Traditionally, stocks of Fast Moving Consumer Goods (FMCG) companies have been viewed as the ultimate defensive bets in India whenever stock markets have corrected. But they have failed to fulfil this role lately with the multinational FMCG giants reporting weak numbers for the latest July-September 2024 quarter. Along with either single digit growth or a decline in volumes across categories, they’ve delivered stagnant revenues and profits.
Called upon to explain this, some of them have come up with creative narratives on high food inflation causing urban distress and a shrinking middle class. This has rekindled the debate on whether India’s headline GDP numbers are revealing the true picture on growth. The fact, however, is that FMCG multinationals seem to be hurt more by sector-specific disruptions that they have failed to foresee, than any economy-wide distress. Listed FMCG players, especially multinationals, have been facing disruptions on three counts. One, the rapid expansion in India’s digital public infrastructure and widespread adoption of online transactions since Covid, has triggered a big shift in the shopping behaviour for staples in favour of e-commerce. This has democratised consumer choices. Traditionally, FMCG giants used to crowd out smaller brands from the marketplace, by investing heavily in distribution and brand promotion, and loading retail store shelves with dozens of Stock Keeping Units (SKUs). This is not effective in the online marketplace, which allows local brands and D2C players to take on well-known brands on an equal footing. FMCG offtake is now growing at 30-40 per cent through quick commerce compared to sluggish growth in traditional retail.
Two, universal access to social media and online activism has made consumers more label-aware and health-conscious. With a more proactive food regulator forcing disclosures, consumers are shying away from processed food products loaded with refined flour, vegetable fats, excess sugar and artificial additives. FMCG multinationals have however been tardy to respond and continue to market malted ‘health’ drinks, frozen desserts and high-sugar confectionery. Three, the rising influence of the GenZ cohort in consumption has led to shifts in food spending patterns with a preference for local over multinational brands. These shifts explain why Zomato had no trouble delivering a 21 per cent growth in food orders in the September quarter while FMCG companies struggled to push packaged food.
The food inflation argument also seems tenuous because, as the latest monthly economic review of the government has noted, rural demand for FMCGs, commercial vehicles et al accelerated in September as urban demand slowed. That said, there indeed are signs of the economy returning to a lower long-term growth trajectory after the one-time boost, post-Covid. But it would be quite off-the-mark to use anecdotal commentary from a few companies to declare an economy-wide consumer distress.