- After an unprecedented decline of -19% in the Jan-Mar quarter, FMCG industry displayed signs of recovery in Q3’20 with a 1.6% growth (versus Q3 ‘19).
- FMCG witnessed a double digit growth of 10.6% in Q3’20 in Rural India, while the bigger cities (>1 Lakh population including metros and Town Class 1) played catch-up.
With the pandemic achieving stability and markets and economy opening up, green shoots were visible in the July-August-September quarter for the year. There was an appreciable improvement in the performance of manufacturing, witnessed with an arrest of the declining Index of Industrial Production (IIP) from -57.3% in April’20 to +0.2% in Sep’20. Drop in unemployment rate from 23.7% at its peak in April’20 to 6.7% in Sep’20.
Some of the macro variables still reflect the overall economic scenario with inflation rate continuing to rise and the Consumer Confidence Index (RBI) dropping to a low 49.9 in Sep’20 from a 85.6 in March’20
The above-mentioned positivity was reflected in the FMCG industry too. After an unprecedented decline of -19% in the Jan-Mar quarter, FMCG industry displayed signs of recovery in Q3’20 with a 1.6% growth (versus Q3 ‘19).
Using proprietary Nielsen Retail Audit data, this note will further delve into the trends of Q3’20 and the outlook for 2020:
FMCG INDUSTRY MOVES INTO A POSITIVE GROWTH SPACE
The FMCG slowdown in Q2’20 saw a value decline of 19% as compared to the same period of 2019. This was fueled by massive disruptions in the production and supply chain, and low consumer confidence.
The unlock from Q3’20, saw a revival in the industry with a growth of 1.6% versus a year ago. The revival was aided by businesses opening up with the pandemic reaching stable levels. Markets started opening up in a phase-wise manner and store closures came down to an average of 3 days a month in Q3’20 from an average of 9 days a month in Q2’20. After being cooped at home for a long time, consumers also started looking at resuming normal consumption levels.
RURAL CONTINUES TO DRIVE GROWTH
With easing of pandemic and markets unlocking in various phases in the third quarter of the year, we saw recovery across town classes with the rural and Rest of Urban (ROU) regions continuing to lead growth. FMCG witnessed a double digit growth of 10.6% in Q3’20 in Rural India, while the bigger cities (>1 Lakh population including metros and Town Class 1) played catch-up.
The rural markets have bounced back handsomely on the back of support provided by the government as well as good agriculture, reverse migration and a lower unemployment rate.
Various favorable macro-environment factors have helped drive rural revival in Q3’20
- Government dialing up on rural stimulus in the form of increased MGNREGA allocation-
- 11% increase in average wages at an All India level (Sep vs Mar’20).
- 83L new households joined MGNREGA labour force
- 'Garib Kalyan Rojgar Abhiyan’, support to agriculture and upskilling programs for migrant workers that returned to their villages.
- A bountiful monsoon also brought cheer to farmers with a record output in the kharif crop season.
HEALTH & HYGIENE DOMINATES THE NEW LAUNCHES
There have been a higher number of new launches per se during the Covid period and a higher number in the non-foods space. As Covid has prompted consumers to re-frame their habits into health and hygiene, more new launches have been made in the health & hygiene basket including categories like hand sanitisers, floor cleaners, toilet cleaners, antiseptic liquids. New launches in the health & hygiene space contributed to 37% (in value) of all new launches in the COVID period. The value contribution of new launches in the health & hygiene category was higher during Covid period at 2.9%
(Including Traditional Trade, Modern Trade and E-Commerce)
After the FMCG industry had a double digit drop in Q2’20 due to intense lockdown stressing the overall economy, it bounced back to positive +1.6% growth in Q3’20 which reflects the onset of green shoots. While the market has initiated a recovery, the demand and supply disruptions caused by the world’s severest lockdown from end-March have severely curtailed economic activity. It is gradually returning to normal as restrictions are relaxed. However, continued spread of the pandemic is keeping the economy watchful.
Given the significant headwind built in the start of COVID-19 pandemic in March’20,
The key factors influencing the growth trajectory so far and the forecast for the future include:
COVID-19 Impact On The Economy:
Annual consumer price inflation in India increased to 7.5 percent in September of 2020 It is the highest rate since May 2014. Food inflation went up to 11.07 percent from 10.68 percent, the highest since January and ahead of the festival season impacting the overall expenditure and consumer confidence muted.
The trajectory of the FMCG industry once again reinforces the inherent strength of the consumption story in India irrespective of the fact that we had a GDP which shrank 23.9% year-on-year in the second quarter of 2020.
There are steps being actioned by the Government that can help counter these changes in the coming quarter in the farm sector and has sought to deliver labour market flexibility:
- The Interest-On-Interest waiver is expected to bring some relief and additional cash in hand for individuals and MSME businesses
- The cash voucher scheme for central government employees is expected to boost spending in big proportions in upcoming months
- About 83 lakh households enrolling from April to August under MNREGA saw an all time high providing livelihood in Rural
FMCG Q3’20- TO SUM UP
- AFTER A DISMAL PERFORMANCE IN Q2 (AMJ’20), FMCG INDUSTRY MOVES INTO A POSITIVE GROWTH SPACE
- BHARAT (SMALL TOWNS & RURAL), NORTH ZONE & SMALL MANUFACTURERS DRIVING GROWTH
- CONSUMER PREFERENCE FOR AFFORDABLE OFFERINGS CONTINUE
- INNOVATION (NEW PRODUCTS LAUNCHED) DOMINATED BY HEALTH & HYGIENE CATEGORY
- NIELSEN OUTLOOK FOR FMCG INDUSTRY GROWTH FOR 2020 REVISED TO THE RANGE OF -1 TO -3%