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The Indian FMCG industry witnessed a consumption slowdown in urban markets and de-growth in rural areas in 2021, as the sector was hit hard by higher inflation levels forcing companies to go for successive price increases, said data analytics firm Nielsen.

In 2021, the FMCG industry had to go for double-digit price growth in three consecutive quarters to protect its margins, which converted into a price-driven growth of 17.5 per cent in comparison to a year ago in 2020.

Even in the October-December (Q4/2021) quarter, the FMCG industry has witnessed a consumption de-growth of 2.6 per cent due to inflationary pressure, and other macroeconomic factors, said the FMCG Snapshot released by NielsenIQ's Retail Intelligence team.
 

"Higher inflation levels during 2021 have led to three consecutive quarters with double-digit price increase resulting in consumption slowdown in urban markets, and consumption degrowth in Rural markets," it said.
 

The rural market contributes around 35 per cent of the total FMCG sales. After the second wave, it was hit hard and several FMCG companies including the market leader HUL in their recent quarter results for the October-December period reported negative volume growth in rural markets.

Moreover, price rise continues to impact small manufacturers, where the number of small manufacturers, having a turnover below Rs 100 crore dropped by 13 per cent largely due to the difficulty of continuing operations with higher costs, the Nielsen report said.

However, large and medium manufacturers stayed stable through the year, it added.

In the last two years, 8 lakh new FMCG stores were added and more than half of that has come into the rural area. This pace of opening new stores is more than double of the pre-COVID years.

"The Metro-India retail store universe also grew with newer stores opening up in residential areas, to cater to consumers who were homebound for nearly two years," it said.

During the October-December quarter, rural markets continue to bear the brunt of price increases.

"The resulting consumption slowdown continues to be more accentuated in rural markets with (–) 4.8 per cent consumption degrowth, while urban markets are comparatively better at (–) 0.8 per cent.

"Traditional trade in both urban and rural markets has seen a (–) 4.8 per cent volume degrowth that is leading the overall slowdown," it said.