Nielsen revises outlook: ‘Yr likely to be in flat growth range for branded FMCG in India’
As per the Nielsen Q2 2020 FMCG report, there was a significant drop in sales of premium segments across the category baskets in April-May while mass or popular offerings gained salience
The novel coronavirus (COVID-19) pandemic has led to huge disruption in both supply chain and consumer behaviour in Q2’20 as per the Nielsen Q2’20 quarterly FMCG report for the period April to June 2020. As India went through the two-month-long lockdown phase, there was a stark decline in macroeconomic factors and consumer confidence.
The FMCG slowdown which started from March, got amplified in April-May’20 when the industry declined by 28% as compared to the same period of 2019. This was due to massive disruptions in production and supply chain, and low consumer confidence as discussed in the earlier section.
Unlock 1.0 in June’20, saw a revival, although, with the industry clocking a growth of 4.5% versus a year ago. The revival was aided by opening up of retail stores and consumers looking at resuming normal consumption levels across categories. “The opening up of retail stores is evident from the fact that the average number of days of store closure dropped from 11-12 days in April-May to five days in June’20,” states the report.
As per the Q2 report, the pandemic was severe in Indian Metros and Urban centres as compared to the rural areas. This was reflected in retail stores functioning - the number of days retail stores (dealing in FMCG products) in metropolitan cities were closed for 2X times that to the outlets in rural areas even in June. As a result, the industry sales continued to decline in bigger cities (>1 Lakh population including metros and Town Class 1) in June. The smaller towns and rural markets, however, had a strong bounce back in June, after two months of negative growth during the lockdown.
Like the differential impact of the pandemic on consumption patterns in Urban and Rural India, there has been varying impact on the consumption across zones as well. Higher rural population and lower incidence of COVID cases in East and North zone is reflected in the FMCG industry also. These two zones saw a shift from negative industry growth of Apr-May to a high single digit growth in June. On the other hand, the West zone that has a relatively higher urban population and had higher severity of the pandemic continued to decline in June.
It further revealed that all three channels of Traditional Trade, Modern Trade and E-Commerce were impacted in the quarter, on account of store closures, supply chain issues and disruptions in last mile delivery. The Q2 report said, “As the situation improved in June, we saw that Traditional Trade and E-Commerce channels bounced back strongly. Consumers prioritized spending on essential foods during the locked down quarter. We saw an interesting trend in the non-Food categories. After sharper declines in Apr-May the segment registered a notable bounce back in June with Unlock 1.0. This recovery was particularly seen among Personal Care and Home Care categories.”
As consumers were navigating the COVID impact, we witnessed clear changes in their product preferences as the quarter unfolded. There was a significant drop observed in sales of premium segments across the category baskets in Apr-May, while mass or popular offerings gained salience. This behaviour seems to be reversing in June, with consumers uptrading to their original preferences.
On outlook for 2020, the report said that the COVID-19 is an unprecedented event in the recent history of mankind, impacting economies and industries across the country. “The bellwether FMCG industry, which was trying to revive from a difficult 2019, had a significant hit in the Apr-Jun quarter with a 17% decline in sales value as compared to the same quarter of 2019. Severe and extended lockdowns, restrictions on manufacturing units and movement of people and goods, social distancing norms, store closures, etc has had a significant impact on Indian FMCG industry, so much so that the industry growth went to a negative zone in the first half of 2020 (6% decline in Jan-Jun period).”
Keeping these unprecedented dynamics in the market, Nielsen has revised its outlook and is expecting the year to be in the flat growth range (-1% to 1%) for branded FMCG industry in India, as against a 5-6% growth projected earlier this year. The key factors influencing the revised growth forecast are as follows:
Macro Economic Factors: GDP grew at 3.1% in Jan-Mar quarter of 2020, at its lowest since 2003. The GDP growth outlook for the year is in the negative territory (IMF forecasts a -4.9%). Consumer Price Inflation (CPI) is in the highs of 6% though expected to ease in the second half of the year to sub 4% level by September. Index of Industrial Production (IIP) after hitting an unprecedented low (-57%) in April continued in the high negatives in May.
Unemployment rates hit a 4X of the normal range of 6-7% in April and May before inching down to 11% (still 2X of the normal) and job losses are projected to increase in the near future given the challenging situation and no near term relief from the pandemic.
Covid Impact and Government policies: Rural India has been comparatively insulated from Covid-19 so far, however its spread is now reaching the hinterland. Having said that, we do expect an overall positive uptick due to reverse migration. MNREGA wages are at an all time high and rural disbursement against the programme is more than 2X of same period last year.
Rainfall & Agriculture: The progress of the southwest monsoon so far has been normal, with well spread intensity unlike last year - floods so far are restricted to 2-3 states unlike 15 states that were impacted last year. The Meteorological Department has forecasted a normal monsoon this season across the country. Further, there is a 40-60% higher water availability in water reservoirs. All this has resulted in Net Sown Area coverage increase for Kharif crops from 154.5 lakh hectare in 2019 to 315.6 lakh hectare in 2020, till Jun 24. Expectation of a good Kharif crop on the backing of a good Rabi harvest in April, and increase in minimum support price (MSP) for crops from the government would all lead to a positive outlook for the agrarian sector in 2020.
Festivities: Pseudo seasonality driven by festivities and coupled with a lower base of 2019 is expected to cause an uptick in consumption especially in Q4. This would further be amplified by the fact so far all forms of entertainment have been pushed / rescheduled. The lipstick effect would continue especially in Q4 2020. Food categories too are expected to see a higher growth due to this.
Covid and Lockdown Relaxation: While India is expected to gradually recover from Covid given the sheer population, Unlock 3.0 is out. The relaxation is expected to fuel consumption and economic activity. While the social distancing norms and regulations for containment areas continue, the areas not within these zones will move towards the “New Normal”.
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