As India’s fast-moving consumer goods (FMCG) sector looks ahead to FY25, companies are optimistic for a stronger year after a tepid FY24. Major players like Dabur and Hindustan Unilever are anticipating volume-led growth, driven by a stable monsoon, a good Rabi crop, and a favorable inflationary environment. FY24’s Q4 performance, marked by 6.5% volume and 6.6% value growth, particularly in rural areas, has set the stage for a robust FY25.
Key Growth Drivers for FMCG Market in FY25
Rural Resurgence
Q4 FY24 saw a 7.6% rise in rural consumption, surpassing the 5.7% growth in urban areas. Rural markets, which account for 40% of the FMCG market, showed a strong comeback after lagging behind for five quarters. This is crucial for driving growth in FY25.
Non-Food Segment Growth
Non-food categories, especially home and personal care products, saw 11.1% growth in Q4, outperforming the food segment. The popularity of larger pack sizes contributed to this rise, indicating a shift in consumer behavior towards bulk purchasing.
Challenges Looming Ahead
Despite the optimism, the FMCG sector is not without its challenges. Analysts caution that rural recovery is fragile, largely due to a low base effect in FY23 and temporary price cuts in Q4 FY24. Rising raw material costs in recent months have also raised concerns about sustained growth. Companies face the challenge of balancing price increases with maintaining volume growth.
Price-Volume Equation
FMCG companies must tread carefully. Raw material prices, including crude oil, palm oil, coffee, and sugar, have surged, increasing production costs. While price hikes may be inevitable, companies are likely to test their pricing power cautiously in the second half of FY25, once demand stabilizes.
Shrinkflation and Premiumisation: A Dual Trend
Amid rising input costs, FMCG companies have resorted to shrinkflation—reducing the size of products while maintaining prices. This tactic helps protect profit margins without alienating price-sensitive consumers. However, brands are cautious, as overly small packs may risk consumer loyalty.
At the same time, premiumisation is accelerating. Companies like HUL, ITC, and Parle Products have introduced more premium products, which offer better margins. E-commerce platforms have been instrumental in driving premium product sales, helping brands tap into a segment of consumers willing to pay more for quality.
E-commerce and Quick Commerce Revolution in FMCG Market
Online commerce has become a key sales channel for FMCG, contributing around 8% of total sales. Quick commerce platforms like Blinkit and Swiggy Instamart are emerging as strong contenders, offering rapid delivery services and eating into the market share of traditional e-commerce giants like Amazon and Flipkart. While still limited to metros, Q-commerce is expected to expand into smaller cities, further transforming FMCG retail.
Surging Competition: Reliance’s Disruptive Entry
The entry of Reliance Retail into the FMCG space through Reliance Consumer Products is shaking up the industry. With its ambitious goal of reaching 1 crore kirana stores in five years, Reliance poses a significant challenge to established players like HUL, Nestlé, and Dabur. Additionally, smaller regional brands, buoyed by falling commodity prices, are making a strong comeback, further intensifying competition.
Conclusion
The Indian FMCG market is at a crossroads. While FY25 holds promise, companies must navigate inflationary pressures, shifting consumer behavior, and intensifying competition. Premiumisation, shrinkflation, and the rise of e-commerce and Q-commerce will shape the market’s future. FMCG players are betting on these trends to maintain growth and adapt to an evolving landscape, all while keeping a close eye on the unpredictable rural market.
Aaj Enterprises
