Reports from Business Standard indicate that the Fast-Moving Consumer Goods (FMCG) sector is currently experiencing persistent low demand, leading to a congestion in the supply chain and a notable increase in inventory days. This surge in stocks at distributor levels is primarily attributed to a significant escalation in inventory days, in some instances doubling, due to sluggish consumer purchasing trends.
Reports also said that distributors, dealing with this deceleration in demand, are accommodating the situation by offering retailers extended credit terms of up to 45 days. This extension in credit aligns with the amplified inventory days and the challenging consumer spending patterns. Additionally, major brands, including those in the food sector, are encountering similar hurdles, facing a doubling of inventory days, and in certain cases, witnessing inventory backlogs stretching as far as 60 days.
Although the customary surge in demand expected during the festive and summer wedding seasons did not result in increased sales, there has been a steady accumulation of inventory in recent months. Distributors, particularly in the eastern regions of the country, remain cautious and are observing the post-rabi season to assess future demand patterns.
Across the nation, this situation remains consistent, particularly evident in North India, where the typical inventory holding period has surged to approximately 40 days, more than doubling from the customary 15 days. A distributor, preferring anonymity, from this region highlighted a notable 30-35% drop in demand, particularly during the festival season. Sales of popular items such as gift packs, beverages, and namkeens (salty snacks) were notably subdued, contributing to this decline.
In response to retailers’ appeals for extended credit periods, certain distributors have opted to minimise risks by cutting down on stock quantities. One distributor based in North India experienced a 20% decrease in sales following this strategy. Credit periods have now expanded to 25–26 days for fast-moving stock-keeping units, while slower-moving items are now allowed credit periods of 35-40 days.
On the contrary, NIQ and Bizom reports point toward a burgeoning FMCG industry evident in both rural and urban segments. NIQ’s findings reveal a noticeable resurgence in rural markets, with consumption showing an increase during the September quarter when juxtaposed with the corresponding period of the previous year. Bizom’s data highlighted a 1.6% rise in consumer goods sales within urban regions, while rural areas experienced a significant surge of 10.2%.
Recognizing the deceleration, prominent FMCG titans such as Britannia Industries Ltd and Marico have responded to the situation. Varun Berry of Britannia acknowledged a downturn in rural areas during the post-earnings call, while Marico linked the sluggish revival of rural demand to elevated food inflation and unpredictable rainfall patterns. Similarly, Hindustan Unilever and Dabur voiced apprehensions about rural markets trailing behind their urban counterparts.
Further complicating matters, PTI highlighted a reduction in rural consumption attributed to persistent food inflation and irregular rainfall. The FMCG industry encounters notable hurdles amidst subdued consumer demand, casting uncertainty over the potential recovery of rural demand in the second quarter of FY24. With a substantial portion of India’s population residing in rural areas, the deceleration in rural demand presents a significant challenge to the comprehensive development of the country, particularly as one-third of consumer goods companies’ revenues are tied to this segment.
