After a dismal performance in Q2, FMCG industry moves into a positive growth space.
With the pandemic achieving stability and markets and economy opening up, green shoots were visible in the July-August-September quarter for the year. There was an appreciable improvement in the performance of manufacturing, witnessed with an arrest of the declining Index of Industrial Production (IIP) from -57.3 per cent in April’20 to +0.2 per cent in Sep’20.
Drop in unemployment rate from 23.7 per cent at its peak in April’20 to 6.7 per cent in Sep’20.
Some of the macro variables still reflect the overall economic scenario with inflation rate continuing to rise and the Consumer Confidence Index (RBI) dropping to a low 49.9 in Sep’20 from a 85.6 in March’20.
The above-mentioned positivity was reflected in the FMCG industry too. After an unprecedented decline of -19 per cent in the Jan-Mar quarter, FMCG industry displayed signs of recovery in Q3’20 with a 1.6 per cent growth (versus Q3 ‘19).
The FMCG slowdown in Q2’20 saw a value decline of 19 per cent as compared to the same period of 2019. This was fueled by massive disruptions in the production and supply chain, and low consumer confidence.
The unlock from Q3’20, saw a revival in the industry with a growth of 1.6 per cent versus a year ago. The revival was aided by businesses opening up with the pandemic reaching stable levels. Markets started opening up in a phase-wise manner and store closures came down to an average of 3 days a month in Q3’20 from an average of 9 days a month in Q2’20. After being cooped at home for a long time, consumers also started looking at resuming normal consumption levels.
FMCG Q3’20- TO SUM UP
After a dismal performance in Q2 (April-June), FMCG industry moves into a positive growth space
Bharat (small towns & rural), North zone & small manufacturers driving growth
Consumer preference for affordable offerings continue
Innovation (new products launched) dominated by health & hygiene category
Nielsen outlook for FMCG industry growth for 2020 revised to the range of -1 to -3 per cent
With the opening of the economy all baskets showed signs of recovery, albeit with some clear changes reflecting consumers’ product preferences. Consumers prioritized spending on essential foods during the locked down quarter and with the unlock quarter this accelerated to double digit growth.
We saw an interesting trend in the non-food (Home care & Personal care) categories too. The segment registered a movement towards revival with Unlock in Q3’20, indicating a need to move towards normalcy. With heightened consciousness around health and wellness, the ‘health & hygiene’ categories have become an integral part of the new normal of the consumers and continued to boom in Q3’20 as well.
1. RURAL CONTINUES TO DRIVE GROWTH
With easing of pandemic and markets unlocking in various phases in the third quarter of the year, we saw recovery across town classes with the rural and Rest of Urban (ROU) regions continuing to lead growth. FMCG witnessed a double digit growth of 10.6 per cent in Q3’20 in Rural India, while the bigger cities (>1 Lakh population including metros and Town Class 1) played catch-up.
The rural markets have bounced back handsomely on the back of support provided by the government as well as good agriculture, reverse migration and a lower unemployment rate.
Various favorable macro-environment factors have helped drive rural revival in Q3’20
Government dialing up on rural stimulus in the form of increased MGNREGA allocation-
11 per cent increase in average wages at an All India level (Sep vs Mar’20).
83L new households joined MGNREGA labour force
'Garib Kalyan Rojgar Abhiyan’, support to agriculture and upskilling programs for migrant workers that returned to their villages.
A bountiful monsoon also brought cheer to farmers with a record output in the kharif crop season.
This has helped in increasing the purchasing power of the rural population, which is also reflected in the multiple times increase in spends within food and non-food baskets as compared to metros, with packaged staples and hygiene categories driving faster growth in rural India.
2. NORTH GROWING FASTEST WHILE WEST CONTINUES TO BE UNDER STRESS
The impact of the pandemic on consumption patterns is also apparent in the zones of the country.
Higher rural population and lower incidence of COVID cases in the East and North zone have helped these zones recover faster. On the other hand, the West zone that has a relatively higher urban population and had higher severity of the pandemic continued to decline in Q3’20.
