FMCG growth continues to slow, recovery expected in this quarter: Nielsen

FMCG products. (Representative image)

The value growth of India’s fast-moving consumer goods (FMCG) sector slowed for the fifth straight quarter, registering a growth of 6.6% as against 15.7% in the year-ago quarter and down from 7.3% in the last quarter. According to Nielsen, this was on account of multiple issues including the slowdown of the economy, the rise in unemployment levels, an uptick in consumer price inflation and the vagaries of weather in key manufacturing states.

Volumes grew 3.5% against 11.9% in the year-ago quarter, price-led expansion stood at 3.1% compared with 3.8% a year ago, Nielsen said. Online sales saw a growth of 53%.

On a yearly basis, the report suggests that after two years of double-digit growth, FMCG growth slowed down to single-digit in 2019. In the calendar year 2019, FMCG witnessed 9.2% growth (excluding E-Commerce) down from 13.5% in the previous calendar year. It said that the growth was dampened by a drop in volume growth to 5.8% from 10.5% in 2018, while the price-led growth is sustained at 3.4%.

Prasun Basu, South Asia Zone President, Nielsen Global Connect said, “2019 has been a tough year for the industry with over four-point decline, but we do see it stabilising in the last quarter of the year. A mix of macroeconomic factors, and channel and zone factors are driven by manufacturers, coupled with the consolidation of smaller players have been instrumental in the slowdown. A lower pace of innovation has further limited consumer demand pick up. However, 2020 offers a stable outlook for the industry arresting the 2019 decline”

For the full year, slow growth was led by the rural market - and growth slipped to nearly half of the previous year, from 16.2% in 2018 to 8.8% in 2019.
The report also said that 45% of the slowdown is led by small players (<100 crores) driven by fewer new
manufacturers entering the FMCG space, the existing decline in distribution and a significant slowdown in Innovation.

However, the report says that the market is expected to grow 9-10% in the January-December period, matching the expansion rate in 2019 on the back of a bottoming out of the rural slowdown and stabilising demand.

Another interesting insight was that traditional trade, the highest contributing channel to FMCG with 90 per cent contribution witnessed significantly slower growth in 5.7% in Q4'19, a massive drop from 16% in the year-ago period. This drop is led by shrinkage of consumption indicated by a 10 percentage point drop in volume growth, from 12% in Q4’18 to 2.6% in Q4’19.

Rural India, housing nearly three-fourths of the country's population and contributing to 36% to overall FMCG spend has historically grown around 3-5% points faster compared to urban India. However, in the last quarter, rural growth dropped to 5.2%, below the 7.4% growth seen in the sector in urban India. The downward trajectory has been attributed to the shrinking of consumption across the country.

In terms of regions, it would appear that the West zone has borne a bigger brunt of falling growth figures. The West Zone saw 4.6% value growth, down from a huge 15% in Q4’18 and 6.3% in the last quarter. The slowdown was led by shrinkage in volume growth, which was flat at 1.1% in Q4’19, down from 11% in Q4’18. Meanwhile, the South contributing 25% to the overall FMCG market managed to hold its own, registering a modest uptick in growth of 11% in Q4'19, up from 10.8% in the same quarter last year.