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  Business   In Other News  18 Oct 2019  Slowdown in rural market halves FMCG growth, slips to 7-year low

Slowdown in rural market halves FMCG growth, slips to 7-year low

THE ASIAN AGE. | SANGEETHA G
Published : Oct 18, 2019, 2:20 am IST
Updated : Oct 18, 2019, 2:20 am IST

In September quarter, FMCG market clocked a value growth of 7.3 per cent, down from 16.2 per cent in the same quarter of 2018.

Value growth in Fast Moving Consumer Goods market has dropped to single digits in September quarter as rural growth fell below urban for the first time in seven years, according to Nielsen.
 Value growth in Fast Moving Consumer Goods market has dropped to single digits in September quarter as rural growth fell below urban for the first time in seven years, according to Nielsen.

Chennai: Value growth in Fast Moving Consumer Goods market has dropped to single digits in September quarter as rural growth fell below urban for the first time in seven years, according to Nielsen.

In September quarter, FMCG market clocked a value growth of 7.3 per cent, down from 16.2 per cent in the same quarter of 2018.

According to Nielsen, the growth trend continues to be dampened by the drop in consumption which has moved to 3.9 per cent, down from 13.2 per cent in Q3’2018. However, price led growth sustained at 3.4 per cent.

The main cause of the slowdown was rural growth, which for the first time in seven years dropped below urban. Rural was growing at 5 per cent in Q3’2019, which is one-fourth as compared to 20 per cent in Q3’2018. Meanwhile, urban market too was growing slower at 8 per cent as against 14 per cent in Q3’2018.

Rural India contributes 36 per cent to overall FMCG spends and has historically been growing around 3-5 per cent points faster than urban. This has been on account of increasing affordability, availability and conversion of commodity to branding resulting in higher demand. However in recent times, rural growth was seen slowing down at a much faster rate compared to urban.

Growth in Q3’2019 sales per store in rural areas shrunk one-fourth of Q3 2018 which reflects a significant drop in demand among rural consumers. In addition, rural distribution growth continued to inch downwards, said Sunil Khiani, Head — Retail Measurement Services — Nielsen South Asia.

Small manufacturers have seen the biggest drop in cumulative distribution growth where it has moved from 18 per cent in 2018 September quarter to no growth in Q3’2019. Large manufacturers’ cumulative distribution growth has halved.

Small players account for nearly one-third of the sales in rural India as they provide better value for money offerings.  The growth rate for small manufacturers has slumped by 23 per cent. Small player exits have increased by 33 per cent and new entrants in the market have fallen owing to strong inflationary pressures and increasing input prices.

FMCG growth generally moves in the opposite direction of inflation trends. Inflation has already touched the 4 per cent in September 2019 from a low of 1.9 per cent in January 2019. Rural inflation is touching 3.2 per cent from a low of 1.3 per cent as of January 2019. Lower GDP growth and growth forecast too have an impact on FMCG.

Nielsen expects FMCG value growth in Q4 2019 to be in the 6.5 — 7.5 per cent range. ‘However we are now finally seeing early signs of the declining trends being arrested. The growth forecast for Q1 2020 (Jan-Mar 2020) stands in the range of 7.5 — 8.5 per cent,’ said Khiani.

Tags: fmcg growth