FMCG market: India picks up but Bharat lags

Household consumption recovered in urban India in May-July but remains weak in rural

Household consumption of fast-moving consumer goods (FMCG) appears to have recovered from a deep slump seen last year - at least in urban areas. Data from market research firm IMRB show that FMCG consumption in urban India, in volume terms, rose seven per cent in the May-July period this year, compared with a decline of 12 per cent in the same period last year. In value terms, consumption was up eight per cent during the period, against a decline of four per cent seen in the year-ago period.

The situation in rural parts of the country, though, was not as good. While urban areas were in the green in May-July, rural India continued to be in the red, notably on the volume front. Rural FMCG consumption volume declined seven per cent from May to July, against a fall of one per cent in the year-ago period. In value terms, consumption rose just one per cent, compared with two per cent last year.

Varun Sinha, group business director, IMRB Kantar Worldwide, said: "The uptick in urban sentiment led to better stocking of products across staples, as well as impulse categories. This resulted in household consumption recovering. By comparison, the positive sentiment appeared to be missing in rural areas."

Among FMCG segments, in urban areas, volumes for personal care inched up three per cent, compared with a two per cent increase last year. Value growth was sharper, at six per cent, against three per cent a year ago. Household care products saw steady volume growth of two per cent, while consumption increase in value terms was nine per cent (against seven per cent last year). Food & beverage consumption, on the other hand, grew eight per cent in May-July this year - the sharpest annual rate of rise for a segment. Last year, it had fallen 14 per cent, according to IMRB. In value terms, food & beverage consumption grew eight per cent in the period this year, against a decline of seven per cent seen in 2013.

Rural areas presented a mixed picture in FMCG categories. While personal care and household care saw marginal growth in the period when compared with last year, food & beverage slipped even further. Personal care volumes rose three per cent, compared with last year's two per cent, while value growth was steady at six per cent. For the household care segment, growth in volume terms was five per cent (against four per cent last year), while value growth was 13 per cent, versus nine per cent last year. The food & beverage volumes, in contrast, declined nine per cent in May-July this year, against a decline of two per cent last year. Consumption in value terms, on the other hand, slid three per cent in this FMCG category.

Dabur India Chief Executive Sunil Duggal said: "While pain exists in both urban and rural areas, the challenges of late have been greater in the hinterland. The rainfall has been patchy in the north and central parts of the country, coupled with a stagnancy in minimum support price of crops and a drawing down of rural welfare schemes. This has resulted in a shrinkage of income in the hands of rural consumers, affecting overall household consumption."

"As far as growth in personal care and household care in rural areas is concerned, that is more of an exception than norm, because the broad trend clearly points to a slowdown. Our talks with trade channels show consumers in rural areas have not been substantial spenders in recent months. This has been exacerbated by inflationary pressures on everyday items affecting both urban and rural areas. The moot point is that urban consumers seem optimistic, so the consumption is increasing," Duggal said.

Marico Chairman Harsh Mariwala said: "A new government in power pushes sentiment notably in urban areas. The increase in household consumption in May-July in these parts is a result of this improvement in sentiment. This will get better as we go forward. Rural areas are a laggard in this respect and will follow urban areas in terms of a pick-up in sentiment. For that, there also has to be an improvement in economic growth, because people begin to spend only when they feel secure about the environment around them, about their jobs and incomes. While an element of optimism helps consumption to an extent, people feel more confident to spend if they begin to see real growth and development on the ground. Rural areas will respond with a lag, while the urban areas will see a quicker recovery."

The consensus is that the tide should notably turn for FMCG in urban areas by the fourth quarter of this financial year. The government has been working in this direction. Earlier this month, it raised the dearness allowance of its employees by seven per cent - a move that will benefit nearly three million workers.

Two months before that, in Union Budget, it announced a slew of measures to boost domestic consumption, besides increasing tax exemption for the salaried class. Both of these steps, analysts said, favoured people residing in cities more.