The FMCG industry witnessed a slowdown in volume growth in the last quarter of 2023 as people in rural areas reduced spending as things became costlier.
The researcher said the growth of FMCG products declined to 6.4% from October to December 2023, down from 8.6% in the previous quarter. It is noteworthy that rural areas saw a bigger decline, their growth rate was 5.8% compared to 6.8% in cities.
“Despite flat or negative price growth, essential and value segments of food and home care categories continued to grow, reflecting strong and underlying demand,” said Rosevelt D’Souza, head of customer success, Nielsen IQ India.
He said that this is the first time since 2013 that the urban-rural consumption gap has reduced with the help of the northern and western regions.
Affordability Impacted Buying Decisions
Products remain in great abundance, so people, especially in rural areas, have started spending less on them, not really wasting them and just living off leftover stuff. There has been only a modest increase in sales of government food, personal care and home care products.
D’Souza said the rural industry is expected to grow between 4.5% and 6.5% in 2023.
HUL, ITC, Dabur and Britannia Jazz are feeling the impact of the slowdown in rural demand as most of their sales come from small towns and cities.
In fact, Dabur India experienced a quite unusual decline in rural sales from October to December 2023, which was worse than its urban counterparts. The company, famous for Ayurvedic medicines and food items, has estimated a huge decline of 20% in demand from rural areas.
In general, the FOC is being determined by the impact of automobile registrations in the industry, which are well above the 6% rental target for most of 2023. People are feeling the pinch, so they are being more careful about the signals they are giving.
Outlook for 2024
Nielsen IQ estimates that things will start improving in 2024, as long as we have a good monsoon and the government continues to support rural development.
Moreover, if commodity prices continue to improve, inflation is expected to ease in the second half of 2024. This may help consumers and lead to better sales growth for FMCG companies.
Market researchers believe that the FMCG industry will see a revenue growth of around 4.5-6.5% this year. This is due to good economic conditions and low starting point till 2023.
The companies are also hoping to capitalize on new releases and rapid distribution expansion in rural India to make the most of the growth in consumption. With prices becoming more affordable, sales of FMCG brands are projected to see slow but steady growth in 2024.