FMCG Consumption In Rural India Slips In Q3, Smaller Firms Take A Hit: Nielsen

Sales of fast-moving consumer goods in rural India slowed as sinking incomes and input-cost led price hikes weighed on consumption.

Value growth of corner-store items from tea to shampoo slowed to 9.4% across the villages in the third quarter of 2021, the quarterly update released by Nielsen on Tuesday showed. That compares with 33.7% and 14.6% in the second and first quarters, respectively.

The trend was led by a 2.9% contraction in volumes, or the number of units sold, after growing 14.9% and 6.8% in the second and first three-month periods of the year, respectively.

“We haven’t seen a negative volume growth in the past many years,” Diptanshu Ray, lead of NielsenIQ South Asia, told Bloomberg Quint. "This trend is likely to sustain in the ensuing quarters as well with manufacturers continuing to raise prices owing to high input cost pressure. And, it's also a matter of concern as price hikes aren’t sustainable in the long run."

According to Nielsen data, categories that showed a slip in the food basket were edible oil, packaged grocery and hot beverages. As for non-food items, fabric care and personal care witnessed a decline in consumption.

This hurt small manufacturers more as they struggled to sustain lower volumes, leading to 14% of them to shut shops even as larger manufacturers consolidated their share.

Out of the total value growth for the industry in the second quarter, 76% came from large manufacturers, while small firms offered 2%; the rest was from mid-sized companies, shows the FMCG Snapshot for Q3 2021 released by NielsenIQ's Retail Intelligence team.

Larger firms like Hindustan Unilever Ltd., ITC Ltd., Dabur India Ltd. and Marico Ltd. are facing inflationary headwinds in the form of rising commodity, raw material and fuel prices, forcing them to hike prices of everything from edible oil to shampoos.

This has resulted in a double-digit nominal growth. Nielsen data showed that a price-led growth of 11.3% boosted overall FMCG growth to 12.6% year-on-year in the September quarter. By volume, however, the FMCG market expanded 1.2% in Q3 2021—down from 4.9% in Q3 2020.

However, the drastic consumption slowdown in rural areas was offset by an encouraging uptick in modern trade channels across urban markets.

“In the September quarter, urban markets driven by metros like Kolkata, Hyderabad, Mumbai and Pune led the growth,” said Sameer Shukla, customer success lead for NielsenIQ South Asia.

Brick-and-mortar stores were back in focus, with modern trade stores growing 17% quarter-on-quarter in the September quarter—up by double in the preceding quarter.

“‘Big Days’ in August with Raksha Bandhan and Independence Day jumped 29% when compared to the same time period last year—with the growth propelled primarily by modern chain stores," Shukla said. "Food baskets led the growth driven by prices over non-foods."

This was seen especially in staple foods like edible oils, hot beverages such as tea and impulse foods like salty snacks and confectionary. The volume growth, Nielsen said, was driven by packaged rice, breakfast cereals, butter-margarines, and chocolates.