India’s FMCG Sector To Return To Double-Digit Growth This Year, Says NielsenIQ
NielsenIQ estimates the FMCG sector to grow 8-10% for the full year despite inflationary pressures.
India’s fast-moving consumer goods industry will return to double-digit growth in 2022, according to NielsenIQ, driven by the festive season, consumer confidence and an expected recovery in rural demand.
The market research firm estimates the FMCG sector’s value growth—a combination of volume and price-led expansion—at 8-10% for the full year despite inflationary pressures.
“The first half of the year had an 8% value growth, which indicates an overall positive outlook for January-December 2022. As we have seen historically, the second half of the year will be driven by the festive season, and normal monsoons that will give the necessary push to consumption patterns for the sector,” said Rajesh S Shirali, data science market and client engagement lead at NielsenIQ India.
Consumption Recovery Supports Forecast
The FMCG sector grew at 10.9% in the April-June quarter against 6% value growth in the three months to March.
Volumes continued to fall sequentially, albeit at a slower pace, on account of a drop in average pack size growth. Volumes fell 0.7% in Q2 CY22 compared with a decline of 4.1% in Q1, according to NielsenIQ data.
Unit growth—the extra number of units of a product sold over a given period of time compared to the same period a year ago—came at 8.9% in the quarter ended June against 1.5% in the previous three months, indicating that consumers are buying smaller packs but more units.
While volumes in urban markets grew at 0.6%, that in rural markets contracted 2.4% for the quarter ended June.
“Overall, this quarter saw a consumption revival across categories in FMCG, primarily led by a jump in unit growth,” said Satish Pillai, managing director (India), NielsenIQ. “This beats the last two quarters of consumption decline and highlights the onset of cautious optimism among consumers.”
Consumers Switch To Small Packs
The average pack size growth fell to 8.8% in Q2 CY22 from 5.5% in Q1.
To quantify the trend, NielsenIQ analysed grammage reduction for price packs in key categories, contributing 31% to total FMCG value, across food and non-food segments. It found a continuous drop in grammage for the same price packs across many categories, according to its latest report.
The companies have little choice to tinker with the Rs 2 shampoo sachets. So, their grammage remained at same levels for the last seven quarters. Ditto with hair oils. The grammage for a Rs 10 pack was increased from 27 gm in Q3 2019 to 29 gm in Q2 2020. It remained same for the next six quarters before slightly increasing it to 30 gm in Q1 2022. But sustained inflationary headwinds prompted firms to lower it to 29 gm in Q2, according to the report.
“Within both foods and non-foods, there is a drop in average pack size growth and consumers continue to prefer smaller packs which is evident by the high unit growth,” Sonika Gupta, customer success lead (India), NielsenIQ, said. “Grammage reduction is also a catalyst for this behaviour to a great extent. Manufacturers and retailers must keep an eye on the changing consumer preferences and manage their portfolio accordingly by ensuring availability of small packs in maximum stores.”
Small Manufacturers Back In Business
Small manufacturers, or those with less than Rs 100-crore turnover, registered volume growth of 1.8% in Q2 CY22 against an 8.5% decline in Q1.
Their growth was primarily driven by food at 5.6% in Q2 against 5.5% in the previous quarter. Non-foods’ volume contracted 13.8% in Q2 against a contraction of 20.4% in Q1, said NielsenIQ.
A decline in volumes also continued for medium and large manufacturers.
Overall, volumes in the food segment grew 1.8% in Q2, driven by the impulse category that includes items such as chocolates and salty snacks.
Volumes of the non-foods category contracted 6.4% in Q2 against a contraction of 9.6% in Q1, according to NielsenIQ data. Within this, non-essential personal care items such as perfumed deodorant and cologne saw over 40% volume growth, buoyed by the summer season and consumers heading out for work and entertainment as they get back to normal routines. Categories like skin creams, coconut oil, hair dyes, talcum powder also reported positive volume growth over the year earlier.