Smaller Staples To Soap Makers Exit As Rural Slump, Input Costs Hurt: NielsenIQ

The number of small consumer goods makers exiting business rose as rural consumption slows and higher input costs curtail their ability to increase prices, according to NielsenIQ.

The rural market has seen a 5.3% dip in consumption of fast-moving consumer goods between January and March, the market research firm said in a report. That's the biggest drop in the last three quarters.

It translates into a 4.1% year-on-year volume contraction for the fast-moving consumer goods sector, it said. Higher inflation levels, however, forced companies to go for successive price increases, leading to a 6% price-led growth.

The consistent slowdown in rural consumption, high input cost pressures, and not being able to pass on the costs to consumers caused a 5.3% increase in the exit of small manufacturers, according to Nielsen.

"There has been a steady shrinking in the number of small manufacturers since the pandemic started," Nielsen said, in response to BQ Prime's queries. "If January-March 2020 is considered as 100, the index on net count of manufacturers is 92 for January-March 2022."

North, South Worst Hit

The north and south parts of India saw a steeper volume contraction of 5.4% and 5%, respectively. Volumes fell 2% in the west and 3% in the east.

Price hikes caused a slowdown in the hinterland.

“Rural markets witnessed higher price increases (11.9%) than urban markets (8.8%) and hence, more stress on consumption decline,” the report said. The extent of volume drop is significantly higher in non-food (9.6%) as against a 1.8% decline in volume growth for food, it said.

Value, too, fell 1.1% for non-food during the quarter, Nielsen said.

“Consumers are scaling back more on discretionary spends within the non-food categories," said Sonika Gupta, customer success lead (India), NielsenIQ.

Within foods, impulse beat the slowdown with a positive volume growth of 1.5% as consumers focused on smaller packs in salty snacks, chocolates and confectionery. The growth in staples basket, with categories such as refined and non-refined edible oil, vanaspati, packaged atta, was price-led. It has seen a 15% price rise in the fourth quarter.

“In continuation from last year, macroeconomic indicators are still guiding consumption patterns for the Indian consumer, and they are feeling the impact of the price increase—especially in the food and essentials categories,” said Satish Pillai, managing director-India, NielsenIQ.

Most companies, in their earnings presentations, blamed tepid rural demand and high commodity prices for lower-than-expected performance during the January-March quarter. The larger companies, however, said they have gained a significant market share with their shrinkflation tactics or reducing grammage and higher pricing power at the cost of smaller players.

Consumers are buying less and in smaller packs, hoping for prices to cool down. Nielsen data showed that traditional trade—or mom-and-pop stores that get supplies through distributors—has seen a 4.9% volume decline.

Even the April-June quarter is unlikely to bring any respite, they indicated.