Having learnt their Maggi lessons hard way in 2015, the FMCG sector is desperately looking for a brighter new year with hopes pinned on revival in rural demand and push from e-commerce even as an enhanced regulatory glare would keep them on toes with regard to safety of products.
While poor rainfall impacted rural consumption of FMCG products during 2015, heavy rains in Chennai and some other parts towards the year-end also hit the companies hard including in terms of impact on their production facilities. But the biggest hit came from ban on the popular Maggi noodles, which was subsequently lifted on court orders but led to greater scrutiny on all instant food products.
While Nestle India has relaunched the instant noodles brand, the issue brought to the fore the food safety issues as although questions also emerged about the testing standards of various government laboratories.
Nestle is estimated to have taken a hit of Rs 450 crore and had to destroy over 30,000 tonnes of the instant noodles. “The Maggi issue disrupted business during the year and the shock is much larger than what the company alone has faced or what our results have indicated. It impacted thousands of workers, suppliers, partners, farmers, distributors, truckers, retailers and other stakeholders who constitute the Maggi brand,” a spokesperson for Nestle India said.
Impacted by the ban, Nestle India reported a standalone loss of Rs 64.40 crore in the April-June quarter for the first time in 15 years. In the subsequent quarter, its standalone net profit dipped by over 60%. The Maggi ban impacted instant noodles business of other companies as well including the conglomerate ITC.
“The instant noodles category was impacted and witnessed a significant decline in sales volume when the controversy broke out,” an ITC spokesperson said. At the same time, the FMCG companies including HUL, ITC, Marico and Dabur were facing challenges of low demand on account of dip in the rural income due to scattered rains bundled with deflation of commodity prices in 2015, which forced them to slash the price of soaps and detergents and increase spending on advertising and promotions.
Although, there was general optimism about the overall economy, this was not seen getting translated into higher consumer spending. Many FMCG firms also faced liquidity issues due to an overall increase in cost of funds. The only silver lining was seen in the urban markets where modern retail chains and e-commerce boom emerged as new lucrative sales channels for them.
The companies are now betting on these channels to expand to rural markets as well. According to the latest government data, the consumer non-durables sector saw a growth of only 0.1 per cent during the six months period of April to October, as against 1.1% growth in the same period of last year.