North India contributes most to slowdown as FMCG heads south in rural parts

Nielsen has cut CY19 growth forecast to 9-10%, from 11-12%

One of the most important markets in fast-moving consumer goods (FMCG) is contributing the most to the ongoing slowdown in the sector. The North, including states such as Uttar Pradesh (UP), Haryana, Punjab, Delhi and Rajasthan, are together contributing 42 per cent to the slowdown, the latest data from Nielsen for the June quarter (Q1) shows.

In fact, rural slowdown, which Nielsen says has increased over the past few months, has been led by the North, followed by the western and eastern regions in Q1. 
 

The North contributes 31 per cent to FMCG rural sales, followed by the East at 27 per cent and the West and the South at 21 per cent each.

In Q1, Sunil Khiani, head of retail measurement services, says Nielsen South Asia, the growth rate of FMCG rural sales in the North has slowed down to levels of 8.8 per cent from nearly 22 per cent seen in the July-September 2018 period, which is the peak rate of growth for the market.

The West, on the other hand, has slowed down to levels of 8.7 per cent in Q1 from 19.8 per cent seen in the July-September period, while the East has seen the rural rate of growth drop to 12.8 per cent from 20.3 per cent in the July-September period. “Haryana and UP in the North, Maharashtra and Madhya Pradesh in the West and Assam in the East are leading the slowdown,” Khiani says.

Nielsen’s data corroborates what FMCG giants such as Hindustan Unilever and Bajaj Consumer have said after their Q1 results last week that the northern markets have been sluggish in terms of growth rate. “The contribution of rural sales from the North is higher,” says Sanjiv Mehta, chairman and managing director, Hindustan Unilever. “With a slowdown in rural areas, the North has been affected especially, markets such as UP,” he adds.

“The market in the north has always been the most attractive one for manufacturers as it was open to new products. Moreover, the northern market, led by Delhi-NCR, has been the largest spender in terms of staple and discretionary items for several years now. But the recent trend has been alarming. Buyers here have turned cautious while spending,” says the head of a Gurugram-based company.

The concern now remains how fast markets such as UP, Bihar, Assam and Maharashtra would bounce back in terms of consumer demand given that these states are witnessing floods right now.  

The assessment is that the FMCG market could take a few quarters to bounce back, says Mehta and his peers in FMCG firms, the second half of the FY19-20 will be better than the first half. “I don’t think there is need to despair,” he says. 

Sumit Malhotra, managing director, Bajaj Consumer, reiterated the same, adding the third and fourth quarters of this financial year would be better than the first two quarters.

Nielsen has cut its CY19 growth forecast for the FMCG market to 9-10 per cent from 11-12 per cent estimated earlier. Khiani says large manufacturers have been hit the most in the North and East in Q1, while small ones are driving the slowdown in the North and West.