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After two years of robust growth led by higher prices, India’s consumer packaged goods industry could finally catch its breath in 2024, as clouds cloud over the consumer sector.
After two years of robust growth led by higher prices, India’s consumer packaged goods industry could finally catch its breath in 2024, as clouds cloud over the consumer sector.
Makers of soaps, shampoos, biscuits and drinks can grow between 4.5% and 6.5% in value terms this year, said market researcher NielsenIQ (NIQ), well below the 8.4% in 2022 and 9.3% in 2023. Nielsen, which follows a calendar year, did not share its outlook on volume growth.
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Makers of soaps, shampoos, biscuits and drinks can grow between 4.5% and 6.5% in value terms this year, said market researcher NielsenIQ (NIQ), well below the 8.4% in 2022 and 9.3% in 2023. Nielsen, which follows a calendar year, did not share its outlook on volume growth.
In the December quarter, the consumer goods industry recorded 6% year-on-year (y-o-y) growth in value terms, driven by a 6.4% rise in volume. However, both volume and value growth fell sequentially during the quarter. The trend was seen in both urban and rural markets, where volumes grew year-on-year but declined sequentially.
“There is a definite slowdown,” said Krishnarao Buddha, senior category head of marketing at Parle Products. “Both rural and urban markets have slowed down. The errant monsoon in select geographies due to El Niño has impacted the slowdown in consumption. There is also a post-covid normalizing effect,” Buddha said.
The projected moderation in consumer goods growth is in line with the government’s estimate of slower household consumption growth this year. The government estimates that private final consumption spending, which represents 60% of GDP, will grow 4.4% in the current financial year, compared to 7.5% in the last fiscal year. Factory production figures also showed that in the April-November period, production in the consumer non-durable sector expanded by 5.6% on a low base.
According to NIQ, while urban volumes increased by 6.8% year-on-year in the December quarter, rural volumes increased by 5.8%, the latter reflecting a sharp change from the year-ago period, when they fell by 2, 8%. On a quarter-on-quarter basis, rural volumes declined marginally, while urban volumes recorded a steeper decline.
NIQ, however, said its outlook reflects the industry’s ability to “navigate the complexities and adapt to changing market dynamics.”
“The continued strength of the consumer goods sector underlines its importance in the Indian economy and its ability to thrive despite external pressures, offering promising opportunities in the future,” he said.
Market analysts were not very impressed with the findings. “Overall sector growth continues to decline and price growth becomes negligible. Urban growth has moderated and is now growing 1.2 times rural growth. Low base contributes to non-food volume recovery, while food categories are seeing moderation in volume growth. Channel growth has moderated but modern trade continues to register healthy growth,” said Nitin Gupta of Emkay Global Financial Services.
The figures also reflect a narrowing gap between urban and rural growth.
“For the first time in 2023, consumption gaps between urban and rural markets are narrowing. The North and West regions contribute to this phenomenon. The favorable interim Union Budget for 2024-25, which supports several economic drivers for the rural sector, should augur well for companies with a rural strategy. Despite a sequential quarterly decline, the rural recovery narrative continued to evolve throughout the year,” said Roosevelt Dsouza, Head of Customer Success, India, NIQ.
The pandemic and inflation in recent years led companies to raise prices, increasing income. This has decreased as companies reduced prices to sell more. For example, Hindustan Unilever Ltd (HUL) has reduced prices of soaps and laundry products over the past few quarters to boost demand.
Demand in the December quarter was led by higher demand for “habit-forming” categories, such as biscuits and noodles, in food and household essentials. These categories have thrived despite stable to negative price growth, indicating resilience and sustained demand, NIQ said. Dsouza.
Packaged foods recorded volume growth of 5.3% year-on-year in the December quarter, down from 8.7% in the September quarter. This was largely due to a slowdown in demand for commodities such as refined and unrefined edible oil, as well as impulse categories such as confectionery.
Within non-food categories, NIQ reported an improvement in demand led by detergent tablets and bars, washing powder and toilet soaps, especially in rural areas. However, in urban markets, demand for non-food products declined sequentially.
Experts attributed the weakness in household consumption to inflation-adjusted wage growth at the base of the pyramid, which fluctuates between contraction and lower growth depending on the level of inflation. When wage growth remains below expectations, people dip into savings, borrow or consume less, experts said.
“There is tension in the rural economy. Government interventions are needed,” said Devendra Kumar Pant, chief economist at India Ratings and Research (Fitch Group).
Pant explained that a one percentage point increase in rural wages translates into 112 basis points in PFCE or 64 basis points in real GDP growth. A one percentage point drop in inflation will have a favorable impact on consumption, Pant added.
Adding to the rural economy’s woes this year is the erratic monsoon, with agricultural output growth expected to slow to 1.8% from a 4% expansion in the last fiscal year. In an interview with Mint on Saturday, Finance Minister Nirmala Sitharaman indicated that she was prepared to address any possible impact of moderation in agricultural production on the rural economy. “If the issue arises, I will address it,” Ella Sitharaman said.
Meanwhile, consumer goods companies had a mixed quarter.
Rohit Jawa, CEO and CEO of HUL, said demand trends for consumer goods remained largely stable and similar to the last quarter. “While market volumes grew in the high single digits year-over-year, this occurred in a base period in which volumes declined in the mid-single digits,” he said during the company’s post-earnings conference call last month. .
Consumer goods major Marico said the operating environment in the December quarter was “largely in line” with that of the previous quarter, with a more noticeable pick-up in consumption. The pace of recovery in consumption was not along the “foreseen lines,” the company’s management said. during a post-earnings call late last month. The company is “optimistic” about a gradual rebound in consumer trends over the next calendar year.