NEW DELHI: The FMCG industry has witnessed a challenging September quarter amid subdued consumer demand and a decline in rural consumption due to persistent food inflation and uneven rains in some regions.
The operating environment remained tough for the FMCG (Fast Moving Consumer Goods) industry as rural demand continues to be sluggish, and some green shoots, which were visible in the preceding June quarter, seem to have paused following adverse conditions. Leading FMCG makers like HUL, ITC and Nestle have expressed concerns over uneven rains, the impact of crop output and rising prices of some commodities — such as wheat, maida, sugar, potato, coffee, etc — in their September quarter earnings.
“Consumption demand has been relatively subdued, especially in the value segment and rural markets on the back of sub-par monsoons and persistent Food inflation, which saw a sharp spike during the quarter,” ITC said in an earning statement.
Persistent inflation has impacted rural demand, which contributed to over one-third of FMCG sales, as consumers are still tightening discretionary spending after uneven rains, analysts said.
Nestlé India also said there was a “negative impact on prices” due to lack of rainfall in some parts of the country. “Irregular rains and rainfall deficit are expected to impact production of maize, sugar, oilseeds and spices, which in turn could negatively impact prices,” Nestle India said. “Coffee continues to fluctuate due to global supply shortages.” Weather conditions during the Indian Robusta coffee harvest can affect yields.
Upcoming winter conditions could impact wheat production.” During the quarter, the urban market continued to grow for the FMCG industry, driven by modern trade channels and large packaging. E-commerce continues to do well for FMCG makers. FMCG companies are also facing the heat from the resurgence of the small regional/local players, which are gaining share in the mass market products, such as tea and detergent.
Leading FMCG company HUL reported a market share loss in the mass end segments due to heightened competition from the local players and a decline in the rural market during the quarter. Most of the small/regional players had vacated the space in the mass and small pack segments when the market was facing inflationary challenges, and the costs of raw materials were at record highs.
With the softening of the input cost after moderation of commodity prices, the number of local players that have come into the market has just increased, said HUL CEO Rohit Jawa in the earnings call. “We have seen smaller companies enter the market more, many of whom exited the market at the height of inflation,” he said. . In the tea segment, the market value of small businesses increased 1.4 times compared to large businesses. Similarly, in the detergent industry, the market value of small players has grown six times that of large players, Jawa said. During the September quarter, HUL volumes – which includes brands like Lux, Rin, Pond’s, Dove and Lifebuoy – in rural areas fell 1% on a two-year CAGR basis, while urban volumes grew 3% for two years. two-year basis. According to Abneesh Roy, managing director of Nuvama Institutional Equities, local players will impact large companies in other sectors. “Local players are back in categories, such as detergent bars and tea.
We expect local players to also impact in biscuits, edible oils, hair oils,” he said. According to Roy, urban demand continues to outpace rural. “Rural demand continues to be challenging. Some green shoots, which started in Q1 FY24, seem to have taken a pause.
Election-related stimulus, recovery from September rains, lower retail inflation and weaker fundamentals could contribute to a gradual recovery, he added. Additionally, the shift of the festive season from the September quarter to the December quarter is likely to have a positive impact on demand in the third quarter of FY24, Roy added.