Rural markets see sales volume fall in Q2 FY23; urban markets record 1.2% increase: Report

India’s fast-moving consumer goods (FMCG) industry is expected to continue consumption slowdown in the September quarter, with a decline in rural volumes compared to the previous quarter, reveals the latest report from market researcher NielsenIQ on Thursday.

The report, which suggests the impact on how rural households are spending on basics such as soaps and packaged foods amid high inflation, reveals that consumers continued to prefer buying smaller packets amid companies increasing prices in response to inflationary pressures.

The domestic consumer packaged goods industry witnessed a decline of 0.9 per cent in terms of overall volume in Q2 FY23 as against the previous quarter. It should also be noted that this was the fourth consecutive quarter with negative volume growth for the industry. The report said that this is "attributed to the double-digit price growth for the past six consecutive quarters.”

Satish Pillai, Managing Director at NielsenIQ India, said that while the inflation pressure continues, there have been variations in rainfall across rural areas in India that have led to a softening of indicators for rural markets. This sentiment also shows up in the cautious behaviour of the retail trade, he added.

NielsenIQ, in its report, also said that rural centres recorded a 3.6 per cent drop in terms of volumes in the September quarter as against a 2.4 per cent decline in the June quarter. Rural volumes have remained in the negative territory for the fifth straight quarter, it added.

Consumption decline in rural markets was led by both double-digit price increases and lower unit growth. With continued price increases, rural consumers remained more cautious than urban, according to NielsenIQ’s FMCG Snapshot for the September quarter.

"The consumption decline in the rural markets continues to be led by both double-digit price increases and lower unit growth," the report said.

The urban markets, on the other hand, recorded a 1.2 per cent increase in volumes during the same period. This growth was led by the food segment which recorded a 3.2 per cent growth in volume. However, the non-food segment reported a drop of 3.6 per cent in Q2 FY23.

The report further stated that the FMCG industry in India continued to have a price-led growth in topline. It reported an 8.9 per cent growth in the July-September period compared to the previous quarter.

"Volume and value sales of FMCG are above pre-Covid levels" of March quarter of 2020 as the "markets have opened up completely post-pandemic," the report added. For the industry "average pack size growth is negative in July-September 2022, as consumers keep on buying smaller packs.”

"Most of these new product offering is in terms of changes in pack size. This could be the result of manufacturers working with smaller grammages as raw material prices are still high," it further said.

The traditional trade channels, like Kirana and neighbourhood shops, volume dropped 2 per cent during the September quarter as against the quarter previous to that. Moreover, the modern trade channels such as hypermarkets, supermarkets and malls "remain resilient with double-digit value (22.2 per cent) as well as volume (11 per cent),” said the report.

The researcher further added that the top 400 FMCG players and small manufacturers are driving consumption as they are reporting a positive volume growth of 0.5 per cent. "They are also gaining both value and volume share in last 2-3 quarters when looked at sequentially," the report added.

(With inputs from agency)