Fast-moving consumer goods (FMCG) companies are grappling with inflation, higher input costs, and price hikes, leading to a contraction in gross margins and flat-to-modest operating profit in the October-December quarter.

Several FMCG players, including Dabur and Marico, expect low single-digit revenue growth due to rising costs of raw materials such as copra, palm oil, and vegetable oil.

Rural Markets Outshine Urban Amid Inflation

Despite implementing price hikes to offset inflationary pressures, urban markets struggled with subdued consumption amid high food inflation. However, rural markets, which account for over one-third of the FMCG sector, performed relatively better.

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Dabur’s quarterly update highlighted “low single-digit growth” and “flattish operating profit” due to inflationary headwinds in some segments. The company said that modern trade, e-commerce, and quick commerce saw robust growth, while general trade, comprising neighborhood kirana stores, faced challenges.

Marico, too, expects “modest” operating profit growth, citing higher-than-anticipated inflation in key inputs like copra and vegetable oil. The company reported steady demand trends, driven by improving rural consumption, while urban demand remained stable compared to the previous quarter.

Urban demand remains weak due to inflation, low wage growth, and higher housing costs. It projects this trend to persist for two to three more quarters, while rural demand is gradually recovering, aided by favorable rains and government freebies.

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Rising Costs and Seasonal Challenges

Categories like soaps, snacks, and tea face significant margin pressure due to approximately 30% year-on-year inflation in palm oil and tea. Consumers are increasingly opting for smaller packs, which has negatively impacted sales volumes. Additionally, the late onset of winter dampened demand for seasonal products such as body lotions and Chyawanprash.

Despite current challenges, the FMCG sector remains optimistic about long-term growth, supported by rural resilience and evolving consumer preferences.