In fluctuating economy, playing with prices in a skillful way helps: Prasun Basu, Nielsen
According to Nielsen Q3 July-September’19 FMCG Growth Report, the sector clocked a value growth of 7.3% in Q3’19, down from 16.2% in Q3’18
Nielsen launched its Q3 July-September’19 FMCG Growth Report on Thursday. India’s FMCG market clocked a value growth of 7.3% in Q3’19 (down from 16.2% in Q3’18). According to Nielsen, for the first time in the last seven years, there has been a slowdown in the rural market. It is at 5% growth as compared to urban which is at 8% growth.
The key takeaways from the report are: 1. Rural consumption has seen a drop, 2. Price check has helped the South market during the slowdown, 3. There is stress on disposable income, shrinking North Rural consumption, 4.Modern trade is picking up pace, and 5. There will be growth revival in the year 2020.
The report stated that inflation numbers are inching up. There is a 2.5% increase in inflation in rural, whereas urban areas has seen an increase of 1.7%. These factors are affecting trends. The worrying part is that consumption has dropped from 19% (Q3'18) to 5% (Q3'19).
Consumers are under stress, therefore it is very important for the FMCG players to provide products that fit their wallets, the report states.
In the South Urban market, it is the food segment that is showing a revival. It has gone up from 11.4% to 15.1%. Prices of products from small trade companies have dropped which is helping increase consumption in the South Urban Market. In North Rural, for small players, it has gone from 35% to 3%.
The silver lining of the slowdown will be the festival season. The early onset of the festival season will lead to growth impacts being spread across Q3 and Q4’19.
e4m spoke to Prasun Basu, President, Nielsen South Asia, on India's Q3 July-September’19 FMCG growth report.
When asked about the categories that have been affected the most due to the slowdown, Basu remarked, "The big stories are not in categories this time. The big stories are in terms of urban-rural, geographical and regional disparities, North vs South, by channel and modern trade. These segments are where the big points are and divergence is happening this quarter.”
Speaking about how the rainfall this year has affected many crops and therefore has affected the FMCG market, Basu says, "Even if consumers have money, if there is a situation where there is drought or flooding, the large populous in rural farmers will get affected. So there is an effect on-ground, and from the standpoint of the consumers, it changes the purchasing behaviour."
Talking about North vs South, Basu said, “The North unemployment rates are higher than that of the South. Plus, the South has more modern trade and less rural trade. Also, the cash in the hand of the consumer is managed well. Modern trade is more than 30% in the South whereas in the North, it is may be 10%. In modern trade, it is easier to play with the prices. In an economy which is fluctuating, playing with the prices in a skillful way helps you get the right volume and margin. In general trade, you can't do that. Those sellers in modern trade have an advantage," shared Basu.
Growth in Q3’19 sales per store in rural areas has become 1/4th vs Q3’18, which reflects a significant drop in demand amongst rural consumers.
“Small manufacturers have lower pricing but they also have lesser budgets to play with. If the demand gets dried up, it puts a lot of pressure on them. This leads to them exiting the market. We have seen huge exit happening in this quarter. The moment they exit, the average price in the market goes up because the low price guys have exited the market. Overall, the effective price has gone up. Volumes have crashed in the North. But in the South, small manufacturers haven't gone out much. So the prices haven't risen and hence the volumes are more sustainable,” says Basu.
Lastly, stating the key differences from last year’s Q3’18 report as opposed to Q3’19, Basu said, "Last year was a decent quarter with 15% growth and now it's 7%. Last year, there was more entry than exit. This year it's the opposite.”
Q4 doesn't look promising, however, Q1 of 2020 does. The FMCG markets will rise from the ashes. Nielsen predicts that it may grow from 7.5% to 8.5%, and this is due to factors like good growth in South Urban, modern trade and e-commerce.
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