The decline in inflation in the June quarter has lifted consumer spending and demands in rural and urban India, leading to growth in sales and volumes, FMCG players like Godrej Consumers, Dabur and Adani Wilmar have said in their June quarter BSE filings.
Godrej Consumer Products Ltd, for instance, reported that its organic business witnessed a “double-digit” volume growth. Dabur's consolidated business is expected to register growth exceeding 10%. Adani Wilmar’s FMCG segment recorded revenue growth of 30%+ YoY.
The revenue of companies in the fast-moving consumer goods space is expected to grow 7-9 per cent this fiscal, according to a CRISIL Ratings report. This uptick in sales and volumes has been attributed to a decline in inflation, more so in the rural parts.
eCommerce sales volumes have also grown by about 24% in the April to June quarter, up from 16% in the previous quarter, data from Unicommerce showed. It is noteworthy that domestic consumption powers about 60 per cent of the GDP.
These reports have boosted the advertising and media sector’s morale since it has been facing ad budget cuts for the last few quarters.
With the rise in consumption coupled with increase in wages, most FMCG firms are planning to allocate more funds for advertising and marketing campaigns to cash in on the growth momentum and expand in new markets and categories.
“FMCG growth is naturally followed by more investment in advertising, mainly to expand our reach in new markets and promote new categories and products,” marketing heads of three leading FMCG firms told e4m, requesting anonymity as the firms are on a silent period ahead of their quarterly results. The penetration and consumption of higher and premium products are growing.
The reports have energized the M&A industry. Players expect to make more ad dollars in this fiscal compared to the lull period of the last few quarters. Q2 and Q3 also coincided with the monsoon and festive season when brands spend more to woo consumers. Ecommerce majors also run special festive sales to cash in on the auspiciousness of festivals.
FMCG and eCommerce sectors have been the two top contributors in India’s ad spend in 2022, with 32 per cent and 14 per cent share, respectively, shows Pitch Madison Advertising Report 2023. The report has predicted that Indian ad spend is expected to cross the Rs 1 lakh crore mark in the current fiscal year.
Debarshi Chakravorti, VP, Business and Communications Planning, Interactive Avenues (digital arm of IPG Mediabrands India), says, “My expectations for the next few quarters are rather optimistic. With better crop yields expected due to favourable monsoon conditions and rising farm incomes, we can anticipate growth in rural consumption trends in India.”
“The ICC Cricket World Cup, coinciding with the festive months of October and November, will provide an additional boost for the FMCG sector. Such sporting events generate tremendous interest in India, presenting a valuable opportunity to tap into a captive audience,” Chakravorti noted.
‘Prosperity and premiumisation to drive growth’
As the world’s sixth-largest economy, India is at the cusp of a tremendous opportunity for both economic progress and improvement in the general well-being of its citizens. This is driving the growth of premium categories, experts say.
According to Shradha Agarwal, CO-Founder & CEO, Grapes, “If we look at the next few quarters, we can see that the sales volume of FMCG companies is increasing significantly. Moreover, the HNI families will rise from 5 to 10%, the upper middle-class from 35 to 46%, and the lower-income households will reduce, as per a World Economic Forum report. This indicates India's rising affluence and demand for premium goods.”
Rammohan Sundaram, President – Integrated Media, DDB Mudra Group, shared a different point of view. According to him, prices of fruits and veggies have been affected due to heavy rains in the north and deficiency in the east and south. This is bound to have a direct impact on the supply chain of basic needs like vegetables, which is why we are seeing such hefty prices on them, for example tomatoes.
“When such a situation arises, the impact is directly on consumption, and this will affect the common man for 2-3 months. However, the festive period shows tremendous prospects as the ICC Cricket World Cup 2023 falls during the same period leading to a power-packed season for ad agencies,” Sundaram noted.
Long-term prospects look good: Redseer
While the macro picture has been bleak for the last two quarters, India’s private consumption, which had dipped to US$ 2.2 trillion in Q3-Q4 FY23, is on its way up and expected to touch US$ 2.4 Tn+ in Q4 FY24, says Redseer Strategy Consultants.
Signs of recovery are emerging from across sectors, such as credit card spending, air travel, and sales of vehicles, says the study, adding that India’s long-term consumption trends are gradually reflecting increased prosperity as consumer behaviour evolves towards higher categories.
However, fear of more global headwinds also looms large as Agarwal pointed out that recession could play a spoilsport and make the sales go on a toss.
