Marketing research firm Nielsen has slashed the growth outlook for the Indian FMCG industry this year, given the disruptions caused by the lockdown to stop the spread of the Covid-19 pandemic. It expects a flat growth ranging from -1% to 1% for the branded FMCG industry in India, as against the 5 to 6% growth it projected earlier this year.
“Severe and extended lockdowns, restrictions on manufacturing units and movement of people and goods, social distancing norms, and store closures, etc., have had a significant impact on the Indian FMCG industry. So much so that the industry growth went to a negative zone in the first half of 2020 (6% decline in the January to June period),” Nielsen said.
Lockdown hits hard
The FMCG slowdown, which started in March, was amplified in April-May when the industry declined by 28% compared to the same period of 2019. Nielsen said this was due to massive disruptions in production and the supply chain and low consumer confidence.
Unlock 1.0 in June, did see a revival with the industry clocking 4.5% growth versus the previous year. The recovery was aided by opening up 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. However, the smaller towns and rural markets had a stronger bounce back in June after two months of negative growth during the lockdown.
Traditional trade and eCommerce bounce back
All three channels — traditional trade, modern trade, and eCommerce were impacted in the quarter, on account of store closures, supply chain issues, and disruptions in last-mile delivery. The situation improved in June when traditional trade and eCommerce channels bounced back strongly, Nielsen said.
The traditional trade channels felt the highest impact in the quarter because of store closures during the lockdown. On the other hand, modern trade had a spike in sales towards the latter part of March and early April, when consumers used this channel for upstocking. However, subsequently, there were issues on account of lower footfalls that impacted channel sales.
The third channel, eCommerce that has been witnessing the fastest growth on a small base, faced challenges of supply chain and last-mile delivery—government regulations and movement restrictions in April severely affected last-mile deliveries.
Among product categories, while all baskets saw a revival in June across the retail channels, a steep improvement was witnessed in personal care categories and staple foods in the traditional trade and eCommerce channels in June.
Rural demand sees spike in June
Agricultural markets led the industry revival in June with a double-digit (12%) growth versus June of 2019. At an overall quarter level, rural markets were less impacted than their urban counterparts (11% decline for rural vs. 20% for urban areas).
Factors such as lower Covid-19 incidence, rural stimulus in the form of increased MNREGA allocation, and support to agriculture and upskilling programs for migrant workers who returned to their villages helped in the rural areas. An overall normal and timely rainfall, high net sown acreage for kharif crops, and reverse migration have added to the agricultural labor and consumer base.