As per Bizom, out of 6 categories tracked, four are encountering downtrading in the rural markets. Apart from this, out of 6 urban markets, five have encountered similar instances.
In the case of packaged foods, the packs with low-price points have seen a rise in consumption in the urban localities with the economy opening up.
In the middle of the price hike of the fast-paced consumer companies induced by inflation, every consumer has begun purchasing smaller SKUs (stock-keeping units). As per Bizom, several tracked categories are encountering downtrading in the rural markets, and in the urban markets, several markets are witnessing a similar trend.
The hike in prices of FMCG Products
According to the chief growth and insights officer at Bizom, Akshay D’Souza, a significant rise in the contribution towards the items having less price point primarily on the hyper price inflation’s account from the edible oils that have been a vital ingredient in the food plate of India.
If it is about the packaged foods, the packs having low prices have seen a hike in consumption in the urban locations as the economy has opened up. In terms of home care, a clear preference is there from the consumers for the medium size packs in the rural areas. But on the other hand, people prefer low-price packs.
According to D’Souza, this shift has occurred across categories, especially among those where oil has been considered a vital input ingredient. The key drivers of this shit have been the inflation in price. As all the brands announce the upcoming round of price hikes, an impending pressure is witnessed on the volumes driven by the usage drop in the upcoming months.
But all the packaged food companies are still living and are yet to see such kind of downtrading. Balaji Wafers and Parle have said that they did not see consumption considering a hit yet.
According to Mayank Shah, Parle Products’ category head, the price hike will be witnessed in the coming two months as soon as the prices hit the entire market. In addition, larger packs are expected to consider a hit in the upcoming months, as per the founder and director of Balaji Wafers, Chandu Virani.
The FMCG market in India
The Indian FMCG market is most likely to rise at 14.9% CAGR reaching US$ 220 billion by 2025, from US$110 billion in 2020. The packaged food market in India is anticipated to double to US$70 billion by 2025. The increase in digital connectivity in the rural and urban areas is the primary factor driving the FMCG demand.
The hike in the disposable income in the rural places in India and the low penetration levels in such a market offer prominent room for growth. As a result, it is forecasted that the eCommerce segment will be contributing 11% to the allover FMCG sales by 2030.
Investment in this sector has always attracted investors because of the demand for FMCG products throughout the year. As a result, this sector has witnessed a healthy FDI inflow from 2001 to 2021.
The fast-moving consumer goods possess a great inventory turnover. These also contrast with the speciality commodities that possess higher carrying charges and lower sales. Only FMCGs are only carried by several retailers, particularly the warehouse club stores, big box stores, and hypermarkets. Several small convenience stores also stock fast-moving goods, and the limited shelf space is stuffed with the higher turnover commodities.