After an unprecedented slump because of the Covid-19 pandemic and the resultant lockdown, green shoots were visible in the third quarter of 2020 as the economy opened up and manufacturing improved, states the Nielsen India FMCG Growth Snapshot report.
The Index of Industrial Production (IIP) went from -57.3% in April 2020 to +0.2% in September 2020.
The sector showed signs of improvement with a growth of 1.6% compared to a year ago. The revival was aided by businesses opening up with the Covid-19 pandemic reaching stable levels.
“Markets started opening up in a phase-wise manner and store closures came down to an average of three days a month in Q3 2020 from an average of nine days a month in Q2 2020. After being cooped at home for a long time, consumers also started looking at resuming normal consumption levels,” said the report.
The report said though consumers prioritised spending on essential food items, the non-food category also saw a revival in Q3. The home care category has shown a growth of 0.5% while personal care grew by 0.7%.
The FMCG sector has witnessed a double-digit growth of 10.6% in Q3 in rural India. The rural market has witnessed growth due to factors like Government support, reverse migration, and low unemployment rates. The report also says packaged food is driving the faster growth for rural markets. There is an increase in spends within the food and non-food baskets as compared to metros, with packaged staples and hygiene categories driving faster growth in rural India, says the report.
The recovery is faster in the east and north zones due to lower Covid cases. Meanwhile, the western zones have continued to show a decline.
The report says e-commerce has continued on its growth momentum, especially in the metros. It increased by two percentage points (a 34% increase in contribution) in Q3 2020 versus Q1 2020. Modern trade that was impacted due to closed stores has seen signs of recovery since September. The independent MT stores leading are showing a 9% growth in September 2020 versus September 2019.
The report also says consumers are increasingly giving preference to affordable products as the wallets are shrinking. The revival for premium category products has been slower but is also reviving in the third quarter. The movement toward more affordable options is more pronounced in the foods category.
Small manufacturers have managed to stay agile during this period and have marched ahead in Q3. The market also witnessed a higher entry of smaller players and a lower churn compared to earlier quarters. The launches in the market have been dominated by the health and hygiene sectors. New launches in the health and hygiene space contributed to 37% (in value) of all new launches in the Covid period. The value contribution of new launches in the health and hygiene category was higher during the Covid period at 2.9%. Products like toilet cleaners, antiseptic liquids, floor cleaners, and sanitisers have dominated the market.
“While the market has initiated a recovery, the demand and supply disruptions caused by the world’s severest lockdown from end-March have severely curtailed economic activity. It is gradually returning to normal as restrictions are relaxed. However, the continued spread of the pandemic is keeping the economy watchful. Given the significant headwind built at the start of Covid-19 pandemic in March 2020, Nielsen forecast for 2020 to remain in the negative single digit (-3% to -1%),” the report suggested.