FMCG players blame inflation, uneven rainfall for rural demand sluggishness

FMCG players like Dabur and Marico have blamed sharp spike in food inflation and inconsistent rainfall behind sluggish demand recovery sighted in rural India during the September quarter (Q2) of financial year 2023-24. Both the FMCG companies faced low single digit India sales volume growth in quarter two of financial year 2023-24 (Q2 FY24) on year-on-year (YoY) basis. Both Dabur and Marico reported mere three per cent India business sales volume growth during the concerned period. While, FMCG juggernaut, HUL, reported only two per cent sales volume growth.

Factors responsible for sluggish Rural India demand recovery in Q2:

1. Shifting of festival season to Q3:

HUL, CEO and MD, Rohit Java and Dabur India, CEO, Mohit Malhotra had said thatshifting of festival season entirely to Q3 from Q2 in the current calendar year debarred FMCG demand growth uptake in the September quarter. Diwali has also been postponed by around 20 days this time to November 12, 2023. Sale of FMCG generally increases during festival season. Any demand uptick due to the same reason would be seen in December quarter only.

2. Spike in food inflation:

Marico, MD and CEO, Saugata Gupta has said, “There was noticeable drop in rural India sentiment especially during Aug-Sep which seemed to have triggered by significantly incessant rainfall in August followed by food price spike.” Food inflation was seen at an average of 8.68 per cent in Q2. It was during this quarter that vegetable prices had jacked up in the country. Tomato prices had spiraled to Rs 400 per kg in July 2023 in some parts of the country. Infact, country faced high double digit food inflation of 10.57 per cent in July 2023.

Jawa also attributed inflation behind sluggish rural demand recovery. According to HUL, price of FMCG products in the country went up by 25 per cent in last three years. This has dented discretionary spending especially in the hinterland.

3. Uneven rainfall:

And last but not the least, uneven rainfall did play spoilsport in rural India demand recovery in the said quarter. All the major FMCG players HUL, Nestle, Dabur and Marico blamed uneven rainfall behind sluggishness in rural demand recovery. Dabur India Limited, CEO, Mohit Malhotra, had said, “Uneven and deficit rainfall distribution has impacted rural consumption in Q2.” According to IMD, India received six per cent lower than normal rainfall in the raining season which just got passed by.

Although, Dabur India reported low single digit year-on-year sales volume growth in the September quarter in various segments, but, the consumer goods company’s “beverage business saw 10 per cent decline during the quarter.”

HUL also reported one per cent fall in sales volume of FMCG products (in case of entire industry) in Q2 FY24 in rural India from same quarter two years ago

What is the road ahead?

Factors all FMCG players are betting on:

All the FMCG companies are betting on following factors for better Rural India demand recovery in the current quarter:

1. Festival season offtakes

2. Continuation of government spending

3. Reduction in inflation

4. MSP Increase