FMCG companies witnessed recoveries in core categories during the July to September quarter (Q2 FY21), with health and hygiene offerings leading the way.
Most launches have either been in the health and hygiene segment or have concentrated on immunity-boosting foods. Moreover, rural demand continues to outperform urban, growing at 1.2x, as against the 0.5x it was reporting in the year-ago-period.
“We estimate average volume growth at 1.3 per cent YoY in Q2 FY21, versus a dip of 20.2 per cent in Q1 FY21. All FMCG companies in the health and personal care space are seeing strong Q-on-Q recovery,” Edelweiss Securities said in a report.
Discretionary spends
According to market sources, slowdown persists in categories of discretionary spends, particularly male grooming, personal care, skincare and cosmetics segments. While sales in these categories have improved in Q2FY21 over the preceding three months (April to June), “headwinds continue”.
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“Consumer demand pick-up has been faster than expected in most categories. With focus on health continuing, categories such as health and hygiene, household insecticides and nutrition continue to do well. The slowdown in discretionary spends is also in line with present consumer behaviour patterns,” Abneesh Ray, Executive Vice-President – Institutional Equities, Edelweiss Securities, told BusinessLine .
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Sales growth in Q2
Godrej Consumer Products Ltd, in its Q2 summary, maintained that demand trends, “remained stable and improved sequentially across key geographies”. It predicted a “close to low double-digit year-on-year sales growth this quarter”, led by hygiene (including soap) and household insecticide categories. Sequential recovery was witnessed in hair colour and air fresheners.
Marico Ltd said the quarter was “characterised by a partial revival of consumer sentiment”, reflected “across portfolio and channels”. India business witnessed signs of revival in “core categories contributing more than 90 per cent of the (company’s) business” and registered “robust volume growth”.
Parachute (hair oils), for instance, “clocked growth ahead of medium-term aspirations”, while Saffola edible oils “delivered strong volume growth”. The value added hair oils segment showed resilience and “returned on a growth trajectory from a sharp decline in Q1”.
“New products launched in the health and hygiene segment are tracking well. The company has strengthened its position in the healthy foods and immunity-boosting segment with the launch of the Saffola ImmuniVeda range,” it said in its outlook.
Out of home consumption
With out of home consumption picking up, a “normalisation of in-home consumption” is being witnessed. This means, there will be some decline in growth trajectory for categories like biscuits and snacking. Softness is expected in ice-creams and cold beverages, including juices.
In-home food consumption, a big trend in Q1FY21, will taper off. Due to high demand, many regional players had cropped up to service the demand but large FMCG players with trusted brands will be the biggest winners, Edelweiss said in its report, adding, “Britannia is still likely to remain the fastest growing consumer staples company in Q2 FY21. However, the company’s growth is likely to come off from Q1 FY21 high.”
Intermittent localised lockdowns
Companies agree that intermittent lockdowns had led to some disruption in supply chain and distribution. But the distribution network is back at pre-Covid levels now.
Godrej maintained that household insecticides were “marginally impacted by regional lockdowns and resultant back-end supply chain disruptions”. Meanwhile, Marico pointed out that the distribution network has rebounded and traditional trade and e-commerce continued to drive growth. While Modern trade fell behind, it did improve sequentially.
“With the supply situation stabilising, consolidation is expected in favour of category leaders”, Edelweiss’s Ray pointed out.