FMCG Companies Pull Out All Stops As Demand Slump Continues To Rule

“We have been forced to re-think our plans for the impending summer. Demand is sluggish and we have to get products out of warehouses and off the shelves. Targeted product offerings and attractive buying propositions will be our go-to-market approach,” says Rajeev Kumar, regional sales lead at TT Electronics.

Sales of FMCG products in Q2 of 2023-24 (July to September) dipped 2.3 per cent year-on-year in value amid rising food inflation and an inconsistent monsoon, retail intelligence company Bizom said. In August, sales were down 11.2 per cent over the same month of the previous year, and down 8.4 per cent through July 2023, the data revealed. Category-wise sales also exhibited a slowdown, with commodities and beverages leading to slippage. Sales of oils, pulses, shampoos, and toiletries, for instance, decreased 14.9 per cent, while beverage sales were down 12.1 per cent, impacted by cooler temperatures on account of unseasonal rain.

Sales estimates at leading companies indicate that the trend is unlikely to change in the second half of FY ’24. Godrej Consumer Products has predicted declining revenues in low-single digits year-on-year as the demand environment remains subdued. It expects volume growth to reach mid-single digits, though sales are likely to remain flat due to low rural offtake, GCPL said in a stock exchange filing. Hindustan Unilever also conceded that it remains “cautiously optimistic” in the near term as it expects the gradual recovery in market demand to continue. CEO Rohit Jawa said rural income growth and winter crop yields would determine the pace of recovery.

What has led to this sales slump in cascades, with products gathering dust? It is a multitude of factors coming together to create a prolonged and painful demand hiatus. In urban areas, it is the slowing real economy, job insecurity, increasing unemployment, stagnant or lower salaries, and lower interest earnings on savings and investments that are playing spoilsport.

Shrinking disposable incomes and an acute spending aversion have seen blood and gore engorge balance sheets in the urban market, forcing companies to heighten their focus on rural sales to tide over a crisis that many in the sales rank and file call a ‘metropolitan blip’.

Well, the blip has become a mighty blimp that’s flaccid and stationary in the skies above, a grim reminder that this zeppelin is here to stay. As mentioned in a recent column, companies like ITC, Hindustan Unilever, Dabur, Marico, and Tata Consumer have admitted that rural demand is now lagging behind urban markets. Number-crunchers at large corporates concede that despite best efforts, sales are down due to “liquidity pressures, rising inflation, and patchy monsoons”.

Even as urban India falls prey to a flagging economy, rural areas reel under the wrath of inclement weather and lower crop yields, rising inflation eating into budgets, and the resultant diminishing penchant for spending in India’s aspirational millions.

Other than local factors, there are other demons at play disrupting supplies and pushing up input raw material costs (and eventually end-product prices), such as the ‘Red Sea Crisis’, also known as the United States-Iran proxy war that began in October last year. Indian firms use the Red Sea route through the Suez Canal to trade with Europe, North America, North Africa, and parts of the Middle-East, regions that annually account for a large chunk of India’s total exports worth Rs 18 lakh crore and imports worth Rs 17 lakh crore.

This disruption is leading to severe supply constraints across industry sectors, catalysing wasted production capacities, lower inventories, and higher prices. The only ones smiling at this turn of events are those working for shipping and freight companies, which are now demanding higher rates.

That said, the freebies are here, there, and everywhere in India, from automobiles to washing machines, and room heaters to dishwashers; hefty discounts running into lakhs and thousands of rupees. They are also available a-galore in smaller offerings such as toothpaste, biscuits, honey, soaps, hair oils, shampoos, and juices; you either get more weight at the old price or a plus-one offer to coax you to loosen your purse-strings.

Admittedly, the Government is introducing stimuli to rein in inflation, and prices of commodities such as oil are plateauing, offering companies, that use this as a raw material, some relief. This is being passed on to the consumer, either as a price-off, volume promotion, freebie, or more units at the same price. Other food-based industries continue to face a torrid time as they are impacted by high prices of wheat and sugar.

Ironically, low inflation can be a challenge too for big FMCG companies as it means cheaper raw materials and, hence, lower production costs. That, in turn, leads to lower product pricing too, which inspires smaller, local brands to enter the market with cheaper products, hitting big companies that have to manage higher manpower, production facility, and HR spending. That is a reason that companies like Proctor & Gamble, Hindustan Unilever, and others are facing pricing pressure and resorting to freebies and offers.

Some prominent companies that have adapted to the changed market reality include Britannia Industries, Hindustan Unilever, Dabur India, and Procter & Gamble, offering ‘power packs’ or bundled discounts, as well as ‘buy-more-save-more’ on packaged goods, home- and personal-care items. Some are offering 50 per cent off on combo deals of biscuits and juices, while others are throwing in ‘3 kg extra with 7 kg’ bonanzas. Cross-breeding is also in vogue, with toilet cleaners coming with free disinfectants and shampoos boasting conditioners as a dowry item.

Government policy and changing tax landscapes have played a part in painting the topsy-turvy topography for many companies in urban India. For one, the sketchy and oft-fluctuating implementation of the GST regime continues to hit sales—TVs are taxed according to screen size, with smaller TVs attracting lower GST.

“Our big profits came from large screens, which were booming. With higher GST and lower consumer spending, sales are down, impacting both the top-line and bottom-line,” said Ashutosh Gupta, Marketing Head at a Chinese manufacturer. The sales skid is similar in refrigerators, vacuum cleaners, washing machines, and microwave ovens. “Our worry is this trend will extend to ACs, and with summer approaching fast, that would be a death-knell,” he added.

Individual salespersons have it rough too. Shantanu Tyagi recently quit his job in white goods company Maffcon, saying: “I was accustomed and inure to sales pitches, SCM-ERP fluctuations, and the attendant paraphernalia. Only recently did I manage to wrap my head around AI. Now, I am being asked to develop a forked tongue to make discount and rebate noises. I would rather stick to a straight tongue and make my old polysyllabic sounds elsewhere, not con people to cop a sale.” Tyagi has joined a fresh produce-selling farm company.

To each his own and good for him, for jobs aren’t easy to come by, with most people hanging on to the employment they have with all their might and hope, praying that things turn around sometime soon and chug along as they used to.

(The writer is an independent journalist, based in New Delhi. Views expressed are personal)