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FMCG the shining star facing slump in demand amid decline in rural consumption, By -Sadat Khan

FMCG the shining star of the Indian economy is now under tremendous pressure from last four quarters in a row since Q-2 of FY19 it has declined in terms of both value and volume as most of the consumers are now shifting to low value products in urban India and rural demand is at its lowest level. The sales of the 30 listed FMCG companies, after expanding to 11-13% between the Q-1 to Q-3 of FY19, lost the speed to a 9% growth in Q-4 of FY19 and further declined to 7.3% in Q-1 of FY20.

At overall level revenue of FMCG sector are falling down from 16.2% in Q-2 of FY19 to 10% in Q-1 of current fiscal not only the revenue declined but as per the Nielsen data volume growth has also fallen from 13.4% to 6.2% in the same period. Such major downward decline in both volume and value is mainly because of the decline in consumption of the rural India.

Rural India contributes about 37% of overall FMCG spends and it has historically been growing faster about 3-5% more than urban consumption on account of increasing affordability, availability and demand. Since the consumption expenditure is directly linked to the income of households, especially for the LIG & rural working population which is the majority of the population of India, there wages are on continues decline as unemployment is increasing in rural India.

All the major FMCG giants are losing volume in current fiscal, HUL’s volume growth is declined to 5.5% in Q-1 which was at 10.4% in Q-1 of FY19, Dabur India has registered the volume growth of only 6% in Q-1 which was at 21% in corresponding period last year whereas Merico’s growth is at 7% in comparison with 10.4% in Q-1 of FY19, story is same across the companies be it Britannia, Colgate Palmolive etc. Parle product is the worst hit due to current economic slowdown, their star sku Parle-G has actually declined by 7% and other premium product’s growth rate has declined to 8%-9% from 25%. Parle-G is more popular in LIG and rural India so sales of Parle-G is more sluggish as rural India and LIG are worst hit due to economic slowdown of country.

If Govt really want to support the consumption of FMCG sector they have work on improving the income of LIG & rural India.

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