Sharp hike in prices hit rural demand
The sharp rise in prices of consumer staples has resulted in a sharp decline in consumption in the country’s rural markets. The year-on-year decline of 5.3% in the January-March quarter is the biggest slowdown seen in the last three quarters.
Nielsen data shows that rural markets saw higher price growth in the January-March quarter at 11.9 per cent year-on-year compared to 8.8% for urban areas. While the decline in consumption is evident in towns and regions, the decline is more pronounced in rural markets. The southern and northern regions reported volume declines of more than 5% year-on-year.
FMCG companies have said that high inflation is affecting rural demand. Saugat Gupta, MD & CEO, maricoIt has been observed recently that rising prices continue to dampen consumer sentiment, especially in rural areas. Gupta also cautioned that the short-term demand outlook was somewhat uncertain.
FMCG companies have tried to protect their margins by resorting to price hikes and this is likely to push up prices further. Sanjiv Mehta, CEO & MD, Hindustan Unilever, as much is indicated, saying that some price hikes may be required. However, Mehta said that a large part of the input cost problem had so far been managed by reducing the grammar and “immediate price hike is our last resort.
The double-digit price hike fueled 6% growth in the FMCG space in the three months to March, helping to offset the contraction in volumes to a range of 4.1%. The de-growth in volume for non-food items was significantly higher at 9.6% year-over-year, compared to a 1.8% year-over-year decline for food. In the December 2021 quarter, the contraction in overall volumes was smaller at 2.6% yoy, while the March 2021 quarter has seen volumes grow by 8%.
Adani Wilmar reported an average price increase of 30-35% in the edible oil segment and 15% in wheat flour and rice during the quarter ended March.
The Nielsen IQ FMCG snapshot Q12022 shows that the exits of small manufacturers increased by 5.3% year-on-year during the quarter. This is mainly due to the inability to pass on the higher input costs to the consumers. The slowdown would have been exacerbated by the disappearance of products from these smaller players from the shelves.
The prices of home care and personal care products have increased by about 25-50% annually and this has hit the household budget the most. Sudhir Sitapati, MD & CEO, Godrej Consumer ProductsThe company’s personal wash portfolio is likely to see a price hike recently, it added.
NielsenIQ Managing Director Bharat Satish Pillai said macro-economic indicators are still guiding the consumption pattern for the Indian consumer. “They are feeling the impact of the increase in prices – especially in the food and essential categories,” Pillai said.
NielsenIQ’s Customer Success Lead (India) Sonika Gupta said consumers are reducing their discretionary spending in the non-food category. “Overall, there has been a clear shift from consumers to smaller pack sizes to manage external factors for both food items and non-food items. Keeping this in mind, manufacturers and retailers need to ensure correct assortment of pack sizes across all brands to account for this consumption change,” she said.