With liquidity squeeze, a slowdown in the agriculture sector, and uncertainty over sustainable incomes and job stability, 2019 will be remembered as the year which saw the worst slowdown for the FMCG sector in over a decade, according to a report.
Noting severe demand crunch in the space, a Credit Suisse report released in September said that FY20 was likely to be the year of worst revenue growth for India's FMCG sector since 2000-03. The liquidity squeeze, a slowdown in the agri sector, uncertainty over sustainable incomes and job stability have made people cautious about their consumption habits. Taking this into account, market research firm Nielsen revised the growth forecast for the Indian FMCG sector to 9 percent for calendar year 2019, from the earlier forecast of 11-12 percent.
A clear deceleration was seen in revenue growth rates for FMCG companies for the 9 months of 2019. For instance, HUL which had seen an 11 per cent revenue growth for the first 9 months of 2018, saw revenue growth slipping to 7.5 percent in the same period this year.
Chyawanprash maker Dabur saw revenue growth rate declining to 6 percent for the first nine months of 2019 from 10.2 percent year-on-year. Nestle also saw growth rates slip over 400 basis points.
“If I look at the last three quarters, I find a very sharp slowdown of growth, it has gone from a 14 to a 10 percent drop in growth between Q3 2018 to current… it is largely driven primarily by rural,” said Prasun Basu, President - South Asia, Nielsen.
Rural India, which accounts for 37 percent of overall FMCG spends, has historically grown at almost twice the rate of urban India. But in 2019, rural growth hit a seven year low. And, this was a cause of concern for several FMCG companies. “Market has witnessed a slowdown in the quarter particularly led by rural.. rural which was to grow 1.3-1.4 times, urban has only been growing 0.5x of urban,” said Srinivas Phatak, chief financial officer, HUL.
Godrej Consumer, which manufactures products like Goodknight and Cinthol, said that it was disappointed by growth in rural markets but was optimistic about recovery. “Rural has been marginally ahead of urban and so in that sense it has been a disappointment. Typically, we like to see rural at 1.4-1.5x urban growth … rural has been a challenge,” said Vivek Gambhir, Managing Director & chief executive officer, GCPL.
Even historical drivers of growth in the FMCG industry showed a decline during the year. Small packs, which make up 25-30 percent of overall sales for FMCG companies, showed a decline in volume growth on a year-on-year basis. Data sourced from market research firm Nielsen showed that three out of the top five high contributing categories for small packs have seen a decline in overall volume growth.
Small pack categories for segments such as biscuits, soaps and potato chips saw a decline in volume growth in the January to July 2019 period on a year-on-year basis. In such a scenario, FMCG companies turned with relief to benign commodity prices, especially palm oil prices. They were happy to pass on any benefits they received from this corner to the consumer in the form of price cuts, if it would translate into higher volumes. For instance, HUL, GCPL, and Wipro Consumer Care cut prices between 4 and 6 percent in the soaps category. A few of the players even offered bulk pack discounts and promotions to drive volumes.
While most companies tapped promotions to entice consumers, many FMCG companies had to cut back on advertising and promotional spends in an effort to cut costs. For instance, Godrej Consumer Products cut advertisement spends by 13 percent and Dabur cut spends by 3 percent in the first nine months of 2019.
Meanwhile, HUL and Marico spent more in an effort to get customers to open their wallets. "Slowdown in growth rates does not mean that the skies have fallen. It means that there has been a blip. It is my hope that with the steps that are being taken, if there are measures that puts back money in the hands of consumers in terms of increased consumption expenditure then that should really help," said Suresh Narayanan, Chairman and Managing Director, Nestle India.
First Published: Dec 19, 2019 1:33 PM IST
