Kantar predicts subdued growth for FMCG sector through September quarter

New Delhi: The domestic fast-moving consumer goods (FMCG) sector is poised for a period of "subdued" growth up until the September quarter of the current calendar year, as per market research firm Kantar, highlighting the challenges to India's consumption story.

The projection stems from a range of factors, including an uncertain outlook for India's agriculture industry and the minimal impact of general elections on consumption, Kantar said Wednesday, without specifying forecast numbers.

Last month, NielsenIQ had predicted that makers of soaps to shampoos and biscuits to beverages may grow at 4.5-6.5% in value terms this year, sharply lower than 8.4% in 2022 and 9.3% in 2023.

These projections align with the government's predictions of a slowdown in household consumption growth. Official estimates suggest that private final consumption expenditure, accounting for 60% of the GDP, will rise by only 4.4% in the current fiscal year ending 31 March 2024, down from previous year's 7.5%.

Kantar said that the outlook for agriculture in 2024 presents a mixed scenario, with El-Nino expected to last through the first half of the year, weighing on crop yields and production.

“It seemed to have an impact on the kharif crop harvests. Agricultural growth is projected to be at 1.8% in 2023-24. This is a seven-year low…This is likely to impact the first half of 2024. However, the rabi sowing, though mildly disturbed, is much better, with record hectarage under the wheat crop. El-Nino is also expected to wane by the middle of the year, and with the rabi harvests close by, without any unexpected weather phenomenon, the year might yet turn good, especially in the second half,” Kantar added.

Kantar, however, anticipates a surge in demand for products like beverages, laundry essentials, and ice creams during the summer. But this is unlikely to significantly impact overall sector growth.

“As a result, we do see FMCG growth to be subdued, at least until Q3 of 2024. Keeping in mind the stronger first half of 2023, we may even end up seeing some stagnation in the early part of the year, with things getting progressively better,” it said.

The impending general elections are also unlikely to significantly alter FMCG demand patterns, according to Kantar. Historical data from previous election years suggest that electoral cycles have had minimal, if any, positive impact on FMCG growth, with instances of stagnation or even decline recorded during these periods.

"In 2009 the consumption growth was 0.7%, in 2014 it was static and in 2019 it was negative. While the voter, and therefore the consumer has evolved from then to now, we really do not see FMCG at the national level being impacted significantly due to the general elections,” it said.

Additionally, Kantar noted a slight decrease in average annual FMCG consumption in 2023, falling to 117.1 kg per household from 117.2 kg in 2022.

“After the pandemic, this is the second straight year where average purchase quantity has failed to grow. The annual purchases (without Atta) have stagnated at around 117 kg per household since 2021, but spends in the same time period have jumped from ₹15,513 to ₹17,907. The 8.5% growth in FMCG spend in 2023 is higher than the average inflation rate of 5.7% for the year," it added.

In its analysis of over 90 packaged household goods categories, Kantar found that half experienced a drop or no change in consumption levels in 2023. Notable decreases were observed in essential categories like cooking oils, washing powders, basmati rice, and salt, suggesting a strategic reduction in bulk purchases by consumers to manage expenses, allowing for discretionary spending on smaller categories.

The researcher highlighted that price cuts taken by large manufacturers led to a dip in value growth across the sector, albeit also on a high base of 2022. The decline was more pronounced in the December quarter with categories such as hand wash, body wash, shampoos, floor cleaners, cooking oils, reporting lower sales growth.