Are these slow-moving consumer goods now?
The private final consumption expenditure (PFCE) share in GDP declined to a seven-quarter low of 57.7 % in Q1FY20. A slowdown in India's consumption demand is taking a heavy toll on the country's consumer goods space. India’s fast-moving consumer goods (FMCG) market slowed to a five-quarter low in Q2 FY20 period as consumer sentiment remained tepid. Industry growth rates have hit a near two-year low, and this is being felt across urban and rural market.
The primary reason for the slowdown in the sector is a sharp slowdown in the rural segment. Rural India contributes to 36% to the overall FMCG spend and Rural growth was ahead of urban growth by 1.3 times earlier. It is now only 0.5 times of urban growth. The longer monsoon season and erratic rainfall this year, which cause floods in several parts of the country, had disrupted demand as well as logistics and supply chain, especially in rural areas.
Government is doing its bit to improve sentiments and push the demand higher. Repo rate cut and linking repo rates to benchmark will accelerate the transmission of rate cuts by RBI and improve liquidity in the trade as liquidity crunch in the market is also forcing traders and stockists to seek longer credit periods. Crude prices have to remain benign and it is a relief for gross margins of the companies depending on the inventory & forward and logistics cost covers of their crude linked raw materials.
On the other hand, in an effort to push sales, FMCG companies are resorting to discounting, small pack sizes and micro-marketing strategies. With structural shifts within sectors of the economy and bleak short term outlook, FMCG companies will need to revise their strategies and swim carefully in shallow water until the demand is back.