Customers push carts past confectionery on display in an aisle at a hypermarket in Mumbai, India. (Photographer: Dhiraj Singh/Bloomberg)

BloombergQuint Survey: Consumer Goods Volume Growth To Ease In Festival Quarter

Consumer goods makers’ volume growth is expected to ease in the usually strong third quarter, which coincides with the festival season, because of lower urban demand and a higher base, according to a BloombergQuint’s survey of distributors.

Sales volumes of distributors in cities declined in the three months ended December, the survey conducted across seven states revealed. Some urban distributors lost more than 30 percent of their business during the period. Volumes rose more than 10 percent in rural areas, helped by Diwali demand.

Distributors’ sales in cities fell as kirana stores are buying more from large wholesalers like Metro Cash & Cary and Walmart India. Also, urban consumers are gradually switching to hypermarkets and supermarkets in search of discounts, the distributors said. That will partly offset the decline for the makers of fast-moving consumer goods.

Still, companies rely on the distributor network for the bulk of their demand. And organised retail contributes only 9 percent to the industry, according to a study by Technopak Advisors, even though demonetisation, and goods and services tax have encouraged formalisation of the economy.

Apart from easing urban demand, a higher base in the year-ago quarter will also weigh on the volume growth in the three months to December. But price hikes in the range of 5-10 percent across segments will keep revenue growth intact, the distributors said.

CSD Boost

Sales of Canteen Stores Department jumped 40.8 percent year-on-year to nearly Rs 6,900 crore in October-December 2018, officials at India’s largest retailer by reach told BloombergQuint. They didn’t want to be identified as they aren’t authorised to speak to the media. Sales stood at Rs 4,500 crore in the September quarter.

That will help FMCG companies as CSD is the single-biggest client for many of them. The growth was mainly led by higher consumer goods sales in the festive and wedding seasons, the officials said. Auto sales remained flat at Rs 1,850 crore.

Here’s what the FMCG distributors said:

Madhya Pradesh

  • Sales of juices and carbonated drinks rose due to festive season.
  • Biscuit sales remained flat or grew marginally by 1-2 percent.
  • No inventory build-up.

West Bengal

  • Sales in urban areas fell 30-40 percent due to heavy discounts offered by modern trade.
  • Inventory piled up with retailers.

Jammu & Kashmir

  • Demand declined 10-12 percent.

Kerala

  • Not much growth in modern trade but business is yet to recover from the impact of last year’s floods. Many shopkeepers could not reopen shops.
  • Distributors’ sales fell 10-12 percent.

Punjab

  • Overall sentiment was sluggish.
  • Inventory rose with pressure mounting from companies to push sales.
  • Sales were sluggish due cash-and-carry stores gaining popularity in urban areas where distributors’ sales fell 35-40 percent.
  • Consumers deferred buying non-essential items.
  • Rural sales rose in double-digits as income increased.

Gujarat

  • Urban sales declined 12-20 percent.
  • Sales of household items fell 15 percent.
  • Food category sales fell 5-6 percent.
  • Smaller wholesalers and stockists hold lesser inventory.
  • Rural sales rose 5-10 percent in the December quarter.

Maharashtra

  • Sales remained flat during the quarter and inventory increased by 30-40 percent.
  • Rural sales rose 12 percent because of higher demand during the Diwali season.