FMCG sluggishness forecasts a slowdown

People are buying fewer clothes as they are still spending a lot of time at home with many companies allowing work-from-home for 2-3 days a week. Secondly, consumers’ disposable incomes have declined because of food price inflation and interest rates going up impacting their monthly EMIs on loans

Inflation, untimely rains and declining disposable incomes have played spoilsport for India’s fast-moving consumer goods (FMCG) companies selling edible oils, soaps, shampoos and home care products, consumer durable firms selling large appliances like air conditioners and refrigerators and fashion companies selling apparel. The first quarter of the new financial year (April to June) has not seen much of a lift in volume growth for consumer products companies, said brokerage firms.

laptop and shopping bags, online shopping concept.

In its report FMCG Pulse, market researcher Kantar said household expenditure on FMCGs grew (it looked at 12 months figures from April to April). However, one big reason for the higher expenditure was the higher prices of daily essentials. Since consumers are paying more for the same quantity of goods, value growth has outpaced volume growth. The report noted that despite inflation easing, shoppers’ burden has not lightened which is why they are looking for price discounts.

However, in the fashion category, even steep discounts have not attracted buyers. A report by ICICI Securities said apparel brands kicked off their End of Season Sale much earlier indicating a subdued performance in Q1FY24. The equity research firm surveyed top retail companies like Shoppers Stop, Reliance Trends, Lifestyle, Pantaloons, VMART and Max and Westside to conclude there’s a general business slowdown and higher discounts reflect relative stress in underlying inventory.

According to a report by the Confederation of Indian Textile Industry (CITI), sales of apparel and textiles in India fell by 10% in the first quarter of 2023. The report said that at 12%, the decline in sales was particularly pronounced in the offline segment.

People are buying fewer clothes as they are still spending a lot of time at home with many companies allowing work-from-home for 2-3 days a week. Secondly, consumers’ disposable incomes have declined because of food price inflation and interest rates going up impacting their monthly EMIs on loans, Wahi said. This has led to reduced spends on non-essential items like clothing, apparel, he said. Retailers expect apparel sales to improve in the festival season later this year.

While some green shoots are visible in rural markets, Wahi said the impact of El Nino on agri-production could impact the farm output and farmer incomes. Heavy, unseasonal rains and lower overall temperature in many parts of North and West India affected sales of aerated/non-aerated beverages, air conditioners, refrigerators, ice creams, cooling hair oils that depend on long hot summers to drive consumption.

In an interview to Mint, LV Vaidyanathan, MD and CEO of P&G India, the maker of Tide and Ariel detergents and Pantene shampoo, said though things have improved, he hasn’t seen volume growth coming back especially in rural India. Wahi agreed that the rural market may have improved owing to good monsoons and harvest season, but it is still not back to pre-pandemic levels. “This is likely because rural consumers have been hit harder by the food price inflation than urban consumers,” he said.

The FMCG industry witnessed a consumption slowdown in the June quarter with an overall “negative” volume growth, driven by market sentiment and inflationary pressures. “In addition to food price inflation and declining consumer confidence, continued lukewarm consumption in the FMCG category can be attributed to the impending economic slowdown,” he said.

Based on various estimates, the Indian economy grew 6.1% for the March quarter, down from 7% growth for the last fiscal, but ahead of the estimates of 5.1% for the quarter, said Wahi. There are worries that domestic inflation, global headwinds caused by rising interest rates (in India and globally), slowdown in many developed markets, and the continuing war in Ukraine, are likely to cause a slowdown in the economy. “This is affecting consumer spending,” he said.

However, he expects the government “to do everything in its power” to boost the economy in the run-up to the general elections next year. It may further increase spending on infrastructure projects, complete the current projects on time or ahead of time, and, also provide tax breaks to certain industries that are feeling the strain of global and domestic slowdown.

“In the current economic climate, my sense is that the government is likely to be more willing to take steps to put more money in the hands of consumers to revive consumption,” he said.