FMCG stares at low growth of 9-10% in 2019 as rural demand loses steam

As the fast-moving consumer goods sector is expected to see only 9-10 percent growth in 2019 as households continue to squeeze spending and rural demand is losing steam on the back of falling rural income, industry players are now expecting a turnaround next year.

According to market research agency Nielsen's third quarter numbers, rural growth has plunged to a low 5 percent from a high 20 percent in the corresponding quarter. This has for the first time in seven years, rural growth has fallen below urban levels.

In a sectoral report on Wednesday, the agency lowered its growth forecast for the year to 9-10 percent. Growth in the first six months of the year stood at 12 percent against its earlier prediction of 13-14 percent.

"The FMCG sector has witnessed a slowdown in the past few quarters, but now we are seeing some signs of greenshoots," CII national committee chairman on FMCG and managing director of Pidilite Industries Bharat Puri said at an industry summit.

He noted that since liberalization, the sector has made significant contributions to growth persistently maintaining high double-digit growth.

"Contrary to this stellar record, the slowdown, driven by broader macroeconomic factors coupled with tepid consumer sentiment, is noticeably impacting growth now. However, we see some signs of revival now," Puri said.

Addressing the event, Bain & Company's Nikhil Ojha Prasad opined that the industry is expected to regain stronger growth in 2020.

Nestle India chairman and managing director Suresh Narayanan said companies which had significant exposure to rural markets are facing a lot of challenges since the agri incomes are not only not growing but falling.

According to Nielsen, rural growth has plunged to a low 5 percent in the third quarter of quarter from a high 20 percent a year ago. Also, for the first time in seven years, rural growth has fallen below urban levels.

"For the first time in many quarters, rural growth has gone below urban level, which is creating stress for companies which have a larger footprint in rural areas. But we are hopeful of improvements," he said.

Narayanan further said since Nestle has only 20-25 percent exposure to the rural markets, and strong presence in small towns apart from the urban centres coupled with better aspirational products, it has managed to sail through the tough times.