Consumer companies across various sectors are witnessing a revival in demand, with expectations of a further boost from March-April onwards. This resurgence in consumer demand is attributed to upcoming general elections and a reduction in inflation. Rural markets and mass-segment products have already shown signs of recovery, indicating a positive trend for the consumer industry.
While demand is on the rise, inflation continues to persist in certain FMCG segments. Prices of edible oil, which experienced significant inflation post-Covid, have fallen by 13-30% over the past year. However, prices of daily groceries and household products, including rice, soaps, and detergents, have seen marginal increases. Consumer goods companies have implemented price cuts to offset rising costs, with the industry rolling back about two-thirds of the price hikes taken last year. This rollback aims to mitigate the pressure on volume growth, even as input cost inflation persists to some extent.
The recovery in consumer demand is driven by urban markets, where incomes have shown more resilience. In the September quarter, FMCG volume growth was 7.2% year-on-year, with urban sales volume growing by 8%. However, rural FMCG sales expansion was around 6% year-on-year in the June-September 2023 quarter. Companies expect rural volume to recover with the onset of a decent monsoon, which typically translates into higher sales after a lag of one quarter. The market is expected to exhibit robust volume growth in the next two quarters, fueled by rural recovery and pricing actions taken by large players.
The stability of the economy and the gradual control of inflation are contributing to improved consumer sentiment. Large organised players in the consumer industry are focusing on gaining market share by controlling prices, particularly for essential non-food products. The drop in rural volume over the past year, attributed to inflation and erratic monsoons, is expected to reverse with the recovery of rural markets. Consumer companies are optimistic about the future and anticipate a positive growth trajectory in the coming months.
RTM Watch’s Take
The revival of consumer demand from March-April onwards is a positive sign for the consumer industry. The recovery in rural markets and the focus on price control by large players indicate a favourable outlook. The upcoming general elections and the reduction in inflation are expected to further boost consumer spending. However, companies need to remain vigilant and adapt to changing consumer preferences and market dynamics to sustain this demand recovery. Overall, the consumer industry is poised for growth in the coming months.
