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Packaged goods cos see volumes drop in September quarter

Overall, fast-moving consumer goods volumes fell 0.5% in the September quarter, against a 4.9% growth a year ago. While rural volumes grew 1.5% against a 4.5% growth a year ago, urban volumes shrank 2.6% against a 5.3% growth a year ago. Kantar data tracks consumption at the household level.

The slowdown was primarily due to a drop in demand for essential categories such as staples, even as discretionary categories continued on their growth trajectory.

“We find the same trend across socioeconomic classes too. Part of this is because governments are continuing to distribute free wheat or wheat flour in many states, which has drastically reduced the purchase of these categories; part of it is also because the consumers have now reduced purchase of other essentials like edible oils, as in-home cooking could have slowed down post the country opening up,” it said.

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The Kantar numbers come when prices are rising across soaps, tea, toothpaste and detergents as companies battle inflation. However, Kantar was quick to add that healthy growth in discretionary categories means that households are yet to feel the impact of inflation.

Last week, packaged goods company Hindustan Unilever Ltd (HUL) cited Nielsen data to highlight a slowdown in rural demand across the industry.

In a 21 October interview, HUL chairman and managing director Sanjiv Mehta said that rural growth slowed after being “very resilient” through the pandemic.

Mehta said the company would “wait and watch” for a few more months on the developments in the rural economy.

Kantar also pointed to the “high probability” of rural volume growth—which accounts for over 35% of the FMCG market—falling further and possibly contracting in the December quarter.

“We already see foods underperforming in rural, an indication of a slowing down. There have been reports of crop damage due to heavy rains in various parts of the country, which would impact rural consumption,” the researcher said.

Yet, Kantar said the rural slowdown was expected, as village households drove demand for packaged goods through most of 2020, building a high base. This was helped by numerous government schemes, reverse migration and favourable monsoon.

“We have called out rural as the growth engine that will lead the country through the pandemic, and we see that unfolding. Even though there is a slowing of growth, it is an expected slowdown. Rural’s Q4 2020 was so big that even if it is roughly able to hold on to those volumes, it would be a huge achievement,” K. Ramakrishnan, managing director, South Asia, at the Worldpanel division, said in the data and insights shared by Kantar.

The contraction in the FMCG market comes on uncharacteristically high growth in demand for packaged consumer products last fiscal, Kantar said.

In 2020, shoppers stuck at home during the prolonged lockdown bought everything from staples to sanitisers, biscuits, noodles and floor cleaners, driving up demand for several large packaged consumer goods companies.

Consumers also went easy on buying other discretionary products.

Now, as India emerges from a severe second wave and vaccination drive picks up, the consumer spending on categories other than essentials have improved.

Among categories, packaged foods and staples reported a sharp slowdown. Within rural, personal care volumes grew 6.2%, while household care grew 4.3% and volumes of food dropped 0.2%, while beverages grew 5.6% from a year ago. Volumes in all categories dropped sharply on a quarter-on-quarter basis.

The reasonably good growth numbers in sectors other than foods suggest that the consumption fundamentals are still strong, and the slowdown is largely due to a unique 2020, which Kantar expects will get rectified soon, Ramakrishnan said.

Parle Products, maker of Parle-G biscuits, said that there were visible signs of rural growth cooling from last year’s highs but said the growth rates are cyclical.

“It is not really a slowdown. It’s a cyclical thing—what is happening is, rural was growing at mid-double-digit numbers till about April-May of this year, but post that, growth has slowed down. It’s still growing, but it’s growing at about 11-12% compared to 14-15%. What has happened in the meantime is, urban has started delivering good numbers,” said Mayank Shah, category head at Parle Products.

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