Trade Dynamism triggered by demonetization and GST roll out almost settling down

With trade dynamism triggered by demonetization and GST roll out almost settling down, the fast moving consumer goods (FMCG) industry is expected to grow at 12-13 percent in 2018, according to market researcher Nielsen.

The industry witnessed 10.9 percent growth in the second quarter of the calendar year over the previous year on the back of consumer offtake, consumption buoyancy and price benefits passed on to the consumers under GST.

"The average price in FMCG is increasing at 2-3 percent over last few quarters, while consumer price inflation is hovering around 5 percent, largely because of benefits from GST and the efficiencies being built in system," Nielsen India executive director Sameer Shukla told reporters here.

"The other effect of lower price increase would reflect in consumption increase," he added. He added that if the inflation inches up, it may have a deterrent impact on the FMCG industry. FMCG growth stood at 11.6 percent in MAT (moving annual total) June 2018; nearly 70 percent of this is driven by consumption volume.

Volume growth in the industry is expected to be 7-8 percent for the year. Rural demand that had tapered down in growth terms, owing to policy changes has seen an uptick in recent quarters. The rural/urban value growth ratio was up to 1.28, in the June quarter, up from 1.06 in the same quarter in 2017, according to the agency.

"We had witnessed stress in rural FMCG consumption around demonetization and before the rollout of GST. As a result, growth in rural markets came down to be at par with urban growth in the months following demonetization. However, with wholesale channels bouncing back FMCG growth in rural markets have gradually picked up.

As a result, the growth differential between rural and urban areas has gone back to three percentage points," he said. On the trade, Nielsen noted that that modern trade has seen a phenomenal rise in recent quarters and its contribution to total FMCG industry is now 10 percent. "This growth in modern trade channel is fuelled by store universe expansion and better activation through multiple big days/ weeks and general consumer promotions," it said.

Foods category grew faster than personal and home care as consumers are shifting from unbranded to branded products, largely because the price difference has reduced after GST. In the personal care space, the natural trend continues to gain traction and is growing three times the pace compared to the non-natural segment, it said while observing that the natural space is dominated by Indian companies which account for 81 percent of the segment.

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