New Delhi: Market research firm Nielsen India has lowered its growth target for the fast moving consumer goods (FMCG) sector. The firm has estimated growth in 2019 to be in the 9-10 percent range for 2019 as against 11-12 percent estimated earlier.
Within this, food categories are expected to grow at a higher rate (10-11 percent), whereas personal care and home care are expected to grow in the 7-8 percent range.
In Q2 (April-June) 2019, value growth in the FMCG space dropped to 10 percent, inching towards a slowdown. This follows the softening from the highs of Q3 2018 (16.2 percent).
According to the Nielsen report, the FMCG growth trend was largely dampened by volume-led growth, which has moved 3.6 percentage points lower to 6.2 percent in Q2 2019 from 9.9 percent in Q1.
“There is a looming concern on increasing inflationary pressure, which stood at 1.9 percent at the beginning of the year and has already moved up to 3.18 percent in June,” the report said.
Going by the Nielsen report, FMCG growth for the first half (January-June) of 2019 stands at 12 percent as against a prediction of 13-14 percent.
Rural India contributes 37 percent of overall FMCG spends and has historically been growing around 3-5 percentage points faster than urban on account of increasing affordability, availability and demand.
However, rural growth is slowing down and is double that of urban in recent quarters. This has brought rural growth closer to urban in Q2 2019.
“At the beginning of the year we saw a softening, driven by essential and impulse food categories. However, Q2 witnessed a slowdown across all food as well as non-food categories with salty snacks, biscuits, spices, toilet soaps and packaged tea leading the slowdown,” said Sunil Khiani, Head of Retail Measurement Services, Nielsen South Asia.
“Taking a regional lens - the slowdown is driven by north and west zones, where growth has come down to single-digit in Q2. Haryana, Madhya Pradesh, Uttar Pradesh, Maharashtra and Assam are leading the slowdown,” he added.
Khiani said rural slowdown in these markets is reiterated in key macro economic indicators such as slowdown in rural output, reduced government spendings and untimely rain impacting crops in most north Indian markets.
Outlook:Nielsen estimated FMCG growth in July-September at 7- 8 percent and in the second half of 2019 (July-December) around eight percent. It cites monsoons, government policies and budget provisions and low base effect as factors that will impact the FMCG growth story.