FMCG Sales Dip 7.5% In November Amid Excessive Stocking, Lean Offtake

Festive demand failed to lift up sales of fast-moving consumer goods, leaving mom-and-pop stores with excess inventory.

The value growth of everyday essentials fell 7.5% in November over the previous year, driven by personal care, commodities and home care, according to the monthly update by retail analytics platform Bizom.

Compared to October, the FMCG market fell 3.5% by value, as retailers had aggressively restocked shelves in the run-up to the festive season in October but are now stuck with unsold stocks. An unexpected slowdown in festive demand led to a drop in primary sales by companies to stockists.

"Repeat purchases in stores are under heavy pressure, especially for beverages, personal care and branded commodities, even as packaged food and confectionary got a boost from festive gifting," said Akshay D'Souza, chief of growth and insights at Bizom. "We continue to see higher stocking in rural areas, and this also indicates that recovery will now take longer."

Urban demand continued to outperform rural demand as erratic monsoons weighed on farm incomes. Sales in rural markets dipped 9.6%, while those in urban markets fell 3.5%, the data showed.

The overflow of excess stocks is beginning to impact the working capital of distributors, choking the entire supply chain.

"Diwali witnessed subdued enthusiasm, and the post-Diwali sales have been historically low," according to Dhairyashil Patil, president of the All India Consumer Products Distributors' Federation.

Analysts expect soap-to-staples makers to report muted volume growth in the festive quarter, similar to Q2 levels. Citing the absence of a festive-linked uptick in demand as per channel checks, Macquarie said that it expects Hindustan Unilever Ltd. to report a 2-3% volume growth in Q3.

The slow uptick in volume growth is not just because of muted rural consumption but also due to the steady erosion of general trade's contribution to overall sales, thanks to the shift towards modern and e-commerce channels. Also, competitive intensity from local players remains elevated, albeit it hasn't risen during the quarter, Macquarie said.

Deep consumer offers and trade promotions are in play across mom-and-pop stores with heavy stocking to push sales of unsold gifting pack inventories and ensure repurchases, said Bizom's D'Souza. "We expect this to continue for the rest of the month except in winter product categories."