2022 has been a tough year for the FMCG industry as it battled inflationary challenges exacerbated by geo-political headwinds. Shrinkflation and price hikes were the buzz words of the year for the sector.
Supply impact
Krishnarao Buddha, Senior Category Head, Parle Products said, “For the past three quarters of this fiscal year, the industry has been consumed with taking corrective actions to combat inflationary pressures. The Russia-Ukraine conflict has had a huge impact on global supplies, including sunflower oil putting tremendous pressure on alternative oils. Also due to certain factors, Palm oil supplies from Indonesia and Malaysia were impacted too.”
According to industry estimates, the sector saw average price hikes of about 7 to 8 per cent over the past 12 months with certain categories witnessing double digit hikes, impacting volume growth considerably. NielsenIQ pegged the FMCG industry volume de-growth at 0.9 per cent in the September quarter while there was price-led value growth of 8.9 per cent. To boost volumes, companies have focussed on smaller packs and grammage cuts to mitigate cost pressures.
Focus on volume growth
With softening of some of the raw material costs, the industry is now hoping for some relief. But will companies roll back prices to boost volumes?
“While raw material costs still remain higher than pre-Covid levels, there has been some moderation in inflationary pressures. Now players are exploring ways to bring back volume growth. While it would not be easy to roll back prices, companies could look at bringing back promotions, offering more bang for the buck,” he said.
Rural demand
Rural demand, which led the industry’s growth during the two pandemic-afflicted years, was adversely impacted. But urban consumption was relatively strong on the back of resurgence in the modern trade segment. As we enter 2023, and there is hope of inflationary pressures moderating, given the decent monsoons, experts are expecting to see a recovery in rural demand.
A CRISIL ratings analysis holds out hope that next fiscal, higher minimum support prices for key crops and a good harvest is likely to aid rural growth and gradual recovery in rural demand. “Besides, increased spending on rural infrastructure by the government, resulting in improved rural income levels, would also support growth. On the other hand, urban demand will remain steady next fiscal, supporting volume growth,” it added.
Reliance enters FMCG
2022 also marked Reliance’s entry into the sector. Its move into staples, processed foods and daily essentials segment with brand Independence, will heat up the competition.
Abneesh Roy, ED-Institutional Equities, Nuvama Group said, “In our view, an interesting battle between Adani vs Reliance vs Tata seems to be brewing slowly. Small and regional players may lose out in favour of Adani, Reliance and Tata in the commoditised part of FMCG.” But Roy also noted that in the FMCG sector, new players may take some time to gain market share as shelf space in the general trade stores is limited besides the presence of well-entrenched incumbent brands.
Modern Trade
The year also saw strong resurgence in the modern trade store channel which is estimated to contribute about 10 per cent to FMCG sales. The e-commerce channel continues to witness strong double-digit growth. Also, quick commerce, albeit with a few speed bumps, has emerged as an interesting channel for the FMCG sector especially for impulse and indulgence categories.
Comments
Comments have to be in English, and in full sentences. They cannot be abusive or personal. Please abide by our community guidelines for posting your comments.
We have migrated to a new commenting platform. If you are already a registered user of TheHindu Businessline and logged in, you may continue to engage with our articles. If you do not have an account please register and login to post comments. Users can access their older comments by logging into their accounts on Vuukle.