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FMCG sector in India is inching towards a slowdown, market research firm Nielsen warns

FMCG sector in India is inching towards a slowdown, market research firm Nielsen warns

FMCG sector in India is inching towards a slowdown, market research firm Nielsen warns
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By CNBC-TV18 Jul 17, 2019 2:15:59 PM IST (Updated)

"FMCG growth for first half of 2019 stands at 12 percent as against a prediction of 13 to 14 percent. This is in line with our forecast of a healthy double-digit predicted for H1 2019 albeit 1 percent lower than our forecast,” Nielsen said.

Growth in India's fast-moving consumer goods (FMCG) sector is slowing as households continue to squeeze spending,  market research firm Nielsen said, offering a gloomy barometer of the economy.

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The drop in GDP is driven by the weakening of household spending which forms nearly two-thirds of the GDP for the country. There is a looming concern on increasing inflationary pressure,” Nielsen said,  quoting its retail panel data.
India's GDP growth slowed to 5.8 percent from 6.6 percent in the previous quarter.
"FMCG growth for first half of 2019 stands at 12 percent as against a prediction of 13 to 14 percent. This is in line with our forecast of a healthy double-digit predicted for H1 2019 albeit 1 percent lower than our forecast,” Nielsen said.
The growth outlook for the next quarter stands at 7 to 8 percent and for the second half of the year at around 8 percent, the report said.
Nielsen listed four key factors impacting the growth of FMCG sector:
  • Macroeconomic factors
  • : FMCG growth trends generally move in the opposite direction of inflation trends, it said, adding, "Inflation is expected to inch up closer to the 4 percent mark as the year progresses. It has already, from a low of 1.97 percent in January 2019, moved to 3.18 percent as on June 2019." Talking about the impact of GDP on FMCG's growth, Nielsen said, "While the forecast for GDP available stands still at 6.8 percent in 2019, this is still lower than 2018. Budget implications will impact this metric and the overall growth
    story."
  • Monsoons: Over the next few months, monsoons are expected to intensify and there will be an impact on the growth seen in subsequent quarters.
  • Government policies: Budget announcements like income tax rebate for incomes up to Rs 5 lakh and Mudra loans of Rs 1 lakh for women could boost disposable income at the individual level.
  • Low-base effect: Nielsen said, impact of a high base especially in second half of 2018 to the tune of around 16 percent will have a reverse impact in 2019 and we expect this to be in high single-digit range.”
  • Nielsen said FMCG value growth in the second quarter of current calendar year dropped to 10 percent as against the highs of 16.2 percent in the third quarter of last year. It said, "The FMCG growth trend is majorly dampened by volume-led growth which has also moved 3.6 percentage points down from 9.9 percent in first quarter of this year to 6.2 percent in second quarter."
    Detailing  the reasons for this inching slowdown in the FMCG sector, Nielsen said the two main contributors to the overall slowdown are sales in rural India losing steam and fading advantage of small manufacturers.
    It said, "Rural India Contributes to 37 percent of overall FMCG spends and has historically been growing around 3 to 5 percent points faster than urban on account of increasing affordability, availability, and demand. However, rural
    growth is slowing down double the rate of urban in recent quarters."
    Slowdown, the report said, is driven by North and West zones. Haryana, Madhya Pradesh, Uttar Pradesh, Maharashtra, and Assam are leading the slowdown, Nielsen study said.
    On the small manufacturers, it said, net manufacturer exits have increased from a 4300 in third quarter of last year to 5800 in second quarter of this year while new entrants in the FMCG space have reduced from  around 8000 in the same period to 6000 in this year's second quarter.
    Nielsen said, "Inflationary pressures along with change pack price architecture within small players has resulted in small players losing price advantage to large manufacturers."
    The report further said, "The Foods basket which is a critical segment for small manufacturers with 70 percent contribution, has witnessed a massive drop from 28 percent (Q3’18) to 14 percent in (Q2’19). Within Foods, discretionary & impulse categories like Salty Snacks, packaged tea, biscuits, and Spices cumulatively contribute to 57 percent of the slowdown for small manufacturers within Foods."
    Nielsen said, "The degree of decline in growth for small manufacturers has resulted in an overall contribution of 50 percent to India’s slowdown
    story."
     
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