Can FMCG Sector Break Its Three Straight Election Year Slump In 2024? — NDTV Profit Insights

Despite the distribution of freebies, the last three election years have seen either stagnation or shrinkage in volume growth, i.e., the percentage increase in the quantity or units sold over a specific period, according to data shared by market research and insights firm Kantar.

For instance, in 2009, the soaps-to-staple makers experienced a modest growth of 0.7%. This growth stagnated in 2014 with 0% growth, and in 2019, the FMCG industry saw a decline of 2.7% in volume growth.

“Although the voter and consumer has evolved, we do not see any major impact on FMCG at the national level even this year,” K Ramakrishnan, managing director–South Asia, Kantar Worldpanel, told NDTV Profit.

The $110-billion industry is facing prolonged demand weakness, resurgence in input cost inflation and increased competition.

Factors such as poor harvest and low farm income, the emergence of regional peers as well as inadequate rainfall in the northern belt—a major contributor to rural demand—are all leading to a decrease in demand. Higher cost of living is putting a strain on household budgets, too.

The latest quarterly updates from Dabur India Ltd., which derives 45% of its sales from rural markets, revealed that demand remained sluggish during the January-March quarter. Marico Ltd., which derives nearly three-fourth of its sales from urban regions, and Godrej Consumer Products Ltd. echoed similar sentiments, projecting single-digit volume growth in Q4.

Despite the lack of evidence in previous years, companies are betting that increased government spending in an election year will aid demand in the coming months. They are also pinning hopes on the upcoming Budget in July and a favourable monsoon.

But Kantar, that monitors household purchases of 95 categories, predicts that consumption growth will remain muted, at least until the September quarter of the current fiscal. One contributing factor to this trend is the minimal impact expected from the elections.

Lack Of Confidence

A Reserve Bank of India survey shows that consumers are even more pessimistic about factors like income, employment, and economic situation now than they were before the 2019 elections.

The latest round of survey that was conducted in March, covering over 6,000 respondents, also showed that consumers are less confident about the future, leading to dim expectations for the next 12 months.

The future expectation index fell 8.2 points to 125.2 on the back of lower optimism in all parameters of the survey. In the run-up to the polls in March 2019, the index touched an all-time high in the survey's history.

The decline in consumer confidence is further evident in the increased proportion of individuals reporting a deteriorating outlook for the year ahead as compared with five years ago, as well as fewer people reporting an improvement during the same period, the survey showed.

The marginal rise in spending is reflective of inflation shocks.

Political Opportunity

Still, companies are hoping to capitalise on the buying frenzy that will occur as people make out-of-home purchases during the election season.

They are currently ramping up production of small packs of biscuits, chips, packaged water, and beverages priced at Rs 5 and Rs 10, in anticipation of a temporary increase in sales during nationwide political rallies and campaigns. They expect an 8-10% uptick in sales during the election period, set to run from April 19 to June 1. Some have even reported a rise in demand amid the election fervour, citing increased spending.

“During the scorching summer months of election season, large-scale outdoor gatherings present a lucrative opportunity for increased consumption in the packaged drinking water category and carbonated beverages,” Bisleri International Pvt. Chief Executive Officer Angelo George said. “We’re aligning our manufacturing and distribution systems to gear up to service this demand in real-time.”

Mayank Shah, vice-president at Parle Products Pvt., said there is already an increased demand for small packs of biscuits and snacks in markets such as the Hindi heartland. The company has decided to increase stocking of these packs by about 10% more than usual, hoping to spur sales.

Candidates contesting in the upcoming Lok Sabha elections can officially spend a maximum of Rs 95 lakh during campaigns, according to the Election Commission. This limit applies to food for rallies, among others.

Seasonal Surge

Experts have differing views regarding election-led demand uptick, and they believe that any short-term gains will not be sufficient to sustain growth for the entire year.

According to Ramakrishnan, there is increased liquidity in the economy during election years, but packaged goods companies do not benefit from this since consumers tend to spend this extra money on dining out and entertainment rather than purchasing household essentials.

“We find categories like soft drinks and glucose powders performing well during election season,” he said. “Perhaps, the fact that the elections coincide with summers is the cause for these categories to perform well.”

Interestingly, personal care categories have outperformed both home care as well as food and beverage segments during election years in the past, he said. But it is not possible to ascertain a “causal relationship” between elections and growth in personal care categories.

Sales of lower-priced liquor tend to increase during elections, though this trend has diminished over the past decade, according to Vinod Giri, director general, Confederation of Indian Alcoholic Beverage Companies.

The sector is bracing for a hit due to challenges in the form of restricted supplies and dispatch curtailments on and around voting days, he said.

"Businesses would be affected because some states like West Bengal and Uttar Pradesh will vote in several phases, translating into higher number of dry days," Giri said, pegging losses to the tune of 5-10%.

In 2019, disruptions during the election months of April and May impacted the quarterly performance of liquor companies, according to data.

Despite constraints, United Breweries Ltd. saw higher offtake of beer in the summer season driven by West Bengal, where volume almost doubled.

While there could be some short-term sales boost due to the election, its impact on year-long consumer behaviour is likely to be limited, said Akshay D'Souza, chief of growth and insights at Bizom, that tracks 75 lakh kiranas or mom-and-pop stores.

"The demand situation on the ground continues to remain under stress,” he said. As the election draws near, it will be intriguing to see if consumption levels rise or if they plateau once the summer season starts to wind down, D'Souza said.