It could be coincidence, correlation or causation. The chief executives of six of India’s largest packaged-goods and retail companies—Hindustan Unilever, Nestlé, Britannia, Godrej Consumer, Colgate-Palmolive and DMart—left their companies in about a year. One does not have to get into a forensic assessment of the persons or the quality of the boards to be mystified.
On Monday, India will know the economy’s growth rate for the April-June quarter—and if forecasts are reliable, the GDP would have grown at around 7.2 percent. That, in the face of global uncertainty, is laudable. Adam Smith had observed, “Consumption is the sole end and purpose of all production.” The mantra suggests that last quarter’s consumption would have been robust. But the boardroom churn suggests that stakeholders are not impressed with the prospect in subsequent quarters.
Drill down the data ladder and the picture begins to look interesting – indeed, it’s complicated. The folks spending to drive home a car or a durable are not spending on daily consumables. Nielsen-IQ reported poor growth in the January-March quarter and company results show an uptick in revenue growth but a troubling stalling of volume and/or value. Raise the question among the pundits and you will be told about hyper-competition triggered by new models, and probably be assailed by jargon ranging from premiumisation to shrinkflation!
The proof of value is best illustrated by the performance of listed entities. It is well known that Nifty50 is one of the weakest indices in the world at present with -1 percent returns for the year. Nifty FMCG is the worst-performing sectoral index at -16 percent and has posted negative returns for the past three years—worse than the much-beleaguered Nifty IT index.
The de-rating by investors has hit the line-up of the sector’s most-starred names: Godrej Consumer down 26.3 percent, Hindustan Unilever 24.2 percent, DMart 19.4 percent, Trent 17.9 percent, and Britannia— relatively a survivor—still down 8.8 percent. DMart, once the most-sought stock, is flat over a 5-year period, while Godrej CP and HUL are at -12.5 percent and -25 percent over the same period. Meanwhile Haldiram, a packaged food giant that has Temasek as an investor, has recorded a valuation of over $10 billion.
The FMCG and retail numbers are a macro signal, not a sector story.The reality is manifest in GDP data. PFCE or the total money spent by households has hovered at an average of around 56.5 percent of GDP for over 12 quarters. It spans a wide spectrum from imputed rent to cars to onions. So why is the basic consumption basket stalling if the economy is growing rapidly at 7+ percent? The divergence is essentially what Peter Atwater named in 2020 as the ‘K-shaped economy’—one where the ends are splitting rather than rising together.
The problem for FMCG companies is the gap between volume and value, whereas for the economy it is the distance between employment, income and consumption. Take the rural landscape first. Arindam Das and Yoshifumi Usami analysed labour bureau and National Statistical Office data on rural wages from 2014-15 to 2022-23 to state that “the growth of wage rates in rural areas virtually collapsed for all agricultural and non-agricultural occupations” and real wage rates stagnated to under 1 percent.
Urban wages tell a similar story, squeezed by rising costs even as pay stalls. An India Ratings report of wages revealed that growth in real wages averaged at 5.7 percent between 2020 and 2026. The connection between wages and consumption is manifest. V Anantha Nageswaran had warned companies that poor compensation would impact consumer demand and prove self-destructive for the corporate sector.
Read all columns by Shankkar Aiyar
Shankkar Aiyar
Author of The Gated Republic, Aadhaar: A Biometric History of India’s 12 Digit Revolution, and Accidental India
(shankkar.aiyar@gmail.com)