What is causing Slowdown in the FMCG Sector?

27 Nov 2019 Read 414 Views

After the automobile sector, the FMCG sector is now in the doldrums. For long, private consumption has fuelled India’s growth story. But the latest GDP data has confirmed that the fear of slowdown in FMCG Sector is real and is live. Q1 data shows private consumption growth at a little low over 3%, the lowest over 4 years.

What fuelled the slowdown in FMCG Sector

Is it influenced in part by the atmosphere of gloom, which encourages people to postpone discretionary spending?

Is it having some domino effect on the behavior of people? And in a mood like this, what shall be the steps to correct it?

Let’s have a look at each.

The two main reasons of slowing rural growth are Demonetization (which broke the backbone of some organized sectors), and GST implementation. We have a rural income, which has not been going up because even though we had a good harvest, it doesn't translate into higher income. Therefore, rural spending hasn't come through. Employment has not been growing. On the top, the Government decided to lower the interest rates, which has been counterproductive because the fact is that there is a vast segment of households that live on interest income.

One might think as to why consumption was growing even after that? The reason is that the NBFC sector, which was taking up the issue of financing some of the consumables- was doing well until the IL&FS struck. The NBFC's started getting into a problem, liquidity started drying up and once they began to dry up along with other things in the auto sector, many other issues cropped up which raised the prices of the goods.

Under these conditions, when there is an economic slowdown and consumer confidence is going down, what should a consumer do? They should think of ways of how to deleverage as much as possible and save money for future use because if there is an economic slowdown, there would be certain unforeseen expenditures in the future.

How can the FMCG Sector revive?

The Government needs to boost investments to come out of this dull scenario. One measure can be to cut the income tax rates. Winner companies, that is, companies who have a steady strategy, like Dabur, have grown by 20-25% although there is a drop compared to previous years. They have entered diverse sectors as durables and household finance.

Innovation and premiumization of products, an example being the introduction of iodine bindi, is what these companies are focussing on. Bindi is something that women wear regularly. Thus, the iodine bindi got a great response in the rural sector of India as the product looks into the health benefit of women in rural India and matches their lifestyle as well.

Some of these companies have given robust consumer promotion offers and offering higher margins to trade channels. Not only this, these companies are postponing some of the new launches as the market is not promising and launching only those which are necessary.

Strategies adopted to deal with the current economic slowdown

Companies like Dabur and ITC are increasing the production of Low Unit Price Packs to make the products available to a much larger audience and is focussing more on the rural areas for expansion. Some of the FMCG companies are also extending credit for a longer period to tackle the liquidity crunch. These are some of the ways by which the FMCG companies are keeping their sales stable, given the volatile situation.

A significant focus has been shifted to consumer engagement. This is done online (via social media) as well as offline (by promoters who try sampling and try to talk to the consumers directly in certain stores).

The way ahead

To wrap up with, I would conclude saying that as 'Every cloud has a silver lining.' It is expected that tthe FMCG sector will see positivity shortly. The economic slowdown that we are experiencing is temporary in nature. Because of the inelastic demand of this sector, consumption is bound to increase. A recession cannot take this sector down. A few hurdles for the sector is normal and growth is expected soon. 

About the Author: Ritika Agarwal | 8 Posts

Ritika is a Finance and Actuarial content writer with a keen interest in exploring new fields of study. A Sudoku enthusiast, she is a sports loving person.

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