Dip in rural demand to slow FMCG growth in 2019: Nielsen
The FMCG growth rate for the first half of 2019 is around 12 per cent, which is lower than the previous forecast of 13-14 per cent, the report by data analytics firm Nielsen said.
Lowering the growth forecast for the year, Nielsen said FMCG growth for the first half of 2019 stands at 12% against its earlier prediction of 13-14%. "Based on an analysis of key factors, a revised forecast for the year-end of 2019 estimates all-India FMCG growth to be in the 9-10% range," Nielsen South Asia head of Retail Measurement Services Sunil Khiani said. Within this, food categories are expected to grow 10-11%, while personal care and home care are expected to grow 7% and 8% respectively.
"At the beginning of the year we saw softening driven by essential and impulse food categories; however, this quarter has witnessed a slowdown across all food as well as non-food categories with salty snacks, biscuits, spices, soaps, and packaged tea leading the slowdown," Khiani said.
Nielsen named four key factors impacting growth: macroeconomic, government policies, monsoons and a low base effect. "There is a looming concern on increasing inflationary pressure which was at 1.9% at the beginning of the year and has already moved up to 3.18% in June this year," he added.
The Nielsen Retail panel data outlines two key contributors to the overall slowdown in FMCG - rural growth losing steam and fading advantage of small manufacturers.
"The FMCG growth trend is dampened by volume led growth which has moved 3.6% points down from 9.9% in Q1’19 to 6.2% in the second quarter of the year," it said.
Rural India contributes to 37% of overall FMCG spends and has historically been growing around 3-5% points faster than urban on account of increasing affordability, availability, and demand. However, rural growth is slowing down double the rate of urban in recent quarters.This has brought rural growth closer to urban growth in Q2’19, according to Khiani.
Nielsen also said the degree of decline in growth for small manufacturers post the Goods & Services Tax (GST) implementation has resulted in an overall contribution of 50% to India’s slowdown story.
The market researcher further said the slowdown is driven by the north and west zones, where growth has come down to single-digits in Q2’19. Haryana, Madhya Pradesh, Uttar Pradesh, Maharashtra, and Assam are leading the slowdown. It said the rural slowdown in these markets is reiterated in key macro economic indicators including slowdown in rural output, reduced government spending and untimely rain impacting crops in most North Indian markets.