The fast- moving consumer goods market (FMCG) expanded 16% in value during 2021, the fastest in nine years. As per experts, largely driven by price hikes and low base to compare with, this was possible. Volume, which normally accounts for more than two-thirds of FMCG growth expanded 55 or about a third of overall growth, indicating that the bulk of revenue expansion was due to price hikes. In 2020 market had shrunk about 2 percent in both value and volume.
However, as companies raise the prices to neutralize rising input costs over the past six months, volume growth has gradually tapered off and it registered a 1.8 percent decline in the December quarter. This was basically due to a drop in home and personal care segments, as packaged food and beverages have grown both in volume and value. Out of home consumption of food is not as big as in the home. In addition, consumers tend to load their kitchens during restrictions. While last year, the total packaged food industry had a growth of about 16 to 17 percent, with 70 to 75 percent led by volumes, during this year it is up by 6 to 7 percent with 70 to 75 percent in value growth.
Most FMCG companies have warned in recent months that prices would continue to rise amid the highest levels of inflation in decades. The prices of all FMCG products have gone up by 10 t0 15 percent if you compare the prices about 6 months back.
The inflation in the economy has definitely impacted disposable incomes and consumers spending in FMCG. Presently rural market segment has seen a visibly higher slowdown, as compared to the urban market. As per one leading FMCG company, nearly one-third of their overall business comes from affordable low price packages such as Rs 1, Rs 5, and Rs 10, where pricing remains unchanged but grammage was reduced, which in turn affected volume. In these types of packs, even if you do not touch the MRP but adjust volume, it does affect the volume growth going down.
Average price- which was indexed at 110 during the third quarter (vs first quarter 2020 base OF 100) for overall FMCG products and 115 for food products- largely propelled the growth. This price growth was seen especially in staple categories like cooking medium, habit- forming foods like tea and coffee, and impulse foods like salty snacks, biscuits, and sweets.. Volume growth is driven by packaged rice, breakfast cereals, butter/margarine, and chocolates.
Popular price segments that have a relative price index of above Rs 80 across the FMCG market saw an uprise in their contribution, with 59 percent share in the third quarter of 2021 versus 56 percent in the the first quarter of 2020. On the other hand, mass price segments that have a relative price index below Rs 80 dropped to 17 percent in the third quarter of 2021 from 19 percent in the first quarter of 2020.
Input cost pressures have forced manufacturers to raise prices- especially for food products and cooking mediums. This has severely affected small manufacturers, as 14 percent have exited the business in third quarter of 2021 compared to the third quarter of 2020. Out of the total value growth that the industry had in September 2021(compared to a year ago), 76 percent of growth came from large manufacturers, while small players had just 2 percent with the rest coming from mid- size manufacturers.
With the relaxation of mobility restrictions, has paved way for the recovery. Modern trade stores have grown 17 percent in the third quarter of 2021 doubling their growth from the second quarter. Busy shopping days in August with Raksha Bandhan and other festivals jumped 29 percent compared to the same period last year- with growth driven primarily by modern trade chain stores. Within modern trade, food baskets led to the growth over non food.
With FMCG showing signs of recovery in the third quarter of the year 2021-22, it looks like the economy is slowly coming back to normal, and if everything remains at this level- with no sign of a serious third wave of Covid 19, then the economy will definitely recover in the first half of next financial year.
Waiting for your views on this blog.
Anil Malik
Mumbai, India
31st January 2022