Fast-moving consumer goods (FMCG) have an important place in the Indian economy. The industry is based on three main segments in the sector – food and beverages contributing 19 per cent in this sector, healthcare contributing 31 per cent while the remaining 50 per cent is accounted by household and personal care. However, FMCG is the fourth largest sector in the Indian economy.
Uncertainty looms over several sectors
With the slowdown of the Indian economy, uncertainty is looming over the agriculture sector and sustainable incomes. Lack of job opportunities has created a ruckus in the FMCG sector in 2019. Most youths are sitting idle running from pillar to post to get a job. Prices of daily use commodities are soaring. Survival is the primary objective for the people of all walks of life. Pockets don’t allow to purchase FMCG goods, which has hovered a gloom on this sector because one segment is connected with others for proper holistic growth.
FMCG sees the worst slowdown
The FMCG sector has been passing through the worst downturn in over a decade time. Consumers don’t have money to purchase and use luxurious items regularly as they used to do in the past. How to woo customers? Several FMCG companies have cut prices of essential commodities between 4 to 6 per cent, especially in soaps. But no positive sign is seen soon.
Rural growth lowest in 7 years
Sunil Khiani, head of retail measurement services at Nielsen South Asia said, “In the last seven years, this is the lowest we see from a rural growth perspective; second is, we have always seen so much potential coming in rural from a commodity to branding perspective that rural always used to outpace urban from a growth point of view. This is the first time around where we see otherwise”.
Low purchasing power
The purchasing power of the people in the country has gone down due to the poor economic condition of India and the rise of unemployment. So people have to be cautious and change their consumption habits. That is why market research firm Nielsen had to change its growth prediction for the Indian FMCG sector to 9 per cent for the financial year 2019; its earlier forecast was 11-12 per cent.
Consumption of FMCG goods decline
The use of FMCG products has tremendously declined in rural areas. Suresh Narayanan, Chairman and Managing Director, Nestle India said in Mumbai that “As far as Nestle is concerned, we have managed to show volume led growth in the last eight quarters that is a combination of the lower rural footprint compared to other companies. Only 20-25 per cent of Nestle’s sales come from rural and rest comes from urban”.
Companies cut costs on ads
Seeing the dearth of interest of consumers in purchasing of FMCG goods, most companies are trying their best to entice people to buy FMCG products. But success is eluded from them because most of the consumers’ pockets are empty. Apart from this, many companies had to cut back on the advertisement and other promotional spending to cut costs. Godrej and Dabur had reduced their spending on advertisement by 13 and 3 per cent respectively in the first nine months of 2019.
Rural India a big market for FMCG
Rural India was a big market for the consumption of FMCG goods. Overall, 37 per cent of goods were sold in rural areas of the country. But the sluggish economy of the country has slowed down the consumption of FMCG goods in rural India. In 2019, rural growth hit a seven-year low, which is a concern for several companies in this sector. Companies don’t have any market to clear their old stocks. Full-scale production has been stopped. Therefore naturally, many people are losing jobs in this sector.
The poor growth in the agriculture sector for over two years has weakened the rural economy. The GDP of the farm sector was just 2 per cent in the October-December 2018 period, which is the slowest in any quarter since April-June 2012. The slump in the agriculture sector has broken the backbone of the rural economy. Hence, people have lost their purchasing power, which is the reason behind the decline of consumption of FMCG goods in rural India.