Dip in rural demand to slow FMCG growth in 2019: Nielsen

The FMCG sector in India will face a slowdown in 2019 with a growth rate of around 9-10 per cent impacted by a dip in demand, particularly the rural, according to a report.

The FMCG growth rate for the first half of 2019 is around 12 per cent, which is lower than the previous forecast of 13-14 per cent, the report by data analytics firm Nielsen said.

"Based on an analysis of key factors, a revised forecast for the year-end of 2019 puts all India FMCG growth to be in the 9-10 per cent range," the report 'India FMCG Growth Snapshot' added.

In 2018, FMCG sector had a growth rate of 14 per cent. The sector is estimated to have around Rs 4.2 lakh crore sales.

According to the report, the demand is impacted by rural sales, which contribute around 36-37 per cent of the total FMCG sales.

In rural sales, 60 per cent spend on FMCG is on food items which include salty snacks and biscuits, said Sunil Khiani, Nielsen India Executive Director Client Solutions.

"Sales in urban areas are also impacted but the decline is almost twice in rural areas," he said.

Earlier, growth rate of rural sales was faster than urban markets led by factors such as increasing affordability, availability, and demand.

"However, rural growth is slowing down double the rate of urban in recent quarters.This has brought rural growth closer to urban growth in second quarter of 2019," it added.

Nielsen expects food categories to grow at a higher rate in the coming quarters at 10-11 per cent and personal care and home care category at 7-8 per cent.

"The outlook for next quarter stands at 7- 8 per cent and H2 2019 in the range of 8 per cent," the report said.

According to the report, in April-June 2019, FMCG value growth has dropped to 10 per cent "inching towards a slowdown".

"The FMCG growth trend is majorly dampened by volume led growth which has also moved 3.7 percentage points down from 9.9 per cent in Q1 (January-March) to 6.2 per cent in Q2 of 2019," it added.

According to Khiani, April-June 2016 had the slowest growth rate of 2.4 per cent.

"This is the third consecutive slowdown in the sector after Q3 of 2018 which has 16.2 per cent growth," he added.

FMCG growth trends continue to see a consistently high price-led growth of 3.8 per cent for the first two quarters of 2019.

"At the beginning of the year we saw softening driven by essential and impulse food categories. However, this quarter has witnessed a slowdown across all food as well as non-food categories with salty snacks, biscuits, spices, toilet soaps, and packaged tea leading the slowdown," it added.

According to the report, the slowdown in FMCG sector is mainly driven by North and West Zones where growth has come down to single digit in April-June quarter.

States as Haryana, Madhya Pradesh, Uttar Pradesh, Maharashtra "are leading the slowdown", it added.