Lower inflation, improved monsoon, fall in prices and offers given by companies to pass on the benefits of lower input costs lifted consumer sentiment.
Passenger vehicle makers ended September with the best-ever quarter, clocking record sales.
Chief executives said the consumption boost in the September quarter is a sign that the festive season may go well. Festive season accounts for as much as 30-40% of sales in categories such as passenger vehicles, smartphones, televisions, and appliances.
The FMCG market grew 8-12% from a year ago in the September quarter by value, as per data from companies, boosted by a revival in rural demand and price cuts in several categories. Rural sentiment has improved as the monsoon revived in September and ended the year at near normal, companies said.
A report by Centrum, which hosted a FMCG dealer-distributor conference last week, said rural India has been on a path of slow but steady recovery. “Distributors opined though beauty and personal care categories saw marginal uptick in demand, yet detergents and foods categories fared well,” it said. Mass segment yet to see recovery
“The rural consumers continue to prefer purchasing smaller packs amid companies taking some price cuts in response to waning inflationary pressures,” the report said.
FMCG sales had nosedived from the second half of calendar 2021 as high inflation and Covid-related economic woes dented demand.
Recovery began in the March quarter, progressed in April-June, and continued in the September quarter.
Auto companies sold 1,070,377 units in the quarter, growing by 5% year-on-year, and 8% sequentially, as per leading companies. A spate of launches and strong customer demand for sport-utility vehicles (SUVs) drove industry volumes.
Consumption of high-value items such as televisions and refrigerators also grew last quarter, but sales of mass segment and entry-level products have yet to revive.
“Demand parameters remain healthy, as seen from booking and enquiries, as we head into the festive season,” said Shashank Srivastava, senior executive officer, marketing and sales, at India’s largest carmaker Maruti Suzuki.
Maruti Suzuki’s retail sales surged 24% during Onam last month.
“Better availability of semiconductors is helping us adjust production and roll out more SUVs to meet customer demand during the key festivals of Dussehra, Durga Puja and Diwali over the next one and a half months,” said Srivastava.
Smartphone sales grew 2% in July and August, reversing the sales decline this year, though September numbers might decline due to the high base effect of last year when the festive season started earlier, market researcher Counterpoint Research said.
“There are signs of pick-up in demand which augurs well for the industry before the festive season,” said Tarun Pathak, director of research at Counterpoint.
Electronics and appliances purchases surged 15% by volume year-on-year in the quarter following brisk sales during Independence Day, Onam and Ganesh Chaturthi, as per industry estimates.
Leading electronic retail chains like Reliance Retail and Vijay Sales recorded double-digit sales growth in August and September, industry executives said. Electronic industry volume sales in the previous two quarters of the calendar year were impacted as consumers curbed discretionary spending and sales of AC and refrigerators remained muted due to a weak summer in the North.
Godrej Appliances business head Kamal Nandi said the mid-to-premium range is driving growth.
Consumer inflation hit an eight-year high of 7.8% in April 2022. After easing to 4.3% in May this year, it rose to 4.9% in June, before surging to 7.4% in July, though it eased in August to 6.8%.
Lower inflation lifted FMCG volumes since the March quarter as rural markets bounced back. Over the past six months, companies have either reduced prices, increased pack sizes or launched promotional offers, passing on the benefit of lower input costs.
Value vs volume
In many cases, the improvement is due to premiumisation and not a rise in volumes.
“We saw sales improvement during the quarter…But growth is still largely driven by value despite price corrections,” said Krishnarao Buddha, senior category head at Parle Products.
Even for electronics, value growth has been higher than volume till June as per industry researcher GfK India. For instance, mobile phone sales grew by 12% in value in the first half of this year in offline retail, while it dropped 4% by volume.
Procter and Gamble India vice president (finance) Gautam Kamath told investors last week that while consumption trends are broadly up, cost pressures are not receding.
“On anecdotal evidence, September rainfall appears to have bounced back – and might have a big say in how the rest of the year goes.”
Meanwhile, rising crude oil prices are reversing the benefits of input cost decline and raising production costs for plastics, paints, FMCG and tyres, among others.
“Commodity prices, however, remain high, and we have not seen the cost pressures receding as expected. This means bottom line pressures will remain. Of course, this could differ based on particular commodities,” he said.
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