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FMCG industry sees consumption decline of 2.6% amid price hikes, rural markets most impacted

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FMCG industry sees consumption decline of 2.6% amid price hikes, rural markets most impacted

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The FMCG industry saw a value (pricing-led) growth of 9.6 percent in the October-December 2021 quarter on the back of double-digit price hikes for three successive quarters.

Inflation has been the theme of the fast-moving consumer goods sector over the past few quarters thanks to surging commodity prices. While FMCG companies such as Hindustan Unilever, Britannia, ITC, among others have been flagging the issue of inflation and its impact on consumption, a recent report by consumer analytics firm NielsenIQ has shown that consumption has taken a hit, having declined 2.6 percent in the October-December quarter of 2021. This, Nielsen says, is on the back of inflationary pressures and other macro-economic factors in the country.

While consumption indicates volume growth, the FMCG industry saw a value (pricing-led) growth of 9.6 percent in the quarter on the back of double-digit price hikes for three successive quarters. Nearly every FMCG company from HUL to Britannia, ITC and Parle hiked prices of goods across categories. Prices of soaps, detergents, pulses, packaged foods and even biscuits were hiked in the past few quarters.
While large and medium FMCG manufacturers remained stable through the year, rising costs have had a massive impact on small manufacturers. According to NielsenIQ, the number of small manufacturers (with turnover below Rs 100 crore) dropped by 13 percent, due to the difficulty of continuing operations with higher costs.
Rural markets were worst impacted by the inflationary environment. Consumption (volume growth) declined 4.8 percent in rural India, while it saw a value growth of 8.9 percent. "Categories like staples or OTC have seen high price increase in last two quarters, leading to larger price growth in rural markets and, hence impacting the volumes," NielsenIQ said in its FMCG snapshot report for the quarter.
In fact, rural consumers are now going back to buying smaller packs to counter price increases. Urban markets too saw a decline in consumption (albeit marginal) of 0.8 percent. This decline also reflected in trade channels with traditional trade, which is kirana and mom-and-pop stores saw volumes decline 4.8 percent in both rural and urban. Modern trade however, saw a volume growth of 5.6 percent led by higher promotions, and bigger pack sizes.
And now with the Ukraine-Russia crisis pushing up commodity prices even more, inflationary pressures, and as a result, price hikes are expected to continue through the next few quarters as well.
On the other hand, penetration of FMCG among online shoppers has increased from 15 percent before the pandemic to 25-30 percent during pandemic and has stayed at 25 percent after the pandemic as well. Interestingly, NielsenIQ says that within the overall universe of retail outlets, a structural change is also evident in channel types, where there has been change in the offtakes of shops depending on their locations, increase in specialty stores that stock FMCG products and an increase in e-commerce. This is also evident in FMCG majors now eyeing more of digital-first launches while experimenting with new products.
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