FMCG Giants Struggle Against Rising Competition and Growing Costs

FMCG companies face fierce competition from regional and D2C brands, along with high raw material costs. Beverage sales show promise due to summer demand, but overall growth remains weak. Measures like pricing strategies and rural demand offer some relief. Future recovery depends on economic factors and improved margins.

FMCG companies are grappling with a challenging business landscape, according to a recent report by Axis Securities. The sector is witnessing intensified competition from smaller regional brands and burgeoning direct-to-consumer (D2C) companies. Additionally, the pressure to clear old stock in conventional retail outlets is exacerbating the hurdles faced by these companies.

The report highlights the stiff competition from regional players, coupled with the growing presence of D2C brands. Inventory liquidation pressures in standard trade channels further compound these challenges. Interestingly, beverage companies appear to be faring better, as the summer heat drives demand for carbonated drinks, setting the stage for potential sales growth in this segment.

Despite these pressures, the overall volume growth for FMCG companies is forecasted to remain sluggish, following trends from the previous quarter. Notably, rural markets are outperforming urban counterparts, offering a glimmer of hope for balancing company performance. Input costs for essentials like palm oil, coffee, and wheat have surged, prompting companies to raise product prices, though the full impact on revenue remains to be seen.

The report suggests that a mix of interest rate cuts, favorable monsoons, and government policies could bolster consumer sentiment, potentially leading to demand recovery in the latter half of FY26. However, profit margins are under stress due to elevated raw material costs, despite price hikes. This has led firms to tighten advertising budgets in a bid to sustain margins, with anticipated delays in witnessing the benefits.

In summary, while the FMCG sector faces multifaceted challenges, strategic pricing, strong rural demand, and seasonal factors may offer temporary relief, keeping the industry buoyant until broader market conditions improve. (ANI)

(With inputs from agencies.)