For an industry like FMCG which caters to customers across prosperity levels, it may come as a surprise to some that more players are exiting the ‘fast-moving consumer goods’ space rather than joining it, according to Nielsen. The same has also cast a long shadow on the Indian consumption story as from Q218 to Q219, the growth trajectory for small FMCG players has been on a continued downtrend. The impact has been severe, “with the degree of decline in growth for small manufacturers resulting in an overall contribution of 50% to India’s slowdown story”, Nielsen said in its India FMCG growth snapshot for April-June 2019 quarter.
When asked whether small FMCG manufacturers or FMCG startups are eating into the share of big players, which is being seen as a slowdown, Nielsen said that on the contrary, small manufacturers are largely quitting and that has contributed heavily to the slowdown.
“In 2017, 7400 players got added into FMCG space. That went to 7900 in 2018 and went down to 6000 in 2019. You’ll see a lot of small players, especially in the food sector, entering after GST. However, post that, you see inflationary pressure pushing them into increasing their prices. For a consumer that means should I go for a brand that is known to me and very close to the price range compared to the new player that has just come up? So that’s also a factor at play here. Trade dynamics and complex Indian environment is also an active player,” Sunil Khiani, Head of Retail Measurement Services, Nielsen South India, told Financial Express Online.
Further, change in pack price architecture, within the small players, has led to them losing out on price advantage over large players. The small players also witnessed a 57% slowdown in the food category which is otherwise a large driver of sales for them. These food items include salty snacks, packaged tea, biscuits, and spices, according to Nielsen’s findings.
The North and West zone have promoted growth for small manufacturers but these zones have seen a steep fall in growth. While growth rate was at 33% in Q318, it fell to 12.6% in Q219 in the North zone and from 25.5% to 10.6% in the West zone.
GST hurt more than demonetisation
Even while the growth for small, medium and large enterprises did not hit a rock post demonetisation, the same was affected during July 2017 after GST roll-out and Nov 2017 after GST rates were redefined for few categories. The growth for small, medium and large enterprises picked up in Q318, according to the Nielsen findings, however, it saw unprecedented slump post that period.