Slowdown in urban demand hits FMCG growth; rural recovery offers hope

Fast-moving consumer goods (FMCG) companies in India faced subdued growth during October and November, driven by a slowdown in urban demand. While company executives remain hopeful for a recovery by March or April next year, the current market situation appears bleak.  

 

The FMCG sector, a key indicator of consumption trends, has shown limited demand growth this quarter. Highlighting weak market conditions, Dabur India’s CEO Mohit Malhotra told The Financial Express, “October-November hasn’t been good at all. Sluggish economic conditions are evident, with cash flow constraints among retailers and wholesalers impacting growth.”

 

Initial data from NielsenIQ for October shows overall FMCG growth at 4-5 per cent, with volume growth at around 3 per cent and price growth at just 1-2 per cent. The figures are disappointing, especially as the festive season is typically a strong period for FMCG sales.

 

Mayank Shah, vice-president at Parle Products, shared similar concerns. “We were expecting high single-digit growth for October-November, but it has been limited to 4-5 per cent,” he said.

 

Challenges in urban markets

 

Executives from leading FMCG companies, including Hindustan Unilever (HUL), Nestlé, Britannia, and Tata Consumer, attribute the slowdown in urban areas to multiple factors. Rising urban real estate costs, food inflation, and slower wage growth have strained middle-class spending power.

 

Nestlé India’s Chairman and Managing Director, Suresh Narayanan, told FE that the middle-class segment appears to be shrinking, with mid-range products facing declining demand. Conversely, premium FMCG products continue to perform well.

 

Rural markets show resilience

 

While urban markets struggle, rural demand is on a path to recovery, bolstered by favourable monsoons and a strong harvest. Rohit Jawa, CEO and MD of HUL, noted, “Rural growth is benefiting from positive agricultural trends, whereas urban sales face challenges from high base effects and economic pressures.”

 

Rising costs and inflationary pressures

 

The FMCG sector is also grappling with inflation in raw materials such as wheat, palm oil, and cocoa. Britannia Industries’ vice-chairman and MD, Varun Berry, told FE that price increases may protect margins, but inflation remains higher than anticipated.

 

Urban markets account for two-thirds of FMCG sales by value, while rural areas contribute one-third. However, with urban demand unlikely to recover soon, FMCG firms are pinning hopes on the continued resilience of rural markets.