FMCG Industry Faced Consumption Slowdown in Urban Markets, Degrowth in Rural Areas in 2021
FMCG Industry Faced Consumption Slowdown in Urban Markets, Degrowth in Rural Areas in 2021

The Indian FMCG industry has witnessed a consumption slowdown in urban markets and de-growth in rural areas in 2021, as the sector was hit hard by higher inflation levels forcing companies to go for successive price increases. 

In 2021, the FMCG industry had to go for double-digit price growth in three consecutive quarters to protect its margins, which converted into a price-driven growth of 17.5 percent in comparison to a year ago in 2020, according to data analytics firm Nielsen.

“The fourth quarter, the country's macroeconomic factors continued to witness softness, and there is a long-term impact because of global inflationary pressure," said Diptanshu Ray, Cluster Lead – South Asia, NielsenIQ. 

Also, even in the October-December (Q4/2021) quarter, the FMCG industry has witnessed a consumption de-growth of 2.6 percent due to inflationary pressure, and other macroeconomic factors, the report stated. 

"Within this environment, the calendar year has seen a double-digit growth, though there has to be a watch out for continued consumption degrowth impacted by price increases," Ray further stated. 

"Higher inflation levels during 2021 have led to three consecutive quarters with double-digit price increase resulting in consumption slowdown in urban markets, and consumption degrowth in Rural markets," the report added. 

READ MORE: How India's FMCG Sector Can Sustain Growth and Continue Scaling

The rural market contributes around 35 percent of the total FMCG sales. After the second wave, it was hit hard and several FMCG companies including the market leader HUL in their recent quarter results for the October-December period reported negative volume growth in rural markets.

Moreover, price rise continues to impact small manufacturers, where the number of small manufacturers, having a turnover below Rs 100 crore dropped by 13 percent largely due to the difficulty of continuing operations with higher costs, the Nielsen report said.

However, large and medium manufacturers stayed stable through the year, according to the report. 

In the last two years, 8 lakh new FMCG stores were added and more than half of that has come into the rural area. This pace of opening new stores is more than double of the pre-COVID years.

"The Metro-India retail store universe also grew with newer stores opening up in residential areas, to cater to consumers who were homebound for nearly two years," it said.

During the October-December quarter, rural markets continue to bear the brunt of price increases.

"The resulting consumption slowdown continues to be more accentuated in rural markets with (-) 4.8 percent consumption degrowth, while urban markets are comparatively better at (-) 0.8 percent.

"Traditional trade in both urban and rural markets has seen a (-) 4.8 percent volume degrowth that is leading the overall slowdown," it said.

Categories like staples or OTC (over-the-counter) have seen high price increases in the last two quarters, leading to larger price growth in rural markets and, hence impacting the volumes, said the report. And, modern trade has maintained 5.6 percent volume growth during the quarter helped by open markets and an uptick in consumption in the festive season, while e-commerce grew at 15.3 percent.

Stay on top – Get the daily news from Indian Retailer in your inbox
Also Worth Reading