Modern Trade Drives Growth In India’s FMCG Sector
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Modern Trade Drives Growth In India’s FMCG Sector

Modern Trade Drives Growth In India's FMCG Sector

India’s organised retail sector, accounting for approximately 12 per cent of total fast-moving consumer goods (FMCG) sales, witnessed its highest growth in six quarters, recording a year-on-year surge of 21.1 per cent during the April-June period, as per NielsenIQ data. This growth was fueled by a stable urban demand environment.

NielsenIQ, the data insights and market research agency, attributed the robust performance of modern trade to steady urban sales across various categories such as food, home care, and personal care. In comparison, traditional trade recorded a year-on-year growth of 6.2 per cent in the June quarter. While NielsenIQ doesn’t track e-commerce sales, industry estimates suggest that the online channel witnessed a growth of around 12-15 per cent in FMCG sales during the same period.

It’s worth noting that e-commerce contributes 8 per cent to overall FMCG sales, while traditional trade dominates with an 80 per cent share. NielsenIQ indicated that the revival in traditional trade during the June quarter, compared to a 1.9 per cent growth in the previous quarter, was driven by a recovery in rural markets.

Urban markets, on the other hand, remained robust, as indicated by volume growth figures in modern trade over the past quarters. Urban areas have a higher concentration of modern trade outlets, whereas rural areas are characterized by traditional trade or kirana stores.

From a growth rate of 5.5 per cent in the March 2022 quarter, modern trade demonstrated steady progress with growth rates of 8.1 per cent, 14 per cent, 12.7 per cent, and 14.6 per cent in subsequent quarters up to March 2023.

In contrast, traditional trade witnessed fluctuations, with growth rates moving from -4.9 per cent in the March 2022 quarter to -1.5 per cent, -2 per cent, -1.5 per cent, and finally 1.9 per cent in the March 2023 quarter.

Satish Pillai, Managing Director of NIQ (NielsenIQ) India, attributed the upswing to softened inflationary pressures, fostering consumer confidence in spending across retail channels, particularly in modern trade, which is anticipated to persist through the upcoming festive season. Non-food categories, driven by price reductions in home care and personal care, experienced an uptick in consumption during the June quarter.

Leading FMCG companies like Hindustan Unilever (HUL), Marico, Godrej Consumer, and Dabur have emphasized their focus on volume growth as commodity inflation moderates. Companies have implemented price cuts in home and personal care products ranging from 5-10 per cent in the June quarter, aiming to stimulate volume growth.

As Rohit Jawa, MD & CEO of HUL, highlighted, the primary emphasis is on driving competitive volume growth while benefiting from the reduction in commodity costs. This strategy has resulted in a two-thirds growth in underlying volume and a one-third growth through pricing for HUL.

Mohit Malhotra, CEO of Dabur India, noted that falling product costs have led to increased consumer spending. With inflation subsiding, product costs are reducing, leaving consumers with more disposable income.

In conclusion, India’s retail landscape, influenced by urban and rural dynamics, reflects shifts between modern and traditional trade, influenced by economic conditions, consumer behavior, and price trends across FMCG categories.

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