Top FMCG Companies Predict Green Shoots May Appear With Lag in 2023

Top FMCG Companies Predict Green Shoots May Appear With Lag in 2023

While home and personal care businesses have lowered their rates, rural offtake has yet to meet expectations.

As rural demand remains sluggish due to food inflation and unpredictable weather, leading international and Indian fast-moving consumer goods (FMCG) company chief executives anticipate a slow recovery of the domestic FMCG sector.

Although urban markets have remained solid, the predicted “green shoots” of recovery have not yet been apparent in rural areas, according to management commentary in recent earnings calls and media engagements after the June quarter results.

During a round table discussion on Friday, Nestle India’s chairman and managing director, Suresh Narayanan, shared his belief that food inflation will remain a concern. “With the kind of torrential rains that are taking place, what impact it will have on winter crops is anybody’s guess,” he said, adding that price reductions of food items would be challenging in such a market.

While home and personal care businesses have lowered their rates, rural offtake has yet to meet expectations.

During Friday’s results call, Saugata Gupta, MD & CEO of Marico, mentioned that FMCG growth in the June quarter was inconsistent due to one-offs that hindered domestic volume growth.”The FMCG industry maintained its upbeat attitude from the prior quarter. He continued that the geographical distribution of rainfall will be crucial to rural earnings and consumption, adding that development remained urban-led while rural consolidated on a lower base.

Top executives at Hindustan Unilever (HUL) and parent Unilever reaffirmed this point by stating that rural volumes turned positive in the June quarter, although on a shaky basis.

“We are now witnessing sequential increases in the rural market volume growth for the quarter. In an earnings call last week, Rohit Jawa, MD & CEO of HUL, stated that we must be aware of the market’s soft basis.

“Over the past two years, both the total and rural market volumes have decreased. Due to the high rate of cumulative inflation and the fact that consumption patterns recover slowly, he predicted that volumes would increase gradually.

Hein Schumacher, the global CEO of Unilever, stated that to boost sales in the upcoming months, he would focus more on the company’s main markets, including India, China, the US, and Indonesia. India, Unilever’s second-largest market worldwide after the US, accounts for 60% of the company’s sales in emerging nations. Regarding his initial thoughts following his appointment as CEO on July 1, Schumacher remarked, “I would like to see us continue our agility, accountability, and category focus.”

Sunil D’Souza, MD & CEO of Tata Consumer, stated that although he anticipated a recovery in rural growth during the June quarter, it still needed to be present.

“Historically, the volume growth rates for salt and tea have been in the mid-to-high single digits. We are still not there if you see it from a pre-Covid perspective. We are in positive territory, which is fantastic news, ” he remarked on the FMCG market from April to June. D’Souza believes that as the holiday season approaches, attitude will improve in the coming months.

Most FMCG CEOs anticipate that growth rates will go up in the second half of the fiscal year, when the customary holiday season may persuade customers to relax their spending restrictions, particularly in rural regions.

James Quincey and Dirk Van De Put, the chief executives of Coca-Cola and Mondelez International, respectively, indicated on earnings calls last week that they were putting more weight behind distribution and marketing activities in nations like India to take advantage of an upsurge in consumption.

Unseasonal rain and lower temperatures in India throughout the quarter harmed business. The forecast for growth is still optimistic, though. Introducing Schweppes Mojito (a lemon drink) and other customised campaigns like Sprite Joke-In-A-Bottle are off to excellent starts in India. According to Quincey, these instances demonstrate how our marketing shift is taking place.

According to Dirk Van De Put, Mondelez is expanding its distribution network in India by 100,000 and 200,000 outlets annually. “That will keep happening. He explained his objectives for India to investors by saying, “By moving wider, we can start to enhance the breadth of our items that are available in shops.

Like Nestle, Mondelez has outlined significant investments for India, including an expenditure of Rs 4,000 crore over the following four years. Nestle will invest Rs 4,200 crore between 2023 and 2025 to boost the nation’s manufacturing capacity.

The FMCG industry, a vital aspect of the global economy, has encountered various obstacles due to the COVID-19 pandemic. From supply chain disruptions to shifts in consumer behaviour, businesses have had to adapt rapidly. Now, leading FMCG companies suggest that the industry may experience ‘green shoots’—signs of economic recovery—but with a lag in 2023.

The initial shock of the pandemic brought about swift changes in the FMCG sector. With lockdowns enforced globally, the industry saw a surge in demand for essential goods but suffered constraints in distribution due to disrupted supply chains. On the other hand, the need for non-essential FMCG products decreased significantly due to altered consumer spending habits. Amidst this market instability, new trends emerged, including a shift towards online shopping and a preference for local and sustainably-produced products.

As we approach 2023, top FMCG firms are projecting a slow but steady recovery in the sector. While businesses have adapted to the new normal, the long-term economic impacts of the pandemic are yet to be fully understood. Economists have termed the initial signs of this recovery as ‘green shoots.’ However, these firms warn that the recovery might be less immediate and noticeable than some hope.

The recovery lag comes from multiple factors. One is the enduring ripple effect of disrupted supply chains, causing product shortages and price hikes. Additionally, consumer behaviour continues to evolve. The pandemic has shifted where consumers shop and what they buy, focusing more on health, wellness, and home-based products.

The pandemic has accelerated digital transformations in the FMCG sector. The role of technology in managing disrupted supply chains and enabling remote workforces has been crucial. Additionally, direct-to-consumer (D2C) sales models have gained traction, empowering FMCG companies to bypass traditional retail outlets.

Many firms are focusing on sustainability, aligning with the green recovery theme. With increased consumer demand for eco-friendly products, companies are revamping their supply chains to reduce environmental footprints.

Emerging markets have demonstrated significant resilience during the crisis, providing a glimmer of hope for FMCG firms. These markets, particularly in Asia and Africa, have proliferated thanks to expanding middle-class populations and increasing internet penetration.

Nevertheless, challenges persist. Poor infrastructure, regulatory hurdles, and political instability can all impede FMCG growth in these markets. Companies that can navigate these obstacles while harnessing local consumer insights benefit the most.

The FMCG industry’s green shoots represent a slow and steady recovery, reflecting the complex repercussions of the pandemic on global economies. While the sector has had to contend with fluctuating demand, disrupted supply chains, and changing consumer habits, businesses have also learned valuable lessons in resilience, agility, and innovation.

Despite the lag in green shoots, there are reasons for optimism. Tech adoption, sustainability focus, and emerging market opportunities are crucial to unlocking the sector’s future potential. As we move forward in 2023, a nuanced and adaptable approach will be vital for FMCG firms navigating this unique market landscape.