Fast-moving consumer goods (FMCG) have observed a marginal uptick in sales volume growth, as highlighted by Varun Berry, executive vice-chairman and managing director of Britannia Industries, India’s largest biscuits maker. However, Berry cautioned that several extraneous factors could potentially impact the future demand outlook. “We constantly monitor input costs & competitive pricing activities in order to take appropriate decisions,” he said in a recent interview.
On Tuesday, Skymet, a private forecasting agency, forecasted a regular monsoon for the year ahead. This announcement has boosted hopes for agricultural productivity and rural consumption, both pivotal for the continuous growth of the FMCG sector. The previous year witnessed inconsistent monsoon patterns, characterized by below-average or erratic rainfall. Given that rural areas in India account for approximately 40% of annual FMCG sales, a normal monsoon is crucial for sustaining market vitality.
“A regular monsoon will be a boon for the rural economy, which has lagged behind urban growth for more than a year,” Berry remarked. He warned about the potential impact of variable rainfall across different regions on crop yields. Britannia’s product portfolio predominantly caters to urban areas and is 1.3 times larger than its offerings aimed at rural consumers. Alongside popular biscuits like Good Day, Jim Jam, and NutriChoice, the company, promoted by Nusli Wadia, also manufactures a range of products including cheese, croissants, cakes, and bread.
Continue Exploring: Good monsoon, improved macro indicators to drive consumer demand for FMCG products
Companies are also banking on the upcoming Lok Sabha elections, set to begin next week, to stimulate demand, anticipating an increase in market liquidity.
“Political stability and the government’s ongoing investment in both digital and physical infrastructure over the years bode well for the economy,” Berry said. “We expect an upward trend in spending as elections approach.” Britannia has dramatically increased its capacity in recent quarters, utilising a mix of new greenfield facilities and additional production lines in existing factories. Berry underlined that these investments put the company in a solid position to handle any sales increase.
He stated, “Our commitment remains steadfast in innovating and investing in our brands to stimulate demand in crucial categories and regions, all while maintaining a keen eye on cost efficiencies.”
Nonetheless, controlling inflation will also be pivotal for stimulating demand, as companies navigate between safeguarding margins while facing competition from lower-priced regional competitors, particularly in categories like biscuits, tea, and laundry.
Continue Exploring: Rural FMCG sales outpace urban growth for first time in three years, signaling demand recovery
Berry noted that due to government interventions aimed at enhancing price accessibility, sugar prices are anticipated to remain stable. However, certain other commodities essential to Britannia’s operations continue to face inflationary pressures. “Considering the average wheat crop & lower-than-normal govt buffer stocks, we expect inflation in flour prices,” he went on to say. Despite significant fluctuations in cocoa prices, the company’s reliance on cocoa remains limited.
In the March quarter, companies reduced prices to reflect the easing of some commodity costs, although these costs have reverted to inflationary trends in April.
Britannia’s consolidated net profit fell by 40.4% year-on-year to INR 555.6 crore for the December quarter, primarily due to subdued rural demand and price adjustments made to counter regional competitors. Additionally, its fiscal third-quarter profit declined, influenced by a one-time gain in the corresponding quarter of the previous year. Despite this, FMCG companies have observed signs of recovery in sales of essential daily items and staples in Indian villages during the March quarter. This resurgence follows a period of sluggish performance throughout most of last year, attributed to increased food and fuel prices, as well as erratic rainfall affecting demand in rural areas.
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