FMCG market shrinks 0.5% in Q2 on higher base, low demand

The fast-moving consumer goods (FMCG) market shrank 0.5% by volume in the September quarter, due to a higher base in the year earlier and lower consumption of food products. A rise in rural areas was more than offset by a slump in the cities. The market fell 2.6% in urban areas, while rural expanded 1.5%, according to global consumer research firm Kantar Worldpanel (formerly IMRB). Volume indicates the unit number of products bought or consumed.

"Kantar's data shows on-ground reality while companies' numbers are based on tertiary data. As a result, we will definitely see a lag effect with lower sales growth during the December quarter," said Krishnarao Buddha, senior category head at biscuit maker Parle Products.

Most companies, including Hindustan Unilever, Nestle, Tata Consumer and Marico, posted single-digit volume growth, in contrast with Kantar's findings. That's likely because companies report primary sales to distributors, while Kantar tracks actual household consumption. Also, it monitors branded and unorganised products, including unpackaged voluminous commodities, which dragged the overall market down. For instance, atta, a large category, is being distributed by the government, which has slowed its purchases, said the researcher. Excluding that segment, the market grew, although still at lower levels than last year.

"Ever since the first (Covid) wave slowed down, rural has been the growth driver in the country, outpacing urban in each of the following quarters," said K Ramakrishnan, managing director, South Asia, Kantar Worldpanel Division. "This continues to be true in the September quarter. The contraction in the FMCG market is expected as it is coming back on an uncharacteristically high 2020 FMCG growth."

A year ago, September quarter growth was the highest in three years, helped by an increase in hygiene category purchases and out-of-home snack purchases shifting to in-home. This, however, reversed this year after improved mobility and footfalls at restaurants as the grip of the pandemic eased.

During its earnings call last week, Marico said there was a moderation in run rates on a sequential basis, but it was too early to signal any underlying trends.

"Given the spending on out-of-home consumption categories and services plummeted sharply, the unleashing of pent-up demand in the segments has possibly taken up a disproportionate share of wallet as consumers increasingly step out of their homes," Marico managing director Saugata Gupta told analysts. "This coupled with significant inflation could have further impacted the share of spend on FMCG, but I believe it is temporary."