NEW DELHI: The decline in consumption demand over the last few quarters has had a marked effect on the number of new entrants in the fast-moving consumer goods (FMCG) space, even as the number of companies exiting the space has increased.
According to market research firm Nielsen India, the number of net manufacturing exits in the sector increased from 4,600 in the second quarter of 2018 to 5,800 during the same period of 2019.
The number of new entrants, meanwhile, has fallen by 25 per cent during the same time: going from 8,000 to 6,000. Sunil Khaini, head of retail measurement services, Nielsen South Asia pointed out that distress among smaller firms in the sector is a major contributor to the increasing number of exits. “The exodus stems largely from the decline in the growth dynamics for small manufacturers which resulted in an overall contribution of 50 per cent to the country’s slowdown story,” he said.
In fact, Khaini noted, there was a divergence in the growth trends for small and large firms post GST, with smaller players outpacing their larger peers. Value growth among small manufacturers hit a peak of 27 per cent during the third quarter of 2018, even as larger firms grew at just 13 per cent.
The current slowdown has stolen the winds from their sails, however, with value growth in small firms decelerating sharply to 13 per cent by the second quarter of 2019 led by a massive slowdown in the food category, an otherwise crucial driver of sales.
Inflationary pressures along with change in pack price architecture within small players has perhaps resulted in small players losing pricing advantage to large manufacturers, Nielsen noted. The overall growth of the FMCG sector, Nielsen said, dropped to 10 per cent between April-June, marking the third consecutive quarter of slow growth.
As per the firm’s estimates, the growth in the FMCG sector registered a growth of 16.2 per cent in Q3 2018. In the subsequent quarters - Q4 2018 and Q1 2019 - the growth rate dwindled to 15.7 per cent and 13.4 per cent, respectively.
The key contributor to the overall slowdown was the dip in rural demand, Khaini said, adding “it was driven by the northern and western regions, such as Haryana, Madhya Pradesh, Uttar Pradesh, Maharashtra and Assam, where growth has come down to single digits in the April-June quarter."
With rural growth losing steam and household growth continue to squeeze, Nielsen furthered lowered its 2019 forecast for the FMCG sector to be in the 9-10 per cent range as against 11-12 per cent estimated earlier. Within this, food categories are expected to grow at 10-11 per cent, whereas personal care and home care are expected to grow in the 7-8 per cent range.
The firm also stated four key factors impacting growth: macroeconomic, government policies, monsoons and a low base effect. "There is a looming concern on increasing inflationary pressure which was at 1.9 per cent at the beginning of the year and has already moved up to 3.18 per cent in June this year," it added.