FMCG in India feels the pinch of high inflation

Outlook remains positive as households increase purchase frequency, and save money through government support.
27 June 2022
India-FMCGQ2
Ramki Kasthuri
K. Ramakrishnan

Managing Director, Worldpanel Division, South Asia

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As in so many markets across the globe, recent meteoric price rises have squeezed FMCG consumption across all categories in India. Retail inflation hit 7.8% in April 2022, the highest level in eight years.

FMCG sales continued to fall in the latest quarter (February-April), losing 1.1% in volume. This is the fourth quarter in a row than volume has declined. Looking at the month of April alone, the drop had increased to 1.4%. However, consumer confidence and optimism are high, perhaps due to the fact that the third wave of COVID-19 to reach India proved to be fairly mild.

One of the changes in consumer behaviour we can see happening is that shoppers are buying smaller packs, more often, in an attempt to balance their budgets. Between Feb-Apr 2021 and Feb-Apr 2022 the average price paid per kilo of FMCG jumped by 10.1%. In the same period, the average pack size reduced by nearly 15%, while the number of FMCG packs purchased rose by 15%.

Big declines in staple categories

More than a third (37%) of the categories we track have either lost volume compared to Feb-Apr 2021, or have grown at a slower rate than the population, meaning that consumption has shrunk in real terms. These categories include atta (wholemeal wheat flour), edible oils, hand wash, floor cleaners, hair oils and detergent bars. Together they contribute 65% of all FMCG volume sold.

Atta and edible oils alone contribute nearly 45% of FMCG volumes – meaning that anything that happens to these categories has a significant impact on FMCG numbers as a whole. After growing 8% between Feb-Apr 2021, edible oils managed to grow just 1% in the same period this year. Atta declined by 30%, as a result of the distribution of free wheat and atta by the government.

The raging bulls

While these key categories have pulled down the overall performance of FMCG, there are some that are on a roll – including shampoo, talcum powders, spices, ready to cook mixes and noodles. Combined, these growth categories have seen a healthy 12% increase in volume purchased; however they represent only 35% of total FMCG volume overall. Reasons for this growth include increased purchase frequency, which has helped certain categories to weather the storm.

Shampoo managed growth of 13.6% in the quarter Feb-Apr 2022, while noodles grew by 30%, its best performance since the pandemic began. Deodorants managed a massive 40% growth in volume in the quarter, despite an increase of over 10% in price per litre. Volume in biscuits and salty snacks rose 13.3% and 14.7% respectively, while bottled soft drinks are quickly erasing their pandemic losses with growth of 67%.

A look at OOH habits

Biscuits boasts the highest penetration in the recovering out-of-home (OOH) environment, with 54% of the population purchasing the category monthly on average. It is closely followed by salty snacks, which is purchased by about 49% of the population.

Chocolate is one of the categories with the highest loyalty among Indian consumers. On average, households purchase 3.3 packs of chocolates out-of-home every month, in around 1.5 occasions – but only buy an average of 1.2 brands.

There are many different Indias

India is multi-faceted and unique, and this can be seen clearly in the data we gather from our consumer panels, which disproves some assumptions that are often made about FMCG shopping behaviours. For instance, it’s not consumers in the biggest and most cosmopolitan cities that spend the most on FMCG, buy more premium brands, or purchase more personal care products.

India’s major cities are certainly crucial targets, but brands and retailers should also give small towns the consideration they deserve. No longer laggards, these are populated by retired people and employees earning a good income, who have fewer expenses than households living in metropolitan areas.

FMCG in India is starting to feel the pinch of high inflation. Certain high frequency categories are insulated for the time being, and these will continue to perform well. As inflation deepens more people will make use of benefits offered by the government, and are likely to spend the money they save on other items. As a result, the outlook for FMCG consumption remains positive.

 

Download the latest FMCG Pulse to take a closer look at the effect of price rises on consumption in India; and reach out to our experts for additional insights and to learn more about our new Out-of-Home panels in India.

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