By Shubhra Tandon & Kritika Arora
Fast moving consumer goods and durable companies are hoping that the emerging trend of cooling down of commodity prices stabilises, leading to a resurgence of demand, during the second half of the year, which also coincides with festival season.
“We estimate second half of the year to be better than first half as we are projecting inflation to be controlled and commodity to soften. We anticipate that consumers who are postponing purchases now are expected to buy during festive season and therefore outlook for the upcoming festive season is positive,” Kamal Nandi, business head and executive vice president, Godrej Appliances, told FE.
“At Godrej Appliances we have currently cut production by 20-25% over the original plan and these cuts will continue till August since inventory has piled up. A lot will depend on how inflation will be controlled but expectations are positive on improvement in discretionary spending,” Nandi added.
The view was echoed by Akshay D’Souza, chief of growth and insights at consumer data intelligence firm Bizom, who said, “With a definitive drop in prices of edible oils and fuel already, we see an uptick in purchase of commodity products and we see a higher share of high value packs among these. This drop in input costs will definitely help brands refocus on consumption led growth rather than the current drive towards price-led growth only”.
Avneet Singh Marwah, chief executive officer, SPPL, which is the exclusive brand licensee of Thomson in India also agrees. “Volume growth in June seems to be flat but for next quarter, we have high hopes. Sales may start to pick up due to festive season when brands give best of offers,” he said.
During the first quarter, high inflation hurt consumer sentiment, leading to substantial decline in demand, companies said. While in certain categories of FMCG products, consumers downtraded, they postponed purchase decisions for durables like air conditioners, refrigerators, and televisions.
In the month of June, for instance, FMCG sales value growth was still -0.9% on a month-on-month basis, though witnessing an improvement from -16.5% in May, according to Bizom.
According to Axis My India, another consumer data intelligence consultancy, there has been a 4% decline in sales of essentials which it categorises under personal care and household care products in the month of June versus May, while the non-essentials like air conditioners, refrigerators etc have seen a steeper decline of 24% month-on-month.
The commentary from FMCG companies for the quarter gone-by is also not encouraging. Parle Products is expecting to report a single digit volume growth this year versus double digit growth in FY22. Mayank Shah, senior category head, Parle Products said, “There is pressure on volumes as we have taken two to three price hikes in the last one year. Last year we reported 11-12% volume growth, this year we are talking about 3-4%”.
Godrej Consumer Products (GCPL) said in its quarterly updates on Wednesday that the Indian FMCG industry continued to remain soft during the April-June quarter. “It continued to be hit hard by inflation levels aggravating due to geopolitical tensions, leading to successive price increases and impacting volumes. Rural markets witnessed slower growth compared to urban,” the company said.
Companies have also highlighted that their volumes have continued to decline in the first quarter. Marico, for instance said that India business volumes declined in mid-single digits during the quarter, particularly dragged by a sharp drop in Saffola Oil. GCPL also that it would have mid-single digit volumes drop on a high base.
“Current trends indicate that consumers titrated consumption in some non-essential categories and either downtraded among brands or switched to smaller packs in the essential categories,” Marico said in its quarterly updates.
Dabur India said, “The consumption pressure continued across the sector on account of unprecedented inflation which has impacted the share of the income available for spending on consumer staples. This was witnessed across urban and rural markets”. The company is expecting single digit revenue growth this quarter compared with 35.4% in Q1 FY22.
According to a June report by Kantar, the meteoric price rises have squeezed FMCG consumption across all categories in India. Categories that have seen consumption shrinking include atta (wholemeal wheat flour), edible oils, hand wash, floor cleaners, hair oils and detergent bars. “Together they contribute 65% of all FMCG volume sold. Atta and edible oils alone contribute nearly 45% of FMCG volumes – meaning that anything that happens to these categories has a significant impact on FMCG numbers as a whole,” the consulting firm said.
After growing 8% between February and April 2021, edible oils managed to grow just 1% in the same period this year. Atta declined by 30%, as a result of the distribution of free wheat and atta by the government, it noted.