Demand falls as price hike forces consumers to go for smaller packs

Fast-moving consumer goods (FMCG) companies in May saw urban and rural demand decline against April because consumers tempered purchases while firms focused on increases in prices.

Sales in urban areas in May were down 16 per cent and those in rural parts 16.6 per cent (against April), according to the data from Bizom. During the month, FMCG sales went down 16.5 per cent in value terms and active kirana growth was down 2.5 per cent against April.

However, compared to last year, value growth was up 32.9 per cent and active kirana growth 43.7 per cent (May 2021 was a peak pandemic month due to the second wave and there were local restrictions, forcing kiranas to stay closed). Hence, growth in May 2022 against the same time last year looks inflated, read the data.

In May, the sharpest fall was seen in commodities (including products like atta and edible oil). The category was affected the most and was down 31.6 per cent in May against April.

“Sales of commodities (where there has been a surge in prices recently) are seeing consumers stocking smaller packs in the hope of a price drop in future, leading to a drop in sales,” Akshay D’Souza, chief insights and growth officer at Bizom, told Business Standard.

Home care consumption was also affected in May. It was down 10.4 per cent while beverages saw the least impact and their sales declined 1.1 per cent against April.

“The only category showing resilience is beverages, driven by a hot summer and the resumption of strong consumption,” D’Souza said.

He said most categories were seeing pressure on value growth in May. “It points to the fact that price elasticity has its limits and consumers are seeking value and adjusting spends in accordance with their affordability,” D’Souza said.

Bizom said FMCG firms focused on price-led growth, driven by an inorganic rise in prices of cooking oils, logistics, wheat and other essential products, promoted by global supply shortages.

“There has been a dip in volumes, but value is still growing in mid-single digits. There has been some impact on the value segment, but it is not seen in the premium segment,” said Mayank Shah, category head at Parle Products.

In April, Parle Products took a price hike at an average of 5-6 per cent, Shah said.