In the April-June quarter, there was a notable 8.5% year-on-year increase in purchases of daily groceries and essential items, marking the highest growth in the past ten years. This surge was driven by a strong recovery in rural markets and a significant rise in demand for various high-volume product categories, particularly atta.
Data from Kantar Worldpanel, a global consumer research firm under WPP, revealed that sales volume for fast-moving consumer goods (FMCG) experienced a 5.3% upswing in rural areas and a remarkable 12% increase in cities compared to the same period the previous year. Notably, urban sales had experienced a decline during that period, making the current growth even more striking. Additionally, consumption in villages also saw a modest growth of 2%.
Kantar conducts an analysis of real household consumption in terms of volume, encompassing both branded and unorganized products, which even includes bulk unpackaged goods. In contrast, Nielsen and Bizom predominantly focus on tracking retail sales and kirana orders, primarily within the branded product segment. It’s important to note that there exists a one-quarter lag between Kantar’s data and the companies’ primary sales figures, as reported by these businesses.
“Since Kantar tracks consumption at the household level and we book sales to our distributors, there is a quarter’s lag in the demand trend. As a result, we could see strong demand in our sales in the July-September quarter. There is a positive sentiment now, with no fear of El Nino due to heavy rains, and we expect volume driven growth going forward,” said Krishnarao Buddha, senior category head at Parle Products.
According to Kantar, atta, being a high-volume and frequently purchased category, holds considerable influence on the FMCG market. Notably, the government’s initiative of providing free food grains also plays a significant role in shaping the overall FMCG data, contributing to the impact of atta on the market trends.
“With the government stopping this scheme in December 2022, we saw shoppers returning in hoards into the atta category again, which is in turn causing serious FMCG growth. During the quarter, this growth is 8.5% and is truly unprecedented in nature, driven largely by urban areas,” said K Ramakrishnan, Managing Director, South Asia, Worldpanel Division, Kantar.
If we exclude atta from the calculation, the FMCG growth stood at 3.7%, as indicated by the same source. This trend aligns with data from Nielsen, which reported a 5% growth in the FMCG sector for the quarter, accompanied by a 2% increase in volume within the rural market.
“With this moderation in inflation, there has been an uptick in volumes in both urban and rural markets, indicating promising signs of recovery in demand,” said Mohit Malhotra, Chief Executive Officer at Dabur. “The recovery is seen in the market per se. It is not just Dabur recovery. Rural business across the board has recovered and there is a volume uptick which is being seen in the rural business.”
Companies noted that several factors, such as retail inflation decreasing to below 5%, a delayed onset of the monsoon, an increase in minimum support prices for kharif crops, and elevated government expenditures, are collectively fostering optimism for a gradual improvement in rural sentiment. The moderation in raw material costs has prompted many companies to reduce their product prices, potentially contributing to a growth trajectory driven by higher sales volume.
“While companies are taking price cuts in reaction to moderating commodity inflation, pricing growth has been tapering off sequentially, and therefore, growth in the coming quarters is likely to be led by volumes,” Saugata Gupta, Managing Director, Marico, told analysts.