3. TRADITIONAL TRADE & E-COMMERCE GAIN, MODERN TRADE IMPACTED BY BASE EFFECT OF BIG DAY
Traditional trade & ecommerce channels increased in salience in the Q3’20 vs the pre- COVID period.
Traditional trade that was impacted by store closures during locked down bounced back with unlock aided by consumers preferring to shop closer home. Ecommerce continued on its growth momentum, especially in the metros, where its salience increased by 2 percentage points (a 34 per cent increase in contribution) in Q3’20 vs Q1’20.
Modern trade on the contrary was impacted in this quarter. The continued closure of stores in malls and the muted Big Day sale of 15th August contributed to the significantly subdued August. However, with September, we see modern trade slowly moving towards recovery, with independent MT stores leading and already showing a 9 per cent growth in Sep’20 vs Sep’19.
1. PREFERENCE FOR AFFORDABLE OFFERINGS CONTINUES. PREMIUM FIGHTING BACK
Consumer wallets are shrinking and this can be seen in the changes in their product preferences as well. There is a continued preference of affordable offerings though now the premium category is also slowly reviving post a drop in the second quarter. The movement toward more affordable options is more pronounced in the foods category.
2. SMALL MANUFACTURERS DRIVING GROWTH - LARGE & MEDIUM MANUFACTURERS ALSO CATCHING UP
Despite flat growth in FMCG, small manufacturers have marched ahead in Q3’20, While large and medium manufacturers have also witnessed reversal of decline with unlock, smaller players were more agile during this period, especially ensuring stock presence at stores. Also a higher presence in rural India and staples basket helped with higher growths for the smaller manufacturers.
Interestingly, the market also witnessed a higher entry of smaller players and a lower churn compared to earlier quarters.
3. HEALTH & HYGIENE DOMINATES THE NEW LAUNCHES
There have been a higher number of new launches per se during the Covid period and a higher number in the non-foods space. As Covid has prompted consumers to re-frame their habits into health and hygiene, more new launches have been made in the health & hygiene basket including categories like hand sanitisers, floor cleaners, toilet cleaners, antiseptic liquids. New launches in the health & hygiene space contributed to 37 per cent (in value) of all new launches in the COVID period. The value contribution of new launches in the health & hygiene category was higher during Covid period at 2.9 per cent
OUTLOOK 2020 (Including Traditional Trade, Modern Trade and E-Commerce)
After the FMCG industry had a double digit drop in Q2’20 due to intense lockdown stressing the overall economy, it bounced back to positive +1.6 per cent growth in Q3’20 which reflects the onset of green shoots. While the market has initiated a recovery, the demand and supply disruptions caused by the world’s severest lockdown from end-March have severely curtailed economic activity. It is gradually returning to normal as restrictions are relaxed. However, continued spread of the pandemic is keeping the economy watchful.
Given the significant headwind built in the start of COVID-19 pandemic in March’20, Nielsen forecast for 2020 to remain in the negative single digit (-3 per cent to -1 per cent).
The key factors influencing the growth trajectory so far and the forecast for the future include:
COVID-19 Impact On The Economy:
Annual consumer price inflation in India increased to 7.5 percent in September of 2020 It is the highest rate since May 2014. Food inflation went up to 11.07 percent from 10.68 percent, the highest since January and ahead of the festival season impacting the overall expenditure and consumer confidence muted.
The trajectory of the FMCG industry once again reinforces the inherent strength of the consumption story in India irrespective of the fact that we had a GDP which shrank 23.9 per cent year-on-year in the second quarter of 2020.
There are steps being actioned by the Government that can help counter these changes in the coming quarter in the farm sector and has sought to deliver labour market flexibility:
The Interest-On-Interest waiver is expected to bring some relief and additional cash in hand for individuals and MSME businesses
The cash voucher scheme for central government employees is expected to boost spending in big proportions in upcoming months
About 83 lakh households enrolling from April to August under MNREGA saw an all time high providing livelihood in Rural
A bountiful monsoon has brought cheer to farmers, with a record output expected in the kharif crop season. With reservoirs filled to the brim, output is expected to be high in the rabi season as well. Increasing purchasing power in the hands of farmers is expected to increase rural demand. There has also been an appreciable improvement in the performance of both manufacturing and service sectors in October.