FMCG Sales Dip In August As Traders Go Slow On Stocking

India's fast-moving consumer goods sales fell 8.4% in value in August over last month as record-low rainfall failed to support the nascent recovery in rural demand. This prompted the anxious mom-and-pop stores to keep inventory low in the run-up to festive season.

Sales of groceries-to-personal care had risen 3.1% month-on-month in July, aided by rural demand that had just started to move back into positive territory after being under pressure for over a year, according to the latest data from retail analytics platform Bizom. In August, consumer goods sales fell not just month-on-month but were also 11.2% lower over last year.

With the August rain shortfall being at almost a 100-year low, we see kiranas stocking very carefully," said Akshay D'souza, chief of growth and insights at Bizom. "As we look ahead, it seems that the impact of rains in September will be critical to the sowing season, and this could impact sentiment and consumption of FMCG products, especially in rural areas."

Rainfall in August had been the lowest in over a century, with India getting 36% less rain than it usually does in the month. With a strengthening of the El Nino and unfavourable conditions, both in the Arabian Sea and the Bay of Bengal, August rainfall has been markedly deficient in most of India, except in northeastern India, the Himalayan states, and parts of Tamil Nadu, according to data from the India Meteorological Department. Low rainfall was recorded in Bihar, eastern Uttar Pradesh, Chhattisgarh, Kerala, Gangetic West Bengal, Jharkhand, parts of Karnataka, and Maharashtra.

Rural sales fell 17.2% in August over the last month, in contrast with a 2.3% growth in rural sales last month. Urban demand, on the other hand, grew just 1.9% in August, as against a 7% decline in July. A significant fall in edible oil prices had an impact on urban sales last month, according to Bizom.

"Even as we expect edible oil prices to hold up during the festival season, the prices are currently down by over a third year-on-year, leading to a drop in sales value. And, as a result, commodity product sales are also down by almost a fourth compared to the previous year," said D'souza.

The only categories to buck the trend are confectionery and packaged foods, driven mainly by gift packs.

Cadbury’s maker, Mondelez India Foods Ltd., told BQ Prime that the demand is looking promising on the back of higher offtake during Raksha Bandhan in August.

Parle Products Pvt., too, saw a pick-up in sales of impulse categories. However, the packaged goods maker has a word of caution about the current inflationary spiral and the vagaries of the monsoon—the factors that would determine the magnitude of the rise in demand going ahead.

"The next 15-20 days are crucial, and if we don't see the monsoon reviving, then it may have a bearing on the feeble rural demand recovery," Mayank Shah, senior category head at Parle Products, told BQ Prime on Sept. 5.

However, the IMD expects the southwest monsoon to revive in September, the last of the four monsoon months.