India's consumption story is slowly turning the page: FMCGs

Financial distress and a gloomy economic outlook may have forced Indian consumers towards down-trading their purchases since the Covid-19 pandemic hit the local economy in early-2020, but India’s consumption story is slowly turning the page. After their tryst with smaller packs and lower product categories, consumers are now shrugging off the tendency to compromise on quality and quantity.

Early trends, captured by leading fast-moving consumer goods (FMCG) majors, suggest most consumers are again looking for superior branded products, albeit cautiously, surging household budgets notwithstanding. Instead of compromising on brand trust, most are searching for better deals on recognised products. Local consumers are skimping on discretionary purchases and diverting their savings towards quality essential goods to better manage their household finances.

According to Pawan Agrawal, chief financial officer, Marico, the demand for essential items — comprising 90 per cent of the firm’s offerings — is growing.  Since the pandemic altered social behaviour, the firm has updated its portfolio to align it with newer trends. "The pandemic has also driven structural shifts in consumption patterns towards packaged healthy foods, immunity and nutrition categories, which we believe will be a permanent reset,” he said. “As the economy is reviving and recruitments are back, consumers tend to spend on quality products, instead of cutting down on direct consumption items. The severe second wave may have also played a role in their psyche, leading to revenge buying and living in the moment, instead of saving for the future. This is increasing the sales of premium, essential items in the packaged food market,” said Mayank Shah, senior category head, Parle Products.

Personal care brand CavinKare — that gets 45 per cent of its turnover from the sachet business — is witnessing an upgrade by consumers across rural and urban markets. In the case of sachets, “we are seeing a lot of movement from non-branded to branded products. Down-trading from non-sachets to sachets has been limited in urban markets,” said Venkatesh Vijayaraghavan, chief executive officer and director for FMCG at the firm. While initially the sector faced down-trading, with the pandemic receding and markets now becoming stable, people are sticking to known brands, he added. Suresh Narayanan, chairman and managing director at Nestlé India, concurs. According to him, consumers are increasingly relying on prominent brands, despite the growing cost burden on households.

However, in certain categories, consumers continue to downgrade as they mostly stay indoors these days. According to Adarsh Sharma, executive director-sales at Dabur India, the spends on discretionary purchases have seen a dip. “The recent months have also seen consumers tighten their purse strings, downgrading to either lower unit packs or seeking greater value through bulk packs. In some select categories, they are also shifting to lower-priced brands. This, however, seems to be a temporary phase,” he said.

Agrawal said consumers are trimming their expenses mainly in items directly related to them moving out. “We have observed softer demand, mainly in categories that are typically related to out-of-home movement, as consumers have been largely home-bound. Therefore, we believe that as consumers begin to socialise and step outdoors again, we will see demand for discretionary products rising once more,” he said.

While FMCG majors are enthusiastic about the positive change in buying behaviour, they are closely monitoring the trend to see if it will continue beyond the festival weeks, post-Diwali in early November.

While Narayanan expects the festive season to better this year, he is cautiously optimistic about the ongoing spurt. “The all-around price hikes have crimped household budgets and the trends suggest inflation will continue to hurt us in the months to come. So, we have to keep a close watch on demand revival. In the next few quarters, households will be spending primarily on essentials, while discretionary and premium products will be lower down their priority list,” he said.

Agrawal said it's unlikely that demand recovery in discretionary categories will be quick and is expected to take another year.

With inputs from Shine Jacob in Chennai