India's record dry August may push domestic FMCG sector in slow lane

India is expected to exit August on a dry note as the country is poised to see its driest month since 1901, according to news reports. This is putting consumer companies on edge as demand recovery comes under threat.

Rural demand had just started to move back into positive territory after being under pressure for over a year.

NIQ said in its Fast Moving Consumer Goods (FMCG) Snapshot for the June quarter that the industry in India grew at 12.2 per cent in value, compared to 10.2 per cent growth in the previous quarter and 10.9 per cent in the year-ago period. The quarter also saw an overall volume growth of 7.5 per cent, the highest in eight quarters.

The April-June quarter of 2023 was the best quarter in a year and a half, with positive strides across all growth vectors we track, it also said.

Companies say that if rains don't hit in the next two to three days, inflation will start to become a problem and demand will also take a hit, putting them in a worrisome situation.

"In July we witnessed decent rains but August has been dry and this can create issues for farmers. This will not only have an impact on demand but also on inflation. Wheat and sugar prices are already inching higher," Mayank Shah, senior category head at Parle Products, said.

The growth the maker of ParleG biscuits was expecting was for volumes to be in the range of 5-6 per cent, and that may now come down to 1-2 per cent and value will come down by 10-12 per cent to 7-8 per cent.

"If we move into an inflationary environment, then we will have to halt price cuts which most companies started to take as commodity prices had started to ease," Shah added.

Tarun Arora, chief executive officer at Zydus Wellness, said that demand has been under pressure and revival was only seen in patches for the FMCG sector.

"Demand has been under pressure and green-shoots for the sector were patchy and only in some categories. Now with weak rainfall, demand revival could get pushed further. We’ve been keen on reviving volume growth but that could now remain under pressure for longer," Arora said.

The country's largest shaving cream maker, Vi-John, is also witnessing a slowdown in August.

"There is an impact and I have witnessed that the customer flow in the market has been less in August. The wholesale market, which typically starts stocking up ahead of the festive season, is not doing so," said Vimal Pandey, chief executive officer of Vi-John Group of companies.

Pandey explained that since the start of the year, they witnessed double-digit growth both in volume and value, which is now witnessing a marked slowdown in August. He also said that the trade is now off-loading stocks and is not picking up fresh stock. While he believes that it could be due to the festive dates being pushed back a bit this year compared to last year, he is certain that the deficit in rainfall in August has caused customers to stay away from the market.