Saugata Gupta, Managing Director and CEO, Marico, said the FMCG sector continued to witness a gradual improvement in demand trends in the June quarter, with rural growth ahead of urban growth | Photo: Shutterstock
Fast-moving consumer goods (FMCG) companies are expecting sustained volume growth in the coming quarters, driven by recovering demand in rural markets and a good monsoon, despite concerns over rising food inflation.
FMCG majors including HUL, ITC, Dabur, Britannia, Nestle and Emami in their June quarter results reported “green shoots” in rural markets and strong growth in e-commerce channels, particularly fast-trading platforms.
The sector recorded a volume growth of around 6.6 per cent in the April-June period this fiscal year. However, businesses are concerned about high food inflation as coffee and cocoa prices have risen unprecedentedly. Amid expectations of rising cereal and grain prices, some of the players have even indicated price increases.
Dabur CEO Mohit Malhotra said: “Going forward, volumes will increase on the back of improving rural areas. So I expect the next few quarters to be better than the current ones, but definitely not worse.”
He expressed optimism and said that with a good monsoon, improving macroeconomic indicators and government spending focused on rural areas, demand for FMCG will see a gradual pick-up.
Malhotra also mentioned that food inflation is very high today and “we might have to accept some price increases in food, but it depends on what the situation is like.”
Marico Managing Director and CEO Saugata Gupta said the FMCG sector continued to witness a gradual improvement in demand trends in the June quarter, with rural growth ahead of urban growth.
“We expect volume trends to maintain the improving trajectory, helped by stable retail inflation, a healthily progressing monsoon season and government budgetary allocation to boost the rural economy,” he said.
However, Gupta also added that “high food inflation and spatial distribution of rainfall will be key factors to monitor.”
Nestlé, in its first quarter earnings report, said: “Commodity prices are experiencing unprecedented headwinds in coffee and cocoa, with record prices and an ongoing price rally. Cereals and grains are experiencing structural cost increases supported by minimum selling price.”
However, Maggi and KitKat makers also added that there is relative stability in the prices of milk, packaging and edible oils.
In the June quarter, FMCG manufacturers also reported significant gains in the e-commerce segment, with express commerce posting the highest growth. However, some of them reported a slowdown in traditional channels such as kirana stores in urban markets.
“We have seen strong share gains in modern trade, e-commerce and rural sector, but have lost share in urban general trade,” Godrej Consumer Products Ltd (GCPL) MD & CEO Sudhir Sitapati said.
For Dabur, emerging channels such as e-commerce and modern commerce registered strong double-digit growth and now contribute to around 20 per cent of its domestic business.
“E-commerce is booming for us. It’s about 30 per cent growth in e-commerce, driven by fast commerce. Fast commerce growth for us is about 70 per cent, driven by Zepto, Blinkit, Swiggy and Instamart,” Malhotra said.
According to Malhotra, margins on fast commerce are better than those on e-commerce.
Similarly, Marico’s Gupta said fast-track commerce has significant growth potential for its growing food business and it is now going to play aggressively in the segment.
HUL also said e-commerce continues to be a “very strong” growth driver for them, growing above the market and at three times the rate of their current retail growth.
“We expect rural and FMCG demand to continue to improve gradually,” HUL’s top management said, adding, “We will continue to evaluate strategic pricing opportunities and expect to have a low single-digit positive result by the end of this financial year.”
In its earnings statement, ITC said emerging channels such as modern trade, e-commerce and express trade witnessed “robust growth” in its FMCG Other segment, which houses its branded packaged foods such as staples, snacks, meals, dairy and beverages, confectionery, personal care products, etc.
The company, which owns brands such as Aashirvaad, Bingo, Yipee and Fiama, said: “Moderating inflation, improving agricultural terms of trade, expectation of normal monsoons and government’s emphasis on public infrastructure and rural sector augur well for a recovery in consumer demand, riding on the green shoots of recovery that are visible in rural markets.”
Britannia Vice Chairman and Managing Director Varun Berry said the FMCG industry has the same growth in value and volume of around 6.6 per cent.
“Rural growth is starting to come back, after lagging behind urban growth for some time,” he said, adding that this “will help us achieve better growth overall.”
The reason is that there are better rains, moderate inflationary conditions and rural employment at record levels. “So the situation looks a little better, it’s not totally out of the woods yet, but it’s definitely better than before,” he said.
E-commerce is still very small for the bakery food company, which owns brands including Good Day, Tiger, NutriChoice, Milk Bikis and Marie Gold, but it has been steadily building its business there, which is paying off, Berry said.
“We know it’s an important channel, albeit a small one for us at the moment, but it’s a test bed for innovation and new categories,” he said, adding: “It’s a channel we can use for a lot of our current premium products, as well as to make sure we’re making products that are really what consumers are looking for.”
Emami Vice President Mohan Goenka said on the first quarter earnings call that rural demand showed gradual improvement with slight green shoots emerging.
“…the momentum is good. External factors like monsoon and rural markets are shining. So we will have to wait and see how the market develops, how the numbers turn out. But we are optimistic and believe that we will achieve better results than last year,” he said.
(Only the headline and image of this report may have been reworked by Business Standard staff; the rest of the content is auto-generated from a syndicated feed.)
First published: August 18, 2024 | 14:45 IS
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