Inflation continues to hit urban India; FMCG growth may slow down in H1 2025: Kantar

The latest Kantar India FMCG Pulse report indicates a slowdown in the fast-moving consumer goods (FMCG) sector, with the August-October quarter reporting a growth of just 4.3%, down from 6.4% in the same quarter last year.

This deceleration is attributed to rising food inflation, which has impacted both urban and rural markets. Urban areas experienced a volume growth of 4.5% in the ASO quarter, compared to 6.9% in the same period last year.

The per-household average spend in urban markets increased by 13% year-over-year, reaching Rs 6,761 in the October quarter, indicating that consumers are spending more but purchasing less due to higher prices.

Volume growth in the urban market was at 4.5 per cent in the August-October period, down from 6.9 per cent in the same period of 2023.

However, the report added: "It is also true that a 4.5 per cent growth following a near 7 per cent growth in the previous term is extremely rare. In fact, over the last five years, this has only happened in the quarters of 2024."

Hence, technically the urban area is in a slowdown, though "it is far from a slump".

In rural areas, the FMCG sector has witnessed a significant slowdown due to rising inflation. The August-October quarter reported growth of just 4.3%, compared to 6.4% in the same quarter last year. This slowdown has mainly been on the back of increasing inflation, with the average cost of FMCG products jumping Rs 4 to Rs 137/kg in the October quarter from ₹133/kg in the preceding quarter this year.

The report also notes that traditional trade volumes grew by 4.1% in Q3 2024, compared to 3.0% in Q2 2024. Despite the slowdown, modern trade also managed to outpace urban growth. Food volume growth was led by staples, with categories such as edible oils, packaged atta, and spices contributing to the uptick in volume growth despite price increases. In the home and personal care (HPC) categories, consumption growth stabilized at 6.0% compared to 6.7% a year ago, with this stabilization observed in both urban and rural areas.

With no signs of food inflation relenting in the immediate future, where value growth rapidly draws away from volume growth for some more time, it's hard to see urban (market) growing more rapidly than the current levels. "We are expecting similar levels of growth to continue into the first half of the next year," the report said.

“The FMCG sector is facing challenges due to inflationary pressures, leading to cautious consumer spending and impacting growth across both urban and rural markets.

The industry needs to adapt strategies to navigate these challenges and stimulate demand in the coming quarters,” a senior marketer said.