India's fast-moving consumer goods (FMCG) sector demonstrated robust performance in the July-September quarter of 2024, with a 5.7% growth by value and a 4.1% growth in volume, according to NielsenIQ, a leading consumer intelligence firm. Despite the ongoing challenges of rising prices and moderating consumption, the FMCG sector showed remarkable resilience, maintaining steady value growth and slight price increases.

Rural Markets Lead in Volume Growth

The standout feature of the FMCG sector's performance was the outperformance of rural markets, which continued to lead volume growth. Rural India recorded an impressive 6% volume growth, surpassing urban growth for the third consecutive quarter. This surge in rural consumption reflects continued economic resilience in smaller towns and villages, even as urban demand showed signs of softening.

Despite challenges like rising prices and general economic uncertainty, the rural market has continued to recover, benefiting from several factors, including government welfare schemes, increased disposable income, and a greater emphasis on essential goods. As a result, rural consumption has been outpacing urban markets in volume growth in most regions.

Urban Markets and Price Growth

Urban markets, however, showed moderating demand during this period, with growth slowing down in some FMCG segments. Urban demand grew by just 2.8% in Q3 2024, a slight recovery from the 5.2% increase in Q2 2024, signaling a shift in consumer behavior. In response to rising prices, urban consumers have been more cautious with their spending, especially for non-essential items.

Overall, price growth across the FMCG sector was recorded at 1.5%, contributing to the overall value growth. The rise in prices of essential commodities like edible oils, wheat flour (atta), and spices played a significant role in this increase. Despite price hikes, consumers have continued to purchase packaged food and household products, though with varying intensity between urban and rural areas.

Packaged Food and Household Products

Packaged food consumption experienced a notable 3.4% growth in Q3 2024, a significant increase from 2.1% in the previous quarter. This was driven by growing demand for convenience products, despite the rise in prices for ingredients like edible oils and flour. The 3.4% growth in packaged food consumption reflects continued shifts in consumer habits, with many opting for ready-to-eat and pre-packaged foods due to convenience and long shelf life.

Household products also saw a stable 6% growth, indicating that consumers continued to prioritize essential goods. Products like cleaning supplies, detergents, and personal care items remained in demand, as consumers sought to maintain their hygiene and living conditions in uncertain times.

Hindustan Unilever's Perspective

Hindustan Unilever Ltd (HUL), a major player in the Indian FMCG sector, acknowledged the moderating growth in urban demand. HUL noted that while urban markets had shown slower growth, the recovery in rural markets had been more pronounced. Additionally, the company pointed out that rising crude palm oil prices would lead to calibrated price hikes across various product categories.

HUL’s experience reflects the overall industry trend, where larger FMCG players are seeing slower value growth compared to small manufacturers. These smaller companies have rebounded sharply in volume growth in food, outpacing larger players, who have faced challenges in maintaining growth due to price increases and slower recovery in urban regions.

Small Manufacturers Outpace Large Players

A significant shift in the FMCG landscape is the rebound of small manufacturers. After facing declines in recent quarters, these manufacturers have seen a sharp recovery in volume growth, especially in the food segment. This resurgence has allowed them to outpace larger FMCG players in terms of volume growth, even though these smaller companies still lag in overall value growth.

The improved performance of smaller manufacturers can be attributed to their ability to adapt quickly to changing consumer demands, offering value-for-money products, and increasing their footprint in rural markets. As a result, small manufacturers are becoming an important part of the FMCG growth story in India.

The Outlook for the FMCG Sector

The FMCG sector’s performance in Q3 2024 highlights the ongoing evolution of consumer demand in India. While urban demand may continue to moderate, rural markets are expected to remain the key drivers of volume growth in the coming months. Additionally, rising raw material costs (like crude palm oil) are likely to keep price increases moderate, which could continue to affect consumer sentiment.

The recovery of small manufacturers presents both a challenge and an opportunity for larger players. The sector's ability to innovate, cater to local tastes, and provide affordable products will be key to staying competitive in this dynamic market.

In conclusion, the FMCG sector in India has shown resilience amid challenges, with rural markets continuing to lead in growth. Small manufacturers are rebounding sharply, while larger players face a mix of opportunities and pressures as they navigate changing consumer behaviors and rising input costs. The outlook for the coming quarters will depend on continued rural recovery, price trends, and how urban consumers adjust to the ongoing economic conditions.

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