FMCG recovery likely in 2020; Nielsen, CRISIL predict double-digit growth

According to Nielsen's estimates, India's Rs 4 trillion FMCG market is expected to grow by 10% in calendar year 2020 (CY20)

After falling for five quarters, a recovery in growth could be on the horizon for the country’s fast-moving consumer goods (FMCG) sector. Both market analyst Nielsen and rating agency CRISIL say the fourth-largest FMCG market in the world will bounce back in 2020 — starting with the quarter ending March 2020.

According to Nielsen’s estimates, India’s Rs 4-trillion FMCG market is expected to grow by 10 per cent in calendar year 2020 (CY20). In the current quarter, it could grow by 8-9 per cent by value. This will be a significant improvement from the previous quarter, when the market grew by 6.6 per cent — the lowest in several years.

In fact, the growth rate in the December quarter was less than half the rate from the corresponding quarter previous year (15.7 per cent).

According to Prasun Basu, president of South Asia zone for Nielsen, the fall in growth that began in the quarter ended September 2018, when the market grew 16.2 per cent, might end with 2019. “Last year (2019), was tough for the FMCG Industry with over 4 percentage points decline, but we do see it stabilising in the last quarter of the year (quarter ended December 2019). A mix of macroeconomic factors, and channel and zone factors driven by manufacturers, coupled with consolidation of smaller players have been instrumental in the slowdown”, he said.

CRISIL, which analysed 57 FMCG firms, which account for about half of the market, expects recovery in by March-April. With the packaged foods market growing at 11-12 per cent in 2020-21, the FMCG market could grow by 10-11 per cent during the financial year 2020-21 (FY21), it said. Packaged foods segment accounts for about half of the FMCG sales.

“Next fiscal, growth in rural FMCG revenue will recover to 11-12 per cent from lows of about 8-9 per cent in 2019-20, largely driven by better agriculture GDP growth. Besides, higher spending by the government on rural infrastructure could benefit rural incomes and, thereby, demand for FMCG products. Growth in urban FMCG revenue, meanwhile, is expected to hold steady at 8 per cent, as growth and share of modern trade continue to improve,” said Anuj Sethi, senior director, CRISIL Ratings. The personal and home care segment, which accounts for a third of FMCG sales, is projected to grow 8-9 per cent in FY21, compared to 6-7 per cent in FY20.

In CY19, slowdown in the rural market was a major pain point for most FMCG manufacturers. From volume growth of around 16 per cent in the September 2018 quarter, growth rate fell to 2.1 per cent in the December 2019 quarter — dragging overall FMCG volume growth down to 3.5 per cent. Last year (CY19), volume growth in the rural market plunged to 5 per cent, compared to 13 per cent in CY18. Meanwhile, India’s GDP growth rate fell to 4.5 per cent in the September 2019 quarter, from 8.1 per cent in March, 2018. The International Monetary Fund (IMF) has cut its GDP growth forecast for India for FY20 to 4.8 per cent from 6.1 per cent it had estimated in October.

Nielsen observed that while macro factors are still not conducive, FMCG growth in the last quarter of CY19 appeared to be stabilising.

Better sales on e-commerce platform, thanks to deep discounts, and attractive consumer schemes offered by online retailers, helped FMCG sales during October-December quarter grow by 7.3 per cent — a 90 basis points addition to its growth rate in traditional trade.