Happy New Year awaits FMCG companies

Sagar Malviya, Economic Times, 23 December 2014

The fast-moving consumer goods industry in India is set to return to double-digit growth rate next year after a gap of two years on the back of improved consumer sentiment and lower inflation rates, according to leading market tracker Nielsen.

Nielsen expects the FMCG market to grow 7% in 2014, 10% in 2015 and about 12% in 2016.

"While India's GDP might not revive drastically and could stay below 6%, we still don't see it weighing down the overall FCMG growth due to better sentiment and lower inflation," said Ranjeet Laungani, vice president at Nielsen India. "Nearly half this growth will be volume-led, indicating favourable real consumption growth," he said. India's FMCG market has normally been immune to macro-economic pressures, but sales have fallen to single-digit growth since 2013. Worse, volume consumption remained flat and nominal growths came from price increases driven by inflationary pressure.

However, the quarter ended September saw a bit of a revival at 7.2% growth compared to 5.2% in the previous quarter.

Marketers say things have started looking up since the last two months. "We expect volume growth to be much healthier next year; though price-led growth could be a bit challenging given the benign commodity price environment," said Vivek Gambhir, managing director at Godrej Consumer Products.

"The improvement in consumer demand, fuelled by the likely improvement in the economic environment due to the government's implementation of much-needed reforms, will result in better FMCG growth next year," he said.

Nielsen said a host of factors will help trigger volume growth.

With a traditional trade universe of over eight million stores, distribution expansion will be crucial to companies' growth. According to the market tracker, more than one-third of FMCG growth was driven by increase in availability of products over the last six years.

Similarly, low unit-priced packs or sachets helped contributed 18% to the growth compared to just 1% by large value packs, it said.

For large food categories, however, volume growth is still a challenge. BK Rao, group product manager at top biscuits maker Parle Products, said the positive sentiment hasn't really translated into sales growth yet. "While sales are better since the last few weeks, volume is still flat or negative," he said.