Over the past decade or so, makers of soaps, detergents, personal care products and packaged foods - items that come under the rubric of fast-moving consumer goods(FMCG) - have diligently launched and re-launched products and cut costs in response to a market that grew more hyper-competitive by the day. These tactics stood them in good stead when markets slowed and consumers cut back on discretionary spending. But the latest survey from market research firm IMRB suggests that FMCG companies will have to become even more nimble because the FMCG market is becoming more fragmented and hard to predict. Consumption data for 2014 suggest that demand in rural India, the mainstay for many FMCG companies in previous years, shrank three per cent (in volume terms) from zero growth in 2013. In comparison, it was urban consumption that grew, to four per cent from minus two per cent the year before in volume terms. In overall value terms, urban Indian consumption outperformed consumption in rural India significantly at six per cent growth compared with three per cent.
The data contradict the received narrative that rural India is the faster-growing market for consumer companies in general. Analysts have attributed this skew to the fact that rural consumers down-traded owing to the economic slowdown, especially after rationalised subsidies reduced disposable income in rural hands. This may be the case for some consumers, but it simplifies a much more complicated picture. That's because the disaggregated data show divergent consumption patterns in rural and urban India. For instance, rural consumption of personal care products outstripped urban consumption both in volume and value terms. Rural consumption of personal care products grew five per cent in volume terms and a solid eight per cent in value terms. For urban India, the corresponding numbers are three and six per cent. These numbers are easy to explain in the sense that FMCGs are recession-proof products or what investors typically call "defensive stocks": their demand does not fall when gross domestic product (GDP) growth slows because people continue to have baths and brush their teeth whatever the state of the economy. But the eight per cent surge in rural consumption in value terms suggests that these consumers are not necessarily down-trading in their choice of personal care products. Interestingly, too, rural consumption on household care outstrips urban consumption - in volume terms it has grown, respectively, two and four per cent; in value terms, the growth is eight and nine per cent. Again, this contradicts the down-trading narrative. The significant shrinkage in overall rural consumption comes from foods: this category shrank dramatically by five per cent in volume terms and by one per cent in value terms. In contrast, urban consumption of foods grew four per cent in volume terms - a significant expansion from minus three per cent the year before.
It is difficult to read an overall message into a market as diverse as in India, but it is possible to discern how rural consumers define value: they will spend on indispensable items, like soap, toothpaste, detergent and cleaning fluids, without down-trading whatever the state of the economy - but they're likely to spend less on luxuries, like snacks and biscuits, in such a situation. The growth in personal care and household products in rural India could also be attributed to increased penetration by the FMCG companies in newer segments and territories, compared to an almost fully saturated market for such products in urban India. And that could mean that it is the urban markets that have become more difficult and unpredictable. Since this is still the significantly larger market, FMCG makers will have to sharpen their market intelligence skills even more to sustain their growth and stay competitive.
The data contradict the received narrative that rural India is the faster-growing market for consumer companies in general. Analysts have attributed this skew to the fact that rural consumers down-traded owing to the economic slowdown, especially after rationalised subsidies reduced disposable income in rural hands. This may be the case for some consumers, but it simplifies a much more complicated picture. That's because the disaggregated data show divergent consumption patterns in rural and urban India. For instance, rural consumption of personal care products outstripped urban consumption both in volume and value terms. Rural consumption of personal care products grew five per cent in volume terms and a solid eight per cent in value terms. For urban India, the corresponding numbers are three and six per cent. These numbers are easy to explain in the sense that FMCGs are recession-proof products or what investors typically call "defensive stocks": their demand does not fall when gross domestic product (GDP) growth slows because people continue to have baths and brush their teeth whatever the state of the economy. But the eight per cent surge in rural consumption in value terms suggests that these consumers are not necessarily down-trading in their choice of personal care products. Interestingly, too, rural consumption on household care outstrips urban consumption - in volume terms it has grown, respectively, two and four per cent; in value terms, the growth is eight and nine per cent. Again, this contradicts the down-trading narrative. The significant shrinkage in overall rural consumption comes from foods: this category shrank dramatically by five per cent in volume terms and by one per cent in value terms. In contrast, urban consumption of foods grew four per cent in volume terms - a significant expansion from minus three per cent the year before.
It is difficult to read an overall message into a market as diverse as in India, but it is possible to discern how rural consumers define value: they will spend on indispensable items, like soap, toothpaste, detergent and cleaning fluids, without down-trading whatever the state of the economy - but they're likely to spend less on luxuries, like snacks and biscuits, in such a situation. The growth in personal care and household products in rural India could also be attributed to increased penetration by the FMCG companies in newer segments and territories, compared to an almost fully saturated market for such products in urban India. And that could mean that it is the urban markets that have become more difficult and unpredictable. Since this is still the significantly larger market, FMCG makers will have to sharpen their market intelligence skills even more to sustain their growth and stay competitive.
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