InvestorQ : What has Nielsen said about the FMCG industry in and the nature of demand growth?
Anu Biswas made post

What has Nielsen said about the FMCG industry in and the nature of demand growth?

Ria Jain answered.
4 weeks ago

The recent market size report on the FMCG industry by Nielsen, a globally reputed market research firm, has made some key points. Here are the highlights.

· The crux of the report by Nielsen is that volumes are the pain point for FMCG segment in Q4FY22. In other words, sales are growing rapidly and that thrust is coming from price hikes, because volume growth in FMCG products has actually been negative.

· There is data to corroborate. For Q4FY22, FMCG companies reported 6% higher revenues. But, this revenue growth came at the cost of lower volumes. In other words, 6% growth in FMCG top line was despite -4.1% contraction in FMCG volumes.

· Since FMCG space is dominated by the large players like Hindustan Unilever, ITC, Britannia and Nestle, there was still a lot of pricing power. This allowed these large companies to raise prices, which compensated for the fall in volumes.

· In terms of specific structure, food products were still in robust demand, but the discretionary non-food products saw buy decisions being postponed and buyers also opted for smaller sizes and more economical sizes of purchases.

· In terms of the volume story, even a rural-urban divided is visible. For example, in the March 2022 quarter, urban volumes fell by -3.2% while rural volumes fell -5.3%. It shows greater volume stress in rural areas.

· This could be due to the greater degree of price hikes in rural areas. For example, value of FMCG sales in urban markets grew 5.6% while rural markets saw sales growing by 6.6%. It does look like these FMCG companies had better pricing power in rural India.

· Apart from the rural urban divide, there is also a product divergence in the data. For instance, volumes of packaged foods fell -1.8% while the volumes of non-food products fell -9.6% in Q4FY22.

The moral of the story is that the FMCG companies are also having a volume slowdown problem apart from the input cost problem.