FMCG growth slows in December quarter on GST transition

MUMBAI: Consumption of soaps, shampoos, biscuits and other packaged goods took a hit in the Dec quarter with volume growth dropping to 2.6% compared to 6.2% in the year ago quarter as transition to a new goods and services tax (GST) regime from Sept 22 disrupted sales at neighbourhood kirana stores which still drive the bulk of household grocery shopping in large parts of India, NielsenIQ (NIQ) data showed on Thursday.

Value growth also declined to 7.8% in the Dec quarter from 10.1% in the year-ago period on the back of easing prices. Price growth slowed to a four quarter low in the Oct-Dec period due to tax cuts and festive promotions.

"Nearly 60% of the FMCG portfolio underwent GST rate revisions, requiring coordinated pricing adjustments across manufacturers, distributors and retailers. While these changes temporarily impacted traditional trade performance, organised channels adapted more quickly....the moderation reflects a combination of a higher festive base in the previous year and transitional adjustments linked to GST rate revisions," analysts at NIQ said.

Many consumers had delayed purchases to avail the benefit of price cuts while kirana stores refused to stock up on old inventory, waiting for fresh batches of products to hit the markets, impeding supplies. Sharang Pant, head of customer success, FMCG and tech & durables, NIQ in India said that the positive impact of GST on consumption is expected to become more visible from the March quarter. In their Dec quarter earnings, companies have already been pointing towards gradual recovery in consumption on the back of tax cuts even though a depreciating rupee and ongoing geopolitical tensions risks triggering price hikes, weighing on revival.

Consumption of both food and home & personal care (HPC) products declined even though stabilisation in edible oil prices and tax cuts somewhat supported volume growth in food. HPC segment recorded a 1.9% volume growth in the Dec quarter, lower than 7.2% in the year-ago period while food volumes slipped to 2.8% from 5.8% in the year-ago quarter.