Sales of groceries, household, and personal care items increased by 2% in value in 2023, a notable deceleration from the 7% growth observed in 2022. On the other hand, sales stagnated for non-essential products like smartphones, refrigerators, and televisions, experiencing a decline in volume growth ranging from 2% to 5%.
In the realm of fast-moving consumer goods, a substantial reduction in the price of edible oil negatively influenced value growth. The combination of a cooler summer and irregular rainfall had repercussions on both beverages and food sectors, while rural markets continued to face challenges due to inflationary pressures.
During the October-December period, value sales experienced a decline of 4.5%, as reported by Bizom, an analytics firm that analyzes data derived from orders at approximately 7.5 million kirana stores.
“After hiking prices 20-25% in 2022, most companies partially rolled them back, (cutting them) by 12-15%, which affected value sales even as demand, or volumes, came back towards the last few months of 2023,” said Mayank Shah, vice-president, Parle Products. “Monsoon, especially in populous, rural-dependent states such as Bihar and Uttar Pradesh, was sporadic, which impacted sales.”
“We see price-offs or grammage increase in most categories that is boosting volume growth, and expect value growth to come back post April due to better crop yield and election spending,” said Shah of Parle.
FMCG Companies’ Strategy: Volume-Led Growth
Companies such as Dabur, Marico, and Godrej Consumer indicated in their quarterly earnings updates that the primary driver of growth was volume, as pricing expansion remained restrained due to price increases in the base year.
For instance, Adani Wilmar reported its best-ever volumes during October-December, attributed to the festive and wedding seasons; however, the company experienced a 15% decline in revenue.
Similarly, Dabur noted that the quarter showed a sequential improvement in demand trends, albeit with rural growth still trailing behind urban areas.
“Early signs of revival in consumption are visible, with improving trends in volumes,” the company said in its update. “With pricing growth remaining subdued due to price increases in base year, growth is largely volume-led.”
During the calendar year, the most substantial decline was observed in the beverages category, marking an 11% decrease, followed by personal care and commodities. While most categories demonstrated improvement in the third quarter, the sales of commodities worsened, experiencing a 17% decline by value.
“Fast-moving consumer goods (FMCG) growth for the last few years has been driven by rural areas, seeing an increase in direct distribution and focus on rise in product availability from many leading brands,” said Akshay D’Souza, chief of growth and insights at Mobisy Technologies, which owns Bizom. “However, we see that rural consumers continue to spend lower on discretionary products and continue to focus on need-based products.”
There is significant momentum for regional brands in snacks and biscuits, as they aim to expand their reach and shift their focus to new geographic areas, he mentioned.
“Large, organised players have been squeezed a bit from both ends – regional and unbranded players in rural and D2C, and new-age players at the premium end,” Marico managing director Saugata Gupta said last month. “We feel the market will start showing good volume growth by the next two quarters, fuelled by rural recovery and pricing action by large players, which has already taken place. The economy is stable and inflation is getting under control.”
In the more expensive consumer categories like smartphones, refrigerators, and washing machines, volume sales experienced a decline of 2-6% in calendar year 2023. However, in terms of value, they either marginally grew or remained steady. This was driven by increased sales of premium products, as reported by industry executives referring to initial data from market researchers and their own estimations.
“There is no improvement in the overall demand scenario yet,” said Godrej Appliances business head Kamal Nandi. “Consumers with higher discretionary income are buying premium products, which is a saving grace for the industry. But we expect a recovery in calendar 2024, with inflationary trend further reducing, and a harsh summer (ahead).”
Executives mentioned that the average selling price (ASP), serving as an indicator of premiumization, increased across all categories.
Despite a decrease in volume sales in 2023, the performance is an improvement compared to 2022. To illustrate, in 2022, the smartphone market witnessed a decline of 9%, as reported by tracker Counterpoint Research, in contrast to a milder drop of 2% in 2023.
Tarun Pathak, the director at Counterpoint Research, anticipates a comprehensive recovery in mobile phone sales. He foresees this rebound as the prices of 5G devices continue to decrease and penetrate the lower pricing tiers. The researcher projected a decline in smartphone volumes to 150 million in 2023, down from 152 million in 2022 and 169 million in 2021.
In the period from January to October, smartphone unit sales saw a 2% decline, yet exhibited a 9% improvement in value, attributed to an 11% growth in Average Selling Price (ASP), according to GfK data. Cooling products experienced a 6% decrease in volume and a 4% decrease in value, whereas microwave ovens declined by 7% in both volume and value. Televisions stood out as an exception, with a 2% growth in volumes, though the value declined by 7% due to a decrease in prices, as reported by GfK.
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