FMCG Pulse March 2023

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Looking forward

The year 2022 was supposed to be a reset year, when the economy would nd its feet again to run and the consumer taking advantage of that thriving and open economy. But like the past few years, we were again reminded of the unpredictability that encompasses us. What was supposed to be a dash towards strong growth numbers transformed into a crawl. But even with that crawl, we are at last looking at some positive numbers as we look to recover in 2023.

MAT January 2023 FMCG volume is just 0.54% ahead of the previous year. FMCG volume is a product of Population and Consumption. And the population was growing at nearly 2.7% in the year. Therefore, whatever growth we had seen in FMCG volume was purely population driven. In fact, FMCG consumption has dropped by 2.9KGs in the year.

We know that a big part of this struggle is because the purchases of Atta declined as free wheat was

The tug of war

Rural was dominating in the rst half of the year. That was when uncertainty was at the highest. Some time in May, the Government even banned the exports of wheat, so everybody had expected Rural to struggle – but then during the period between April and August of 2022, wheat exports had doubled – 43.5 MT vs. 20.07 MT in the previous year.

The reason for that is because the ban was not on consignments already registered before 13th May. The global supply crunch created by the war had caused many contracts to fall to India, and all those contracts signed before the ban was made disbursed by the Government – even after removing Atta from FMCG, the growth was at 2.4% still lower than the population growth.

But the rst quarter in this period was much worse. Feb-April 22 was 0% growth, with a consumption decit of 3.2 KGs. But as the year progressed, we saw growth returning.

FMCG isn't consumption positive yet, so there is yet a way to go to call this a complete recovery, but we are denitely on the path to it.

ocial, had to be honored. Which is why, despite an active ban, exports more than doubled during that period. That meant that the farmer had made more and not less despite the ban.

But as ination remained kept hovering around the 7% mark, Rural started to feel the heat. The surplus monies were drying up; costs had remained reasonably high and that meant the rural markets started to take a step back – and the Urban consumer who was now getting to terms with the inationary scenario took the growth baton from the Rural consumer.

Outlook for 2023

#Snacking

Without a doubt, the sector that benetted out of the pandemic was snacking. Even after the economy opened up the sector's growth kept pace, until a few months ago. We do observe a slowdown in the category which will only be accentuated in 2023. Just to put things in perspective – the monthly growth that was at 13.4% in Feb '22 was at 6.9% in Jan '23. So, after a run of nearly three years, 2023 will be the year where in-home snacking could slowdown. We don't really see it turning negative, but sub 3% growths are likely to be seen in the sector.

#Home Hygiene

Home hygiene only managed a 0.6% growth in MAT Jan '23. Swacch Bharat had boosted awareness and importance which was accelerated by the pandemic. But many of those who entered through unbranded and proxy products into the category during the pandemic did not return to buy those products after the pandemic, and the sector has since struggled to rebound. The only performing category in the sector is Utensil Cleaners – the other surface cleaners' categories are having a rough time; and their rough times are expected to continue into 2023 though with a slight improvement over 2022.

#Cold Drinks

2022 was a fresh lease of life for the sector. The sector grew by 47% in the year ending Jan '23, but it was signicantly front loaded. The second half of the year was underwhelming, especially with the last quarter losing volumes. So, the normalization had already occurred for this category. Given that 2023 is hard to predict. Last year, during our backchecks households did respond that their consumption was uncharacteristically high because of harsh summers. So, a lot is dependent on how the summers would turn out to be. A declining La-Nina is expected to keep the summers hot this year too, and dry. But this summer is ghting against a monstrous last year performance, so we expect even with the dry summers the performance to be muted and in low single digits.

#Convenience

The sector grew at 21% in MAT Jan '23. And as work-from-home facilities started wrapping up the sector started generating faster growths. The sector comes to life during the middle of the year, with most holidays and people staying at home. The current trend does point out to growing consumer demand, and we expect double digit growth to continue, though at a lower clip that the 21% registered this year.

