The expected sprint to strong growth in 2022 did not materialise and FMCG ended up limping across the finishing line at the end of the year. But there are signs of recovery in 2023. While global inflation, wars in other parts of the world and geopolitical issues are having a ripple effect on economies everywhere, the FMCG business in India is much more resilient than some of its global counterparts.
FMCG on the road to recovery
While FMCG volume is up marginally (0.54%) on 2021, this modest growth was purely driven by a 2.7% rise in population. Growth sank to 0% between February and April 2023 with an associated drop in consumption. But as the year has progressed, we have seen growth returning. While FMCG consumption isn’t positive yet and it’s too early to call it a complete recovery, we are definitely on the road to recovery.
Out-of-home consumption is on the rise
With the pandemic ebbing since the second quarter of last year and the economy opening up, we saw a gradual increase in purchases made for out of home consumption.
Snacking is more popular out of home versus in home . Biscuits and salty snacks were consumed the most and had the highest number of brands purchased in the year. The third most popular category was chocolate where shoppers spent the most out of the home – INR 54 billion, which equates to a quarter of all out-of-home spend. However, we expect growth of snacking to slow to under 3% this year.
As inflation bites, we see consumers turning to little treats as a way to indulge when money is tight. It allows themselves to having a little something nice when they are having to cut back spend in many other areas. Almost a quarter of purchase trips for ice cream (23%) and chocolate (22%) were done as a treat. When we analysed the value spend during the year, there was a heavy positive skew towards out-of-home consumption for all categories except biscuits, compared to their in-home value. Ice creams also came out on top for, with 90% of their value generated coming from out-of-home purchases.
Consumer spend falls due to inflation
Inflation in India has been fluctuating between 6% and 7% in the past few months with daily essentials like oil, rice, spices seeing some steep price rises. Our study of 6,000 households last year revealed that inflationary pressures have reduced spend by 10% between June and November. Almost half of consumers’ quarterly budget is spent on groceries and fresh produce and another 40% goes into other household expenses like utilities, commute and communication. Only 15% of the wallet is spent on discretionary items like fashion, eating out, entertainment etc.
Predictions for 2023
Without a doubt, the sector that benefitted most from the pandemic was snacking. Even after the economy opened up the sector's growth kept pace until a few months ago. It appears the category is slowing down, which will only intensify in 2023.
As more people returned to their company places of work in the post-pandemic world, the convenience sector started to grow faster. We expect double digit growth to continue, though at a slower rate than the 21% growth of the last 12 months.
Home hygiene only managed a 0.6% growth in the 12 months ending in January 2023. The sector has since struggled to rebound as many of those who entered the category when buying unbranded and proxy products during the pandemic did not continue to buy them afterwards. The challenging times are expected to continue into 2023, although with a slight improvement over the previous year.
2022 gave a new lease of life for the cold drinks sector, which grew by 47% in the year ending January 2023, but it was significantly front loaded. The second half of the year was underwhelming, especially with the last quarter losing volumes. 2023 is hard to predict. We expect the performance to be muted and in low single digits, even with a dry summer.
Consumer caution is set to continue
Consumers believe that the price of essentials rose during the second half of 2022. More than two-fifths of consumers feel prices have increased across various categories like fuel, electricity, and staples such as milk, atta/wheat and rice. In urban affluent households, 80% feel that prices have gone up, likely because they purchase from many more categories.
Despite the perceived price hikes, consumers are not planning to compromise on essentials. Instead, they are likely to manage their budget by moving to cheaper brands within household categories. However, if prices increase further we expect a fifth of consumers to rein in discretionary spend on things like convenience goods, entertainment, and eating out.
More than 75% of consumers are struggling to manage their budget and about 40% of them feel that the situation is going to become worse. Consumer caution is expected to continue through 2023 as inflation continues to rise, budgets are further squeezed, and an increasing number of consumers are worried about a gloomy future.
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