For fast-moving consumer goods, a sharp price cut in edible oil dragged down value growth. A cooler summer and erratic rainfall impacted beverages and food, while rural markets stayed under pressure due to inflation.
Value sales fell 4.5% during October-December, according to Bizom, which analyses data based on orders at nearly 7.5 million kirana stores.
“After hiking prices 20-25% in 2022, most companies partially rolled them back, (cutting them) by 12-15%, which affected value sales even as demand, or volumes, came back towards the last few months of 2023,” said Mayank Shah, vice-president, Parle Products. “Monsoon, especially in populous, rural-dependent states such as Bihar and Uttar Pradesh, was sporadic, which impacted sales.”
Rural growth lagging
“We see price-offs or grammage increase in most categories that is boosting volume growth, and expect value growth to come back post April due to better crop yield and election spending,” said Shah of Parle.
Companies including Dabur, Marico and Godrej Consumer said in their quarterly earnings update that growth was largely led by volumes, as pricing expansion remains subdued due to price increases in base year.
For instance, Adani Wilmar said it posted the best-ever volumes during October-December due to the festive and wedding seasons, but revenue declined 15%
Dabur, too, said the quarter witnessed sequential improvement in demand trends, although rural growth was still lagging urban. “Early signs of revival in consumption are visible, with improving trends in volumes,” the company said in its update. “With pricing growth remaining subdued due to price increases in base year, growth is largely volume-led.”
During the calendar year, the biggest drop was in the beverages category – an 11% decline – followed by personal care and commodities. While most of the categories improved during the third quarter, sales of commodities worsened, falling 17% by value.
“Fast-moving consumer goods (FMCG) growth for the last few years has been driven by rural areas, seeing an increase in direct distribution and focus on rise in product availability from many leading brands,” said Akshay D’Souza, chief of growth and insights at Mobisy Technologies, which owns Bizom. “However, we see that rural consumers continue to spend lower on discretionary products and continue to focus on need-based products.”
There’s strong traction for regional brands in snacks and biscuits, as they look to go wider and start focusing on new geographies, he said.
“Large, organised players have been squeezed a bit from both ends – regional and unbranded players in rural and D2C, and new-age players at the premium end,” Marico managing director Saugata Gupta told ET last month. “We feel the market will start showing good volume growth by the next two quarters, fuelled by rural recovery and pricing action by large players, which has already taken place. The economy is stable and inflation is getting under control.”
Discretionary items
For pricier consumer categories such as smartphones, refrigerators and washing machines, volume sales declined in calendar 2023 by 2-6% but by value, they either grew marginally or remained flat, led by the higher sales of premium products, according to industry executives, citing initial data of market researchers and their own estimates.
“There is no improvement in the overall demand scenario yet,” said Godrej Appliances business head Kamal Nandi. “Consumers with higher discretionary income are buying premium products, which is a saving grace for the industry. But we expect a recovery in calendar 2024, with inflationary trend further reducing, and a harsh summer (ahead).”
Executives said the average selling price (ASP) – an indicator of premiumisation – went up in all categories.
While volume sales still fell in 2023, the performance is still better than 2022. For instance, in 2022, the smartphone market declined by 9%, according to tracker Counterpoint Research, compared with a drop of 2% in 2023.
Tarun Pathak, director at Counterpoint Research, said he expects an overall recovery in mobile phone sales as prices of 5G devices drop further and enter the lower pricing tiers. The researcher estimated smartphone volumes to slump to 150 million in 2023, from 152 million in 2022, and 169 million in 2021.
Smartphone unit or volume sales declined 2%, but improved 9% by value due to 11% growth in ASP, according to GfK data for January-October. Cooling products reported a 6% drop in volume and 4% by value, while microwave ovens declined 7% by both volume and value. Televisions were an outlier, with volumes growing 2%, although value declined 7% due to a drop in prices, as per GfK.
