Consumer goods makers witnessed a sharp contrast in consumption patterns in 2023. The FMCG industry’s sales were driven by urban consumers and new-age channels, while demand recovery in rural markets was slower than anticipated. In the consumer durables sector too, the premium segment fuelled demand, especially during the festival season, on the back of consumer financing schemes.
Consumer product makers in segments such as apparel and footwear too saw lower growth rates due to factors such as inflationary pressures and a higher base effect.
FMCG
According to NIQ India estimates, rural volume growth in the FMCG sector swung back to a positive trajectory in the March quarter (0.3 per cent compared with the year ago period) after witnessing declining trends for several quarters. Rural consumption witnessed sequential improvement, with 4 per cent volume growth in the June quarter and 6.4 per cent in the September quarter. But it continued to lag behind urban volume growth, which stood at 10.2 per cent in the September quarter.
Analysts said even during festival season, rural demand recovery remained sluggish. A report released recently by Motilal Oswal Financial Services noted, “The festive season boosted growth in e-commerce, modern trade, and urban markets. In contrast, rural demand has been subdued mainly for the branded commodities due to competition from smaller and regional players. Persistently low demand is causing supply chain congestion, leading to an increase in inventory days, with stocks accumulating at distributors.”
Many leading FMCG companies are now focusing on price cuts to claw back shares from regional and unorganised players while hoping that factors such as MSP increases and election-related spending will boost rural demand in the coming months. At the same time,they are expected to step up their focus on premiumisation and new launches.
Saugata Gupta, CEO and MD, Marico Ltd., said, “A combination of weak demand sentiment, especially in rural areas due to inflation, and increased aggression by smaller players and alternative avenues of spending have led to softer growth of the FMCG sector in 2023. Having said that, the economy is on a sound footing, inflation is largely under control, and the overall outlook is on an improving trajectory. Price drops by large, organised players in the sector will make them more competitive. Therefore, we expect the demand situation to improve as we enter the next financial year.”
Echoing a similar sentiment, Mohit Malhotra, CEO, Dabur India, said that urban markets were the drivers of growth in 2023, driven by new-age channels like modern trade and e-commerce. “While green shoots of recovery are visible in rural India, demand growth is still trailing urban markets. That said, we are hopeful rural markets will post a strong recovery in the new year. We are already seeing the gap between rural and urban growth shrinking,” he added.
Aasif Malbari, CFO, Godrej Consumer Products Ltd., said that in 2024, the company expects an improved economic environment and lower volatility in commodity prices.
With urban consumers lapping up premium products, it will be a key focus area for FMCG players in 2024.“We are introducing new brands in the premium category, particularly on e-commerce platforms, that relate to millennials and centennials.On the other hand, in the rural market, we are targeting aspirational buyers with more affordable packs of our popular brands and products,”Malhotra said.
At the same time, e-commerce and quick commerce are expected to play a more significant role in the channel mix for the FMCG sector.Ahmed ElSheikh, President, PepsiCo India, said, “As the Indian consumer becomes even more tech-savvy and witnesses growing disposable incomes, we see a significant growth in channels like e-commerce, quick commerce, and modern trade.”
Appliances
In the consumer durables segment, Indian consumers continued to upgrade to bigger-sized televisions, larger-capacity washing machines, and refrigerators with a focus on energy efficiency, but demand for entry-level products remained sluggish. The World Cup season coinciding with the festival season also boosted sales of panel TVs in the country.
Insights and research firm GfK noted that multiple discounts, promotional offers, cashback, and consumer finance options contributed significantly to the industry’s growth during the festival season. Consumer durable firms are now betting big on the upcoming summer season.
In a recent interaction with businessline, Manish Sharma, Chairman, Panasonic Life Solutions India and South Asia, said, Premium and value-added products are driving sales not just in urban regions but also in smaller towns and cities. We are bullish about the upcoming summer season and expect to garner strong double-digit growth in AC sales.”
“Premiumisation across product categories has driven strong growth for us in 2023, as Indian consumers increasingly demand innovative features, smart connectivity, and increased energy efficiency, said Saif Khan, MD & CEO, BSH Home Appliances.
Retail
Meanwhile, retailers saw lower than anticipated growth rates, especially in categories such as apparel, during this festival season.Rajesh Jain, CEO and MD, Lacoste India, told businessline, “The premium segment has been witnessing stronger demand trends compared to other segments in the category.”
Retailers Association of India CEO Kumar Rajagopalan said, “For some retailers, the festival season was very good but other retailers saw lower than expected growth rates.”He added that retailers did witness a growth in high-value products but low-value products saw a quantitative dip.”