the festival season progresses and e-commerce sales increase. It may be a little too soon to write off rural consumption just yet.

Published on October 25, 2019

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