Small FMCG cos pack a big punch, outpace majors with 11.9% volume growth in March quarter

New Delhi: Price increases and smaller manufacturers helped consumer goods sales grow in double digits in the March quarter, even as volume sales dipped amid persistent urban slowdown and slower rural growth, NielsenIQ quarterly update said on Thursday.

The industry grew 11% year-on-year by value sales last quarter, up from 6.5% growth in the March 2024 quarter, driven by a 5.6% increase in prices, the market research firm said.

Volume growth, or the number of units sold, slowed to 5.1% compared to 6.1% in the year-ago quarter.

Products made by smaller manufacturers drove FMCG growth for the second consecutive quarter, while rural markets outpaced urban centres-growing four times faster-for the fifth consecutive quarter, NielsenIQ said.

It attributed the slower growth to consumers cutting back discretionary spending amid inflation. Volume growth is slowing across categories, and non-food segments are still outpacing food in the FMCG sector, it said.

Rural markets, which contribute over one-third of overall consumer goods sales in India, grew 8.4% year-on-year by volume compared to 2.6% growth in urban India in the last quarter. "Rural markets continued to outperform urban counterparts across most regions of India," said Roosevelt D'Souza, head of customer success - FMCG at NielsenIQ India. "Small manufacturers grew twice as fast than the overall FMCG market, gaining ground due to a low base, rural growth and changing market dynamics, though their long-term momentum remains to be seen," he said.

Manufacturers with annual turnover of less than '100 crore grew 11.9% by volumes in the March quarter, while companies with a turnover between '100 crore to '1,000 crore reported volume growth of 6.4% in the quarter, the company said.

NielsenIQ tracks data based on company sales to retail channels, while rival market research firm Kantar Worldpanel tracks data based on household sales.

According to D'Souza, the sector is showing mixed signals as volume growth is slowing across categories and non-food segments are outpacing food. Inflation is easing overall even as edible oil prices remain high. D'Souza expects consumption to pick up in the upcoming quarters, buoyed by a favourable monsoon forecast and revised income-tax slabs reducing tax burden on consumers.

Leading FMCG companies like Nestle, Hindustan Unilever, Dabur and Godrej Consumer Products called out continued urban slowdown in their March quarter earnings, but said they expect urban demand to revive over the next four-six quarters.

On Wednesday, Dabur, which depends on rural markets for close to half of its annual sales, had flagged that the demand environment remained challenging with high food inflation and a surge in cost of living continuing to limit urban spending.

According to NielsenIQ, consumption of food slowed to 4.9% in the March quarter, compared to 6% in the previous December quarter, on account of decreased volumes in staple categories such as edible oils and palm oil which saw price increases.