FMCGs upbeat on rural markets

New Delhi: Fast-moving consumer goods (FMCG) companies expect to sustain volume growth in the coming quarters, buoyed by recovery of demand in rural markets and good monsoon, despite concerns over growing food inflation.

FMCG majors, including HUL, ITC, Dabur, Britannia, Nestle and Emami, in their June quarter earnings have reported green shoots from the rural markets and strong growth from e-commerce channels, particularly from quick-commerce platforms. The industry had around 6.6 per cent volume growth in the April-June period of this fiscal. However, companies are worried about elevated food inflation as coffee and cocoa prices have gone up unprecedently. Amid expectations of an increase in cereals and grains prices, some of the players have even indicated price hikes. Dabur CEO Mohit Malhotra said, “going forward, the volume will increase on the back of rural inching up for us. So I expect the subsequent quarters to be better than our existing quarters, but definitely not worse.”

He expressed optimism, saying that with a good monsoon, improving macroeconomic indicators and rural-centric government spending, FMCG demand will see a gradual uptick. Malhotra also mentioned inflation in food is very high today and we might have to take some price increases in food, but it depends upon how the situation is. Marico MD & CEO Saugata Gupta said the FMCG sector continued to witness gradual improvement in demand trends in the June quarter, with rural growth ahead of urban.

“We expect volume trends to sustain the improving trajectory, aided by stable retail inflation, a healthily progressing monsoon season, and the government’s budgetary allocation towards boosting the rural economy,” he said. However, Gupta also added, “elevated food inflation and spatial distribution of rainfall will be key factors to be monitored”. Nestle, in its first quarter earnings statement, said: “Commodity prices are seeing unprecedented headwinds in coffee and cocoa with all-time high prices and an ongoing price rally. Cereals and grains are going through a structural cost increase backed by MSP.”

However, the makers of Maggi and KitKat also added there is relative stability in milk prices, packaging and edible oils.