Five factors that are driving growth in consumer goods

Survey shows FMCG growth has been 12.2%, led by both volume and price, in quarter ended March 2017

Growth in India's Rs 3.2 lakh crore fast moving consumer goods market (FMCG) has been the highest in two years, according to market research agency Nielsen. Figures by Nielsen show that overall FMCG growth has been 12.2 per cent, led by both volume and price, in the quarter ended March 2017. This is at least 400 basis points higher than the year-ago period, when overall growth was 7.9 per cent. Nielsen's numbers are in line with what most companies globally and nationally have been saying for a few quarters now.

Here are a few reasons why the tide is changing for consumer goods:  

1) Demand showing improvement post note ban: Most companies from Unilever to Dabur to Marico, Nestle and Mondelez have highlighted recently that demand has recovered post the high-value note ban in the December quarter. They say that consumers, especially, in urban areas have got past the hurdles faced during the note ban, prompting sales to show improvement in the March quarter.

2) Consumer staples is resilient as a category: Most analysts believe that consumer staples as a category remains resilient to external factors such as note ban since these are essential goods required for consumption and survival. So while factors such as demonetisation can dampen demand for one quarter, it cannot do so for long.

3) Companies were quick to adapt to the changing scenario: To lessen the pain, companies were quick to manage inventory and distribution during the note ban, increasing credit period for trade strapped for cash. In recent months, companies have been talking to traders to switch to digital payments to ensure seamless transfer of goods.

4) Companies focusing on urban for now: Most FMCG companies admit that business will take time to return to normal in rural areas owing to the note ban. So the focus for them will be on pushing sales in urban areas. While rural constitutes a third of FMCG, two-thirds continues to come from urban areas so for the medium to short term emphasis on urban till rural returns to normal, say analysts, is not a bad idea.

5) GST preparedness: That is expected to be critical for companies going forward. How they accustom themselves to this tax regime will determine whether it will be business as usual for them in the coming quarters.