#Rural

Rural was India's growth driver for the past few years. But there are some cautions for this year, particularly in terms of weather. The three-year La-Nina is receding and El-Nino is expected to set in some time around July. In the past, El-Nino has been associated with low rainfall in the country. Though the country is expecting a great wheat harvest, the warm winters have played a bit of a spoilsport in that aspect. Much is dependent on the Rabi harvest, and the farmers have also taken up Rabi crops in 15% more farms this year. Keeping that in mind, we are expecting to see Rural making a recovery in the rst half of the year, but the second half might still be bumpy for the region.

FMCG performance itself is dependent on one category – Atta. The Government has now decided to give free food grains for the entirety of 2023 to nearly 81 crore NFSA beneciaries. Earlier, for the COVID-19 package, the Government was proving 5KGs of food grains free over and above the monthly entitlements. But the individual still had to pay for those monthly entitlements, although at a subsidized rate. Now, while the COVID-19 package is halted, the monthly entitlements themselves are made free. A consumer would be able to save at least Rs. 40 per month due to this free food grains. This will have considerable bearing on FMCG for 2023. With a likely growth in both Atta purchases as well as consumers funneling the savings to purchase better and more products, we expect a reasonable growth in FMCG compared to what we've seen in MAT Jan '23. We will very likely turn consumption positive towards the second half of the year, provided the macro conditions do not throw us a curve-ball.

Beating Ination

Ination in India has been oscillating between 6% to 7% in the past few months with daily essentials like oil, rice, spices seeing some steep rise in prices. While it did come down below 6% during November and December, it went up again to 6.52% in January 2023. So, how are consumers managing the stress on their wallets in these inationary times? It is dependent on two factors: What is the spread of the wallet across essential and nonessential categories? And where are the consumers feeling the maximum pinch of price increase?

We did a study to get the answers to these questions in June of 2022 and repeated it in November 2022. The study was done on a sample size of about 6,000 households – and here are some of the ndings from the November round.

Cautious Spending

An average Indian spends about INR 38 K on an average in a quarter. However, this varies across dierent pop strata and level of auence. A household in metro city spends about 1.6 times more than a rural household. An auent household spends 1.4 times more than an average household.

However, we do see some impact of ination on overall spending. The average spends of 42.2K in

But unaected share of wallet

Almost half of the consumer's quarterly budget is spent on groceries and fresh produce and another 40% goes into other household expenses like utilities, commute and communication. Only 15% of the wallet is spent on discretionary items like fashion, eating out, entertainment etc. This proportion hasn't changed much in both the

L3M June declined by 10% in L3M Nov despite of festivities. The impact was even higher in rural where spends declined by 13%. A record crop production and exports prior to the ban generated cash surplus for rural. This along with free grain distribution insulated rural consumers from the impact of ination in the initial part of the year. But rural is also now feeling the heat of prices going up

rounds, except that the share of Groceries and Dairy further moved up in L3M Nov as spends on these grew by 5% and 6% respectively. Despite of festivities we don't see much increase in share of discretionary sectors like fashion and consumer durables, which also indicates the cautious state of the market currently.

Categories Ination Perception: Prices have remained same

Consumers do feel the heat

Consumers perceive that there has been increase in price across majority of essential categories during the second half of 2022. More than 2/5th of consumers feels prices have increased across various categories like fuel, electricity and staples such as milk, atta/wheat and rice. In fact, this

perception is even higher among urban auent households with almost 80% of consumers feeling that prices have gone up. This is probably because they are involved in purchase of many more categories.

And consequently, Indian consumers are not spending too much on discretionary categories.

Proportion of Households not spending on the categories

However, they are normalizing ination as lot of consumers now feel that prices are not rising any further.

Sticking to essentials

Despite of perceived hike in price, consumers are not planning to compromise on essential categories like Education, Medicine, Staple food, groceries and daily essentials like toothpaste, shampoo and soaps.

Consumers will continue to spend on these categories and are likely to manage their budget by moving to cheaper brands within household categories like Washing powders, Bar soaps etc. And they may consume less of ancillary staples like Besan, Poha, Rava, Spices.

However, discretionary products like convenience goods have a risk of getting dropped out. 1/5th of consumers is likely to stop spending on categories like packaged juices, soups, ketchup and on entertainment & eating out if prices further go up.

