Urban India raises crunch factor for FMCG industry

Urban areas are beginning to show an uptick in sales of fast-moving consumer goods (FMCG), months after the Covid-19 pandemic hit cities the hardest owing to their dense populations and cramped living conditions.

Firms such as Hindustan Unilever (HUL), Marico, Dabur, Emami, and Colgate have said urban sales have improved in the October-december period (Q3), the first time in four quarters. The revival comes ahead of analysts’ expectations. They were seeing an uptick in urban sales in FY22, when the vaccine becomes available to the general public. It currently remains restricted largely to health care workers.

The trend, said experts, points to a growing sense of ease among urban consumers as the Covid-19 case load reduces and the first phase of the vaccine roll-out progresses. Of the FMCG industry’s sales, 60-65 per cent come from urban areas and 35-40 per cent from rural areas. While rural demand remains robust, it is the turnaround in urban areas that is critical for the industry. Chief executive officers (CEOS) of FMCG companies say the trend is here to stay.

“What will help urban demand is mobility, which is directly linked to the vaccine roll-out. We are pleased with the government’s vaccine plan and if it can be executed with speed, that will help demand tremendously, especially in urban areas,” said Sanjiv Mehta, chairman and managing director (MD), HUL.

For HUL, the country’s largest FMCG firm, the buoyancy in urban areas was visible in sales of discretionary products such as skin care, cosmetics, and beauty, which constitute 15 per cent of its portfolio. There was significant improvement in sales of these products in Q3, sector analysts said, in a shift from what was visible in Q1 and Q2 of FY21.

At that time, sales of discretionary products -- not just for HUL but for the entire market - were down, leading to a sharp decline in the company’s discretionary products’ top line.

Essential products, part of the health, hygiene, and nutrition vertical, which constitute 80 per cent of HUL’S portfolio, grew in double digits in terms of sales in Q3, a continuation of what was visible in Q1 and Q2.

Saugata Gupta, MD and CEO, Marico, said consumer confidence was improving amid a falling Covid-19 graph.

“With the core franchises exhibiting strength and new bets in foods also trending well, we expect the domestic business to deliver much ahead of medium-term aspirations over the next few quarters,” he said. Analysts say the revival in discretionary categories is pushing companies to now invest in these products significantly, something they were not keen to do earlier.

Emami and Dabur executives said that brand-building had improved and it would continue to invest in go-tomarket capabilities.

“We have witnessed a revival in discretionary spending by consumers. We will continue to strengthen our health care portfolio, improve our rural footprint, and invest in goto-market capabilities, especially in home and personal care,” said Mohit Malhotra, CEO, Dabur India.

Mohan Goenka, director at Emami, said the company was hopeful to close FY21 at high single-digit growth due to the recovery seen in the last two quarters. “The growth momentum has continued, aided by aggressive sales strategies, dedicated team effort, quality products and implementing stringent cost control,” he said.

The March quarter of FY21 is likely to mirror the trend visible in Q3, implying that the worst is over for FMCG.