Rural revival to boost FMCG growth in Q1
Nielsen said the industry will grow this year on account of a good monsoon forecast and with manufacturers passing on savings from GST rate cuts to consumers.
Nielsen said the industry will grow this year on account of a good monsoon forecast and with manufacturers passing on savings from GST rate cuts to consumers. A higher minimum support price announced by the government for the kharif crop is expected to give a fillip to rural disposable incomes and would boost consumption in the countryside.
In the first half of 2017, shipments had witnessed a sharp dip after demonetisation and in the run-up to the GST implementation. However, retail sales remained buoyant as trade pipeline catered to consumer demand. Last year’s retail sales estimates by Nielsen were amplified due to the low base of 2016.
“Now we are witnessing a reverse cyclical trend, when shipments are clocking high-growth trajectory in the first half of 2018, over low shipment levels of last year. On the other hand, baseline level is not a factor for Nielsen-estimated retail sales. The trend of high shipment growth and relatively lower retail sales growth is likely to continue in April-June 2018 quarter,” Nielsen said.
Specific retail patterns that have emerged include the revival of rural markets, which had slowed down in 2017, a significant growth gain in modern trade channels, which are performing better than general trade, a bounce back in growth for small FMCG makers and a resurgence in consumer demand for premium products.
Dabur India CFO Lalit Malik said, “Good monsoons have a positive impact on consumer sentiments and particularly rural demand, though with a lag effect. If the spread and intensity of rains is good, overall sentiments would improve. With the forecast of normal monsoons this year, coupled with GST stabilising, we do expect demand to accelerate and grow at a steady pace.”
Another report that validates a revival in fortunes for the FMCG sector is a recent one by Crisil, which sees revenue growth in the Rs 3.4-lakh-crore FMCG sector rising 300-400 basis points (100 bps = 1 percentage point) to approximately 11-12% in fiscal 2019 from 8% in fiscal 2018. This, too, is expected to be driven by the revival in rural demand and new product launches.
According to Nielsen, FMCG consumption witnessed a near 14% growth in moving annual total till March 2018 versus the previous year. The industry grew about 11% in January-March 2018 over same quarter of 2017, with rural growth picking up at a little less than 14% in Q1 as compared to urban growth of 10%.
Consumer inflation led by crude oil prices, however, continues to be a concern, growing at a higher-than-anticipated 4.6% in April 2018 versus the previous year.