FMCG hit by slow consumption in urban markets, de-growth in rural: Nielsen

India's fast moving consumer goods industry witnessed volume consumption de-growth in both urban and rural markets in the October-December quarter as high inflation levels forced FMCG companies to hike prices for the third straight quarter, according to NielsenIQ.

The FMCG industry's overall volumes de-grew 2.6% in the quarter ended December 2021 compared with a 7.3% growth in the corresponding period of the previous year, said the FMCG Snapshot released by NielsenIQ. The quarter witnessed value growth of 9.6% compared with 12.9% in the year-ago period.

Rural markets continued to bear the brunt of price hikes in the December quarter, recording 4.8% consumption de-growth. Meanwhile, FMCG volumes in urban areas degrew 0.8%.

"During the fourth quarter, the country’s macro-economic factors continued to witness softness, and there is a long-term impact because of global inflationary pressure. Within this environment, the calendar year has seen a double-digit growth, though there has to be a watch out for continued consumption degrowth impacted by price increases," said Diptanshu Ray, South Asia Cluster Lead, NielsenIQ.

The country's FMCG industry's sales grew in double-digits to 17.5% year-on-year for the calendar year of 2021, the research and analytics firm said.

The price hike continues to hit small manufacturers the hardest. The number of small manufacturers (with turnover below ₹100 crore) dropped by 13%, due to the difficulty of continuing operations with higher costs. Large and medium manufacturers stayed stable through the year.

Traditional trade in both urban and rural markets has seen a 4.8% volume de-growth that is leading the overall slowdown, the survey said, adding that categories like staples or OTC have seen high price increases in the last two quarters, leading to larger price growth in rural markets and, hence impacting the volumes.

"When it comes to rural India, consumers are going back to small pack sizes to counter price increase," said Ray.

Rural consumption has been a pain point for most FMCG companies. While Hindustan Unilever managed to scrape through with a 2% growth, the rest experienced de-growth in rural consumption, Fortune India reported last month.

The survey showed that penetration of FMCG among online shoppers has increased from 15% before the pandemic, to 25-30% during pandemic and it has stayed at 25% after the pandemic.

"In e-commerce, each wave has seen a higher adoption by consumers in the country – leading to the evolution of omni shoppers where home care and personal care witnesses a continued adoption on the channel," Ray said.

Modern Trade witnessed a 5.6% year-on-year volume jump in the October-December quarter, aided by open markets and an uptick in consumption in the festive season. "Price growth in modern trade is lower than that seen in the traditional trade space. This is primarily led by higher promotions, and bigger pack sizes. Given the price increases overall manufacturers are also taking steps to change pack size, as well as assortment," Ray added.