FMCG Volume Lags Real GDP Growth, Turnaround Likely To Take Six Months

India's fast-moving consumer goods industry is reeling from prolonged consumption slowdown, with no relief in sight at least in this financial year.

Top bosses of staples-to-soap companies expect demand to recover only in the first quarter of fiscal 2025, on the back of gradual uptick in rural sales, with inflation moderating, and as pricing corrections that companies have already initiated begin to flow through to reach the end consumers.

"It's been far too long since we saw an explosion of growth," Varun Berry, executive vice-chairman and managing director at Britannia Industries Ltd, told NDTV Profit on the sidelines of CII National FMCG Summit on Monday. He expects it will take six months for volume growth to return to normal levels, led by rural markets, which has been a laggard for several quarters now.

Dabur India Ltd. is seeing a volume pick-up in both urban and rural areas, said Chief Executive Officer Mohit Malhotra. "But rural markets have not grown to the extent that we would want them to grow...In a couple of quarters, we expect the growth recovery to happen in the rural areas."

Malhotra also expects margins to go back to pre-Covid levels by end of the fiscal. Dabur aspires to achieve Ebitda margins of 20% in another year.

"In a consumption-driven economy where real GDP grew 5.9% over the last 15 years and real household consumption grew 6.1%, the FMCG industry demonstrated only a 3.4% volume growth," said Abheek Singhi, managing director and senior partner, chair of practices at Boston Consulting Group.

Consumption has been hit by competing categories such as leisure, entertainment, travel, eating out, expenditure on durables and telecom, which has taken away the share of wallets at the middle and upper ends of the market, according to Singhi. Higher prices of staples, home care products and packaged foods and beverages contributed to the pressure on volume growth. He expects the industry volume growth to touch 5-6% in the next decade, given supply-side constraints improve.

"FMCG is about how many consumers you can reach," he said. He expects traditional companies to emphasise on share of wallet than on competition, focus on category and segments through innovation, and shift focus from penetration to usage and frequency to reignite growth in the FMCG sector.

A CEO panel that comprised management teams from Colgate Palmolive Co., Dabur, Marico Industries Ltd., Hindustan Unilever Ltd. and L’Oreal SA agreed on the need for category development efforts, which has been lagging in the last decade; upgrading consumer from price-point packs that comprise bulk of sales and distribution depths being key to break past the slow structural growth in the past. The managements noted that focus on profitability is a result of inflation, owing to which, companies have curtailed ad spending. This impacted category innovation leading to structural slowdown.

"One-third of the business in our categories is locked in price-point packs," said Deepak Subramanian, executive director, home care at HUL. "The consumption of the packs has increased over the years, but the question is are we doing enough on the pack strategy and how to get the bridge going up." Of the three divisions, beauty and personal care is the fastest growing, followed by home care and food and beverages.

Nestle India Ltd.'s innovation-to-sales ratio currently stands at 6%, said Chairman and Managing Director Suresh Narayanan. "I am not entirely happy with it, and I think we need to take this up to 10%."