Behind slow-moving consumer goods
Mains Paper 3: Economy
Prelims level: FMCG
Mains level: Slowdown in the FMCG companies
- A lot has been written about why automobile sales in the Indian economy
have been skidding lately.
- While it is easy to understand why consumers may hold back on big-ticket
car or SUV purchases when faced with slowing credit or income.
- Studying long-term growth trends in listed FMCG companies and their
investor interactions after the June-quarter results yields some insights.
It’s a slowdown, not recession:
- The sales of the 30 listed FMCG companies, after expanding at 11-13 per
cent between the June and December quarters of 2018, lost speed to a 9 per
cent growth in the March quarter of 2019 and further to 7.3 per cent in the
latest June quarter.
- Market researcher Nielsen has said that after growing at 12 per cent in
the first half of 2019, India’s FMCG market growth will likely slow to about
8 per cent in the second half.
- FMCG firms often keep their sales growth ticking through price
increases, so volume growth trends better represent consumer demand.
- On this score, sector bellwether Hindustan Unilever (HUL) has reported a
5 per cent volume growth in the June quarter of FY20, after managing 10 per
cent growth in FY19.
So what has driven this boom-bust behaviour?
- After growing at the sedate single digits until FY16, volume growth for
FMCG players received a body-blow from the note ban, reporting shrinking
volumes in the September and December quarters of 2016.
- By the time they staged a tentative revival to 3-4 per cent by June
2017, the GST implementation kicked in.
- With the GST sharply lowering indirect taxes on many large FMCG
categories amid a benign input environment, players were able to drum up
demand through price cuts and promotions.
- As a result, growth accelerated and stayed at double digits between
September 2017 and 2018.
- But with the high base effect kicking in and input prices turning
volatile in 2019, the old normal of single-digit volume growth seems to be
What are the trends to driving it?
- The rural market, accounting for about 40 per cent of FMCG sales, seems
to be facing the brunt of the slowdown. Rural demand growth for FMCGs, which
was racing ahead at 1.3-1.5 times urban growth in 2018, has since levelled
- This can probably be pinned on the drought-like situation across many
States this past year on top of declining agricultural incomes. Northern and
western markets for FMCGs have reported a sharper slowdown than the South or
- In highly penetrated categories such as soaps, laundry or toothpastes,
mid- and low-priced brands appear to be hit by consumer downtrading on
slowing income. But high-priced brands appear to be in good shape, thanks to
the trend of affluent consumers ‘premiumising’.
- Products with a ‘natural’ tag, despite their higher price tags, have
continued to be a hit with consumers. According to Dabur, oral care products
with a natural tag managed to grow volumes at 18 per cent, against 5-6 per
cent in garden-variety toothpastes.
- In categories such as biscuits, packaged foods and edible oils, nippy
local players have posed a stiff price competition to listed players, wooing
away value-conscious consumers. In India, phases of benign input prices for
FMCGs have always given birth to new local brands playing the discount game.
- Nielsen noted that small regional manufacturers of FMCGs had managed a
28 per cent sales growth in the year to September 2018, while national
players grew at 12 per cent.
Shifting towards urban markets:
- In the urban markets, disruption in trade has also played a role in
slowing sales for some players. The note ban prompted a distinct shift in
urban shopping habits towards hypermarket and e-commerce stores, which now
make up over 15 per cent of FMCG sales.
- The traditional wholesale channel has seen shrinkage with GST woes and
the liquidity crunch.
- With modern trade and e-commerce sites seeing products fly more quickly
off the shelves, some players have used targeted discounts and promotions to
gain share in this space, while those sticking with traditional channels
- All this goes to show that FMCG players do not really have their backs
to the wall.
- Should the slowdown worsen, they have leeway to stimulate demand by
trimming ad-spends and taking selective price cuts.
- All this, however, must be separated from the stock price performance of
FMCG players, which may still need to correct from over-optimistic
Q1. With reference to the indigenous Light Combat Aircraft (LCA) Navy,
consider the following statements:
1. It is developed by the Defence Research and Development Organization,
2. It is the smallest and lightest Multi-Role Supersonic Fighter Aircraft of its
Which of the statements given above is/are correct?
A. 1 only
B. 2 only
C. All the above
Q1. What are the reasons behind slow-moving consumer goods?