FMCG industry pinning hopes on diverse catalysts

New Delhi: From an uptick in rural demand to higher volumes and favourable commodity prices, the country's FMCG industry is pinning hopes on diverse catalysts for a double-digit volume-led growth in the new year after a challenging 2023. Weaker-than-expected festive demand, rainfall deficit that hampered rural growth, unseasonal rains that dampened sale of beverages and higher commodity prices all together cooked a difficult-to-digest market recipe this year even though "green shoots" of recovery are becoming more visible.

The sector, which has a high growth potential especially in an emerging market like India, is anticipating 2024 to be a "better year" with favourable input prices benefitting the Home and Personal Care (HPC) as well as certain food business segments. "We expect the demand situation to improve as we enter the next financial year.

We expect FMCG players to increase the pace of innovation and premiumisation and also focus on significant investment behind expanding the quality of rural distribution," Marico MD and CEO Saugata Gupta said. The FMCG players are also expecting expansion of their profit margins with softening of commodity inflation that would result in increased spending on branding, return of promotional schemes for consumers and increased dividend payout to their shareholders, according to analysts. Most FMCG companies extend the benefits of moderation in key commodity prices to consumers by undertaking price cuts or by increasing grammages.

They are expecting a faster growth in the premium and large pack sizes, thanks to a stronger urban market and modern trade channels. Besides, analysts expect a double-digit growth for the sector with higher volumes with market share gains and increase in rural penetration with the come back of popular price packs, which gained prominence when inflation was ruling at high levels.

"A combination of weak demand sentiment especially in rural areas due to inflation and increased aggression of smaller players and alternative avenues of spending have led to softer growth of the FMCG sector this year. Having said that, the economy is on a sound footing, inflation is largely under control and the overall outlook is on an improvement trajectory," Gupta said. He also said that price cuts by large, organised players in the sector will make them more competitive.

Small regional FMCG players have reemerged in the market after the cooling of inflation, giving tough competition to big players, impacting their market share in their pocket of influence in segments such as soaps, tea, detergent and biscuits. Dabur India CEO Mohit Malhotra said there has been a marked improvement in consumer sentiments in 2023 with the softening of inflation.

"While green shoots of recovery are visible, rural demand is still trailing urban markets. That said, we are hopeful that rural markets will post a strong recovery in the new year. We are already seeing the gap between rural and urban growth continuously shrinking," he said, adding that going forward, Dabur is looking at both urban and rural markets to drive growth. Leading consultancy EY India National Leader - Consumer Products & Retail - Angshuman Bhattacharya said that for the FMCG sector, urban growth will continue.