Research firm Nielsen IQ reported in its latest quarterly update that volumes declined 4.1% in the March quarter compared to last year, as consumers across regions and city segments cut spending due to higher prices. Rural consumers, in particular, are getting hurt amid economic hardships, and spending has come down by 5.3%, the sharpest consumption slowdown in three quarters, the report said.
If the overall FMCG market managed to grow 6%, it was only on account of double-digit price rise. Volume shrank in all categories, but significantly higher in non-food than in food. Consumers turned to smaller packs or stopped buying some products altogether. Rural markets for packaged goods witnessed a slowdown for the third consecutive quarter. The prices of everything from soap to fuel are rising. Rural demand has remained volatile since the September quarter.
Nielsen IQ reported a 5.3% increase in withdrawals by smaller manufacturers during the quarter, who found it difficult to pass on significantly higher input costs to consumers and were liquidated as a result.
Inflation is ruining the business by putting pressure on both the demand and supply sides. The cost outlook for key commodities – edible oil, coffee, wheat, fuel – remains strong. Packaging material costs continue to rise amid supply constraints from pandemic lockdowns, and fuel and transport have become major new pressure points.
Nielsen IQ figures are the latest, indisputable evidence for India’s monetary-fiscal policy mix that is completely missing out on signals and feedback from the real economy about the impact of policy choices. As a result, there has been a failure to correct policy errors.
FMCG companies operate close to consumers, and had been warning for months that high and ever-increasing inflation was becoming demand-sluggish and growth-sluggish. But the custodians of monetary policy in Mumbai and fiscal spending in Delhi were not paying enough attention. Macroeconomic policy managers remained complacent on inflation for too long, saying they were focused on supporting growth. The risk is that in the process, they could allow inflation to spiral out of control, which could end up slowing growth and undermine recovery. The fiscal side’s response has also been too late, too little, in providing relief to the household budget to protect their purchasing power.
Hindustan Unilever (HUL) chairman Nitin Paranjpe told investors in the company’s annual report for 2021-22 that high inflation is causing a significant slowdown in growth. This is not the first time in the past several months that the FMCG giant has publicly expressed concern about how prices are spiraling out of control, reducing people’s purchasing power and, therefore, as a spoiler for business. is working.
Packaged-goods companies Dabur India and Marico reported weak rural demand in the March quarter and found that consumers were downgrading to cheaper packs and brands for toothpaste, hair oil and shampoo. Marico Managing Director and CEO Saugata Gupta said the stress factor in rural markets is “high” and the company now expects a good harvest season, normal monsoon and higher government spending, as it waits for an improvement in rural demand. has been Both companies, however, said they did not expect inflationary pressures to ease in a hurry and warned of pressure on profit margins.
Food and beverage major Nestle India said rising raw material costs impacted its profits during the January-March quarter. The company posted growth in its top line on the back of better domestic sales. However, its gross margin fell and its earnings before interest, taxes, depreciation and amortization (EBITDA) margin declined. Nestle India Chairman and Managing Director Suresh Narayanan squeezed margins to push key raw and packaging material costs to 10-year highs and cautioned that higher inflation is likely to be a significant factor in the short to medium term. Market analysts predict the worst is not over for Nestle, which has also been indicating for months that high inflation is squeezing the business.
Inflation expectations have clearly risen, defying months of assurances from the Reserve Bank of India that higher prices were going to be a “temporary” event and that inflation would go away on its own, without needing to shut down monetary policy. After a shift in inflation-controlled policy stance following its failure to assess the impact of higher and rising prices on consumption spending, the central bank is no longer able to convince the markets. The challenge facing it is that it can tame runaway price hikes any time soon.
True, India remains one of the fastest growing FMCG markets globally, as more Indians enter the middle class and its urban population grows, consumption preferences change and consumption grows.
This is also true, economic hardships such as high inflation, and the impact of the pandemic on household income and consumption, give an advantage to the established organized sector players, mostly at the expense of small or unorganized enterprises that no longer preserve their low price advantages. can do. , When inflation is low and stable, smaller players, who usually operate in only one region or district, hold significant market share in sectors such as tea, edible oils and hair oils, often due to low prices, but High inflation is difficult to avoid. , as shown by the Nielsen report.
Varun Berry, Managing Director, Britannia told investors that FMCG leaders such as HUL, Britannia, Marico, Dabur and Adani Wilmar have reported rapid expansion in market shares during 2021-22, basing on smaller players with less potential. Attribute benefits to inflationary pressures. Talking about the highest share of the company in the biscuit segment of the decade.
HUL reported its highest market share gains in more than a decade in urban and rural areas, in value and volume, in beauty and personal care, food and refreshment, and home care, large packs, mid-packs and small packs .
But a narrow focus on the potential for consumption growth and a shift in the market in which big companies are eating away small businesses mask the overall picture. The fact is, villages in India, which account for a little over a third of the total FMCG sales in the country, have registered a decline in sales growth since September 2020, mainly due to high inflation. Dabur India, its chief executive Mohit Malhotra said, struggled with liquidity crunch in the March quarter apart from low demand in rural markets. The maker of Real Drinks and Vatika Shampoo relies on non-urban consumers for nearly half of its domestic business.