At three investor summits last fortnight, Hindustan Unilever (HUL), the country’s largest consumer goods company, reiterated what peers had been saying for a while: That growth was slowing in fast-moving consumer goods (FMCGs) and rural was lagging urban markets.
Since the release of the June quarter gross domestic product (GDP) numbers a month ago, industry captains have been vocal about the challenges faced by the Rs 3-lakh-crore domestic FMCG market.
“The trend over the past few quarters suggests there has been a consistent fall in (India’s) GDP growth. While some of this has been a result of demonetisation and the goods and services tax (GST), the falling trend is not good. I am hoping the GDP does not fall further,” Harsh Mariwala, chairman, Marico, said.
GDP growth for the June 2017 quarter came in at 5.7 per cent, lower than the 6.1 per cent reported in the January-March 2017 period. Manufacturing took a sharp hit, growing 1.2 per cent only in the June quarter versus 5.3 per cent reported in the January-March period.
More importantly, India’s June quarter GDP growth was the lowest in three years, a worrying sign, said industry executives, since performance of FMCGs was linked to consumer sentiment, which in turn was linked to how the economy did. “Lower the GDP growth, the tendency of consumers to down-trade and limit household expenditure will only grow, since many will not be confident about job, business or income prospects. This in turn will affect demand,” said Sunil Duggal, chief executive officer, Dabur India.
Nielsen’s consumer confidence index for the June quarter of calendar year 2017 had reflected this trend, reporting a drop of six points to 128 from a high of 136 from the last poll survey in Q4 of 2016.
“Consumer confidence (in India) returned to year-ago levels reflecting perceptions about local job prospects, personal finances, spending intentions and related economic issues,” Nielsen South Asia President Prasun Basu said, while releasing the June quarter numbers a month ago.
Sentiment on local job prospects decreased by 8 percentage points to 76 per cent for Q2 2017, the survey said, adding that concerns over job security rose to 20 per cent in the quarter under review, versus 17 per cent in the last polled survey in Q4 2016.
Spending patterns had also changed, Nielsen said, with 22 per cent respondents switching to cheaper grocery brands in Q2 2017, as against 18 per cent in Q4 2016. People were also cutting down on spends on holidays, new clothes and gas and electricity, with the propensity to save growing at the same time, Nielsen said.
Add to all this the distress in the rural areas due to drought and flash-floods as well as the disruption caused by demonetisation and the GST and a recovery for FMCGs as a whole, was some miles off, industry captains said.
“The recovery (in FMCG) will take time and it will be slow and steady,” C K Ranganathan, chairman and managing director, CavinKare, said. The assessment is that FMCG growth would take at least three to four quarters to come back on track, with rural growth taking longer still.
Also, urban areas though better than their rural counterparts in terms of supply chain and wholesale reaction to the GST, re-stocking, said experts, was taking time, with products not uniformly available everywhere. Wholesale, for the record, constitutes 35-40 per cent of an FMCG company’s sales, acting as a critical channel for it. For firms such as Dabur and Emami, the proportion of sales through wholesale is estimated to be higher at about 45 per cent, analysts said, with these companies now looking to bring down dependence on this channel.
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