Slowdown: Distress in small FMCG firms triggers manufacturer exits

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.

Published: 18th July 2019 08:10 AM  |   Last Updated: 18th July 2019 08:10 AM   |  A+A-

For representational purposes

Express News Service

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 firms exiting the space has gone up. 

According to market research firm Nielsen India, the number of net manufacturer 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 has fallen by 25 per cent during the same time: 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 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 of small and large firms post GST. 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. However, the current slowdown has stolen the winds from their sails, 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.

Inflationary pressures, along with change in Price Pack Architecture within small players, have perhaps resulted in small players losing pricing advantage to large manufacturers, Nielsen said.With rural growth losing steam and household growth continuing to squeeze, Nielsen further lowered its 2019 forecast for the sector to 9-10 per cent, against 11-12 per cent estimated earlier. Within this, food categories are expected to grow at 10-11 per cent, whereas personal and home care categories are expected to grow at 7-8 per cent. 

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 said.

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