FMCG growth slows to 3.9%; Tier-2 cities and premium segments drive new trends

India’s fast-moving consumer goods sector continued to show weak momentum with volume growth at 3.9% in the year ending July 2025, down from 5.4% in the same period last year, according to the Worldpanel FMCG Pulse Report Q3 2025.

This marks five consecutive quarters since the sector last recorded volume growth above 5%. While some recovery is expected in the final quarter of the calendar year, analysts believe the overall growth will remain below 5% in 2025.

The Volume – Value Valley

In the year ending July 2024, volume growth stood at 5.4% and value growth at 6.3%, a gap of less than one point. This year the difference has widened sharply to 5.5 points with value continuing to pull away from volume for four consecutive quarters. Rising prices of cocoa, coffee and palm oil due to global supply issues and erratic weather have contributed to this trend.

An average household spends Rs 5,944 annually on cooking media such as edible oils, ghee and vanaspati, the highest among all categories. While spending has grown 6% over the previous year, consumption has fallen slightly as shoppers manage costs in this high-spend segment.

Snacking and fabric care are the next biggest spending categories. Average annual spends on snacking rose 6% to Rs 2,408, while consumption increased by less than 2%. Fabric care spending rose 4% to Rs 2,050, but consumption remained flat.

The convenience foods segment recorded the strongest momentum with spend growth at 37% and volume up 55%, driven by ready-to-cook mixes, oats and porridge. Consumers appear to be shifting toward cost-effective options to continue purchasing. In the pain relief category, spending rose 13% but volume increased by only 8%, showing that consumers are willing to pay more for effective problem-solving products.

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The GST Impact

Manufacturers are experimenting with unconventional pricing strategies instead of traditional magic price points. For example, Parle-G’s Rs 5 pack is now being sold at Rs 4.45 with no change in grammage. This points to a tactical shift in pricing rather than pack size.

The report notes that the sector is at the cusp of a turnaround. Cooling commodity prices and the upcoming GST 2.0 rollout are expected to stimulate spending and bring back some growth in the short term. A stronger recovery is projected to build gradually through 2026.

A love affair Tier- 2 cities and FMCG

The Worldpanel report highlights that the urban middle class makes up 21% of Indian households. Of these, 11% live in small towns, 6% in metros and 4% in tier-2 cities. Contrary to conventional belief, metro shoppers are not the biggest FMCG consumers. Tier-2 middle-class households purchased 231 kg of FMCG goods in the past year, 17% higher than metro and small-city counterparts who bought around 196 kg.

In spending terms, tier-2 middle-class consumers spent an average of Rs 31,000, compared to Rs 30,000 in metros and Rs 28,500 in small towns. While metro shoppers pay more per kg at Rs 153 compared to Rs 136 in tier-2 cities, their higher living costs and multiple spending avenues reduce disposable income. Tier-2 consumers, with fewer competing spending categories and greater affordability, have emerged as key growth drivers.

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Not Just Premium

Premium FMCG contributes about 15% of the total market, valued at Rs 98,000 crore. Within this, an emerging super-premium segment now accounts for nearly 40% of premium brand volume, with an average price index 1.5 times that of the category.

This segment is not limited to global brands such as Tresemme, Sensodyne or Malkist. It also includes local players such as Sikaram Groundnut Oil, which is priced twice the category average and holds a 26% volume share within Tamil Nadu’s super-premium space.

Evolving Health Behaviour

Super-premium and health-led products are increasingly using natural cues like cold-pressed, vitamin-fortified, antioxidant-rich and traditional ingredient-based claims. The health-focused food and beverage market is currently valued at Rs 63,093 crore and has grown at a CAGR of nearly 12% over the past four years.

Health has moved from niche to mainstream behaviour. Consumers now pay an average premium of 22% for health-oriented products, while even less affluent households spend 17% more for the same. The trend has expanded beyond affluent and older urban consumers to younger families and rural homes, marking a shift from disease-driven to preventive health habits.

Category Dominance

Despite widespread brand penetration, significant growth potential remains. Clinic Plus, which reaches 86% of households, accounts for only 28% of total value in the hair wash category, leaving three-fourths of the market untapped.

Harpic generates 76% of branded value in the toilet and bathroom cleaner category and is purchased by 80% of branded-category buyers, but the category’s penetration remains at 43%, suggesting growth potential through category development.

Five other brands hold value shares above 50%: Comfort fabric conditioner at 68%, Kissan sauces and ketchups at 59%, Pond’s talcum powder at 57%, Maggi noodles at 57% and Vim dishwash at 55%. Comfort, Kissan and Pond’s can grow by expanding categories, while Maggi and Vim, already in mature categories with over 75% penetration, must compete for remaining value share from other brands.

The Worldpanel FMCG Pulse Report concludes that despite subdued consumption, brands across categories have clear headroom for expansion through category development, premiumisation and regional growth strategies, with tier-2 cities playing a key role in sustaining the next phase of growth.