FMCG Industry Expects Muted Volume Growth In Q2 On Weak Rural Demand

The industry expects a low to mid-single-digit growth in volume in Q2FY24 as weak macroeconomic conditions due to surge in food prices and deficit rainfall affected the recovery in rural demand.

Rural sales add to about one-third of the total sales of the FMCG industry through small value packs. The segment has been under stress in the past six to seven quarters.

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The FMCG industry revealed that it estimates a dampened volume growth in it’s July-September quarter as weak macroeconomic conditions due to increasing food prices and deficit rainfall in some regions affected the recovery in rural demand. The industry stated that it expects a weakened low to mid-single-digit growth in volume in the second quarter of the current financial year. 

Companies like Marico, Dabur, and Godrej Consumer Products Ltd (GCPL) noted in their quarterly updates that consumption in the second quarter showed some improvement, but the recovery remained gradual. The companies further said that since the festive season has entirely shifted to the third quarter this year, the offtake related to festivals is delayed and will be carried forward to the next quarter, reported PTI. 

Commenting on their gross margins, the FMCG giants noted that they estimate the numbers to be better sequentially, credited to the moderation in inflation and ease in price growth. These factors also helped the companies to increase their spending in advertising and promotions. 

Providing an update on the performance of Q2, GCPL said, “In India, we witnessed weak macros and adverse weather conditions during the quarter. The Godrej Group's FMCG arm faced a tough operating environment and despite that its organic business delivered mid-single digit volume growth.”

Marico further noted that the demand trends in Q2FY24 largely ‘mirrored’ the trends observed in the preceding quarter. The company, which owns brands like Parachute, Saffola, etc, said, “Instances of rising food prices and below-normal rainfall distribution in some regions seemed to impede the anticipated recovery in rural demand. In the given context, domestic volumes grew in low-single digits on a year-on-year basis. It continued to witness healthy trends in offtakes, market share, and penetration across key franchises. The newer portfolios, foods, and premium personal care remained on course to achieve full-year aspirations.”

Dabur India also echoed similar sentiments and noted that FMCG consumption improved on a year-on-year basis in the second quarter, however, the recovery remained gradual. The firm said, “This quarter witnessed a mild summer and a slightly deficient monsoon. The festive season is later than normal this year due to which offtake related to festivals is delayed and will carry forward to next quarter.” The Dabur Honey brand owner added that it estimates the consolidated revenue to register mid to high single-digit growth in the July-September quarter. 

Elaborating on the rural demand, Abneesh Roy, executive director at Nuvama Institutional Equities, said, “In the first quarter of FY24, there were some green shoots. However, given very weak rainfall in August (at 100-year low), rural demand has again turned weak. September has been better in terms of rains with a 13 per cent surplus, but it has still not lifted the spending spirits in rural given the shift in festival demand.”

Notably, rural sales added to about one-third of the total sales of the FMCG industry through small value packs. The segment has been under stress in the past six to seven quarters and displayed some improvement in the earlier April-June quarter.

Roy further said that urban-focused companies like Nestle, Tata Consumer Products Ltd, and Colgate Palmolive will have a slight advantage. The international wings of most companies are expected to outperform their respective India-based operations, he noted. 

Commenting on their international business, Dabur noted that it is set for a strong performance, with double-digit growth in constant currency driven by the Middle East, Egypt, and Turkey. Marico also expressed optimism about it’s international business, which delivered double-digit constant currency growth. GCPL’s Indonesia business, it’s second biggest market after India, maintained an improvement in performance with double-digit growth, both in volume and value terms. 

The FMCG companies expect a better performance in the second half of the current fiscal year. Consumption trends, specifically rural, are estimated to improve in the second half credited to retail inflation levels maintaining within the RBI’s target range, a surge in MSPs, healthy sowing season, better liquidity pressures, and government spending, Marico said. 

Dabur added that it estimates a consumption recovery in it’s rural and urban markets in India on improved macro indicators and positive consumer sentiment.