During the March quarter, the demand for daily groceries and essential goods experienced a significant boost of 3.9%, which is the highest it has been in two years. This increase in demand was primarily driven by urban markets, although there was also a noticeable improvement in sales in rural areas.
According to Kantar Worldpanel, a global consumer research firm owned by WPP, the volume of fast-moving consumer goods (FMCG) purchased increased by 2.1% in rural markets and 5.9% in cities compared to the previous year. This data is a stark contrast to a year ago when the overall market experienced a decline of 1.3% during the quarter, with the decline solely driven by a 3.7% drop in urban demand.
“Impact of inflation and monetary tightening on economic growth and demand seems to be slowing down. We are seeing demand slowly starting to come back, especially in India, in places where there is stress,” Sunil D’Souza, Managing Director at Tata Consumer Products, told analysts.
Kantar tracks household consumption and also monitors items from the unorganized sector of the market, especially in large and voluminous categories like staples. The growth during the quarter was led by food and beverages, with wheat flour performing exceptionally well in March.
K Ramakrishnan, South Asia Managing Director of Kantar, said, “This came on the back of households returning to the category after the government stopped the free grains distribution. The growth we witness, therefore at the moment, is not yet holistic.”
To increase volume growth amid easing inflationary pressures, companies have been reversing grammage cuts in the past few months. Furthermore, many companies anticipate a consistent rise in volume-led growth and recovery in rural areas as they consider reducing product prices.
According to Sanjiv Mehta, the Managing Director of HUL, the most significant factor that can boost consumption is a decrease in commodity prices. He emphasized that inflation has a detrimental impact, particularly on individuals from lower economic backgrounds, and a reduction in commodity prices can stimulate consumption. Additionally, Mehta stated that a significant portion of HUL’s growth will be driven by volume.
“In the December quarter, we had 11% price growth, now it is 7%, and in the next quarter, it will go down even more. That’s the whole cycle until it reaches a state of equilibrium, where it will again be about 70% volume growth and 30% price growth”, said Sanjiv Mehta.