Struggling Now and Worried about Tomorrow

Consumers do feel the heat of ination and are worried about how things would turn out in future. More than 75% of consumers are struggling to manage their budget and about 40% of them feel

Outlook

Going forward we foresee caution continuing even in 2023 spending patterns as consumers continue to struggle with their budgets and more and more consumers are feeling the situation will become

that situation is going to become worse in future and the stress is even more pronounced in Metros and among less auent households.

worse. However, they have also normalized ination and if prices don't go up further, they are likely to maintain their purchase basket.

A year of Out-of-Home

Volume Share: In Home vs. Out of Home (H2 2022)

Figure 3

It was a year ago our latest consumer panel went live. The OOH panel as it is popularly known tracks what the consumer purchases and consumes out of home as opposed to the Household panel that focuses on tracking purchases made for in-home consumption. Over the course of the year, we have learnt quite a bit from the 11,000 individuals that make up the panel, and in this section, we share a few of those interesting snippets with you.

With the pandemic ebbing since the second quarter of last year and the economy opening up, we saw a gradual increase in purchases made for out of home consumption.

We seem to be bigger snackers out of home compared to in home as we observed that the snacking categories had a bigger portion of their volumes coming in out-of-home versus in-home.

The Snack Trinity: Raking in the moolah

90% of the population consumed Biscuits (& Cookies) at least once in the entire year, thus making it the most widely consumed category of the year. However, Salty snacks were bought on 1.2 billion distinct shopping occasions nationwide, more than any other category. These two categories, being the most heavily consumed categories outside of the home, also have the highest number of brands purchased in the year.

Resisting the urge to splurge

When these categories are purchased out-of-home, their spend per trip is higher than the spend when they are purchased for in-home consumption. This may have something to do with the average pack sizes also being higher when purchased out-ofhome compared to in-home. The only categories that do not t this higher pack size phenom are salty snacks and carbonated soft drinks.

It is also worth noting that the average number of

For instance, the Eastern Biscuit shoppers purchased 9 brands on an average in the year.

The third category in the snacking trinity, Chocolates was the category where the out-ofhome shopper spent the most – INR 54 billion. This singular category contributes over a quarter of all out-of-home spends; and is followed closely by biscuits at 23%.

items purchased per shopping trip of each category, is higher when the consumption occasion is out-of-home. However, annually inhome number of packs is quite signicant compared to out-of-home because the out-ofhome frequency tends to be lesser. Larger packs and consequently higher spends per trip may also be linked to the exact nature of the occasion of consumption, as we will explore with an example in greater detail below.

Ice creams: A treat to savor and share

Ice creams have the highest average ticket price among these categories both in and out-of-home, with the average spend per trip in an out-of-home occasion (at Rs. 151) far exceeding the spend per trip for an in-home occasion (at Rs. 66). On the other hand, biscuits and salty snacks have lower spends than all the other categories, which may be tied to the fact that over 55% of the occasions for both these categories were reported as being purchased to satiate hunger.

Ice creams conversely, were mostly had to treat oneself – 23% of purchase trips were attributed to this reason in the year – and that’s the dominating reason for consumption. Chocolates follow behind with 22% of their purchase trips made to treat oneself.

While that may be the case, there is also evidence that ice creams are a group indulgence food too. 44% of all out-of-home occasions for ice creams involved 3 or more individuals consuming – the highest of the eleven out-of-home categories tracked. Interestingly, biscuits and salty snacks are more personal snacks because they have the lowest percentage of occasions involving 3 or more people – 20% and 17% respectively.

The celebratory nature of the ice cream consumption occasion, coupled with a group consumption dynamic makes it one of the most spent upon category among snacks.

When categories were analyzed by their split of consumer value spend during the year, out-ofhome consumption has a heavy positive skew for all categories except biscuits, compared to their in-home value. Ice creams again lead this, with 90% of their value generated coming from out-ofhome purchases.

The rst year of out-of-home thus added more to our knowledge of FMCG as a sector. And as the panel enters into its second year, we are now eagerly awaiting for what the growth trends talk to us about FMCG consumption as a whole (both in-home and out-of-home together). This year we will also be looking at our QSR data and will also have an opinion on how India eats out. If you do want to learn more about the out-of-home panel do reach out to us.

KANTAR

For more information, please write to:

K Ramakrishnan k.ramakrishnan@kantar.com

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