India’s packaged consumer goods sector saw a remarkable 9% increase in value and an 8.6% rise in volume during the September quarter compared to the previous year. This growth can be attributed to higher spending in rural India, encompassing both essential and discretionary products, according to research conducted by NielsenIQ. Factors contributing to this growth include moderating inflation, a decline in unemployment rates, and reduced LPG prices. However, experts are cautious, emphasizing the need to assess whether this trend will continue beyond the festive season, with much depending on agricultural output.
“With kharif output to be sub-optimal, I believe revival cannot be taken for granted,” said Madan Sabnavis, chief economist, Bank of Baroda.
This follows four consecutive quarters of sluggish growth in rural markets, where there was a decline of 2-5%. During this period, consumers had been either opting for downtrading (purchasing lower-priced products) or reducing their overall consumption of goods, influenced by the sharp increase in food and fuel prices.
Roosevelt D’Souza, the head of customer success at NielsenIQ, expressed that the “renewed optimism” bodes positively for the ongoing festive quarter, encompassing both urban and rural markets.
“We see recovery in habit-forming categories such as biscuits, tea, noodles and coffee after five quarters,” D’Souza said.
He mentioned that the rise in consumer expenditure on non-essential categories like personal care and home care products indicates that rural consumers are starting to extend their spending beyond essential necessities.
“We are increasingly optimistic of the future as we are seeing green shoots of recovery in rural sentiments; the gap between rural and urban growth has declined,” said Mohit Malhotra, chief executive of Dabur, for which 48% annual sales come from the hinterland.
The company behind Real juice and Vatika shampoo has announced its investment in distribution infrastructure and brands, with the aim of achieving growth driven by increased volume and profitability. Furthermore, it plans to expand its reach in rural areas, extending coverage to 110,000 villages, up from 100,000 in the previous year.
Over the past six quarters, the FMCG sector has experienced a period of substantial growth primarily driven by price increments. This growth was accompanied by a notable pressure on volumes due to the persistent surge in inflation. However, the recent easing of commodity prices has instigated a change in this trajectory.
India’s rural areas, vital for the overall health of the fast-moving consumer goods (FMCG) sector, account for more than a third of its total sales. In a sequential analysis, rural markets have exhibited a growth of 6.4% in volume, compared to the 4% growth observed in the preceding June quarter. NielsenIQ, recognizing enhanced consumption patterns across the nation, reported that urban India continued to experience growth in both volume and value, while rural markets displayed signs of recovery. Economists emphasized the importance of monitoring the continuity of this trend.
“Most of the lead indicators right now are pointing towards rural demand picking up. But we have to look beyond the festive demand,” said Upasna Bhardwaj, chief economist, Kotak Mahindra Bank. She noted that urban consumption had held up and that rural demand is picking up. While India’s unemployment rate had dropped to 7.1% in September, it increased again in October to over 10%, according to data from the Centre For Monitoring Indian Economy.
Sunil D’ Souza, managing director at Tata Consumer, which makes Tata Tea and Soulfull breakfast cereals said, “We expect rural demand to further stabilise in the festive quarter, aided by deeper distribution and sops like MNREGA.”
In September, India’s retail inflation reached a three-month low, driven by a decrease in vegetable prices, while food inflation dropped from 9.94% in August to 6.56% in September.
The growth was also credited to the expanding reach of goods through channels like modern trade and e-commerce, making products more widely accessible. NielsenIQ reported that modern trade channels, including organized large-format superstores, experienced substantial double-digit growth in the quarter, with a 19.5% increase. Meanwhile, traditional trade, represented by neighborhood stores, which account for the majority of packaged consumer goods sales, also saw growth at 7.5% in the September quarter.
Packaged foods and non-food items both saw a year-on-year growth of 8.7%. The expansion in the food category was primarily propelled by impulse items, including salty snacks, chocolates, confectionery, biscuits, and tea.
Manish Aggarwal, director at Bikanervala Foods, said, “We are observing a significant shift in consumer confidence and purchasing power.”
He mentioned that the company, known for its production of packaged snacks and sweets, has established a new facility in Greater Noida. This strategic move aims to efficiently address the increasing demand, lower transportation expenses, and ensure prompt delivery to tier 2 and 3 cities, as well as rural markets.
NielsenIQ noted that smaller, regional companies are maintaining a quicker growth pace in non-food categories when compared to national players, a trend that has also been acknowledged by consumer goods companies.