The effects of the August drought are making their presence known on corporate financial statements.
Downtrading, the trend in which consumers transition from larger product packages to smaller ones due to financial strain or rising inflation, has intensified within the fast-moving consumer goods (FMCG) sector. According to information from the retail intelligence platform Bizom, smaller product packages have experienced more significant growth compared to medium or high-priced ones across a wide range of FMCG categories. The data from Bizom also indicates that overall sales witnessed an approximately 11% decline in August 2023 compared to the previous year.
According to Akshay D’Souza, the Chief of Growth and Insights at Bizom, the shortfall in rainfall during August seems to be contributing to the increasing prevalence of the downtrading trend.
Procter & Gamble Hygiene and Health Care’s VP (finance) Gautam Kamath said, “Retail inflation for the months of July and August have averaged 7% and August rainfall has shown an 11% negative deviation from norm, driving the caution. On anecdotal evidence, September rainfall appears to have bounced back – and might have a big say in how the rest of the year goes.”
He informed analysts that P&G holds a “guardedly positive” perspective regarding the market’s growth outlook.
Usually, prominent FMCG companies provide products at various price points to ensure that consumers can find options within the company’s product range.
At P&G’s first investor meeting conducted recently, MD L V Vaidyanathan emphasized the company’s ongoing commitment to setting higher standards of excellence across all competitive price tiers.
“We are leveraging this superiority to grow markets and, as a result, P&G’s share to sustainably build the business. Noticeable superiority is increasingly important in an inflationary environment, as consumers reassess value across all elements of their budget,” said Vaidyanathan.
According to the data, beverage sales for mid-priced packs dropped by 9.8%, while sales for lower-priced packs increased by approximately 6% (refer to the graphic). Similarly, in the branded commodities category, sales declined by 9% for mid-priced packs, but lower-priced packs experienced a growth of 7.7%. Within the personal care sector, consumers shifted from high-value packs, resulting in an 8% decrease, to mid-priced packs, which saw an 8.5% growth.
Bizom reported that the advent of the festive season led to a reversal of the trend, particularly in the confectionery and packaged foods sectors.