Muted volumes remain a concern for FMCG companies amid rising inflation

The June quarter was a mixed bag for fast-moving consumer goods (FMCG) companies in volume terms. Major FMCG firms Hindustan Unilever (HUL), Dabur India, and Nestlé India witnessed volume growth despite a high base. On the other hand, volumes of Britannia Industries, Marico, and Godrej Consumer were impacted during the quarter.

The June 2022 quarter was the first fully normal quarter for FMCG companies after two years of the Covid pandemic. In the year-ago quarter, companies witnessed strong volume growth on a low base because of a nationwide lockdown during the Q1FY21.

According to NielsenIQ, volume contraction in the recently concluded quarter eased sequentially to -0.7 per cent, from -4.1 per cent in the quarter ended March. During April-June 2021, overall industry volume growth was 21.1 per cent.

“While the volume decline was driven by a drop in average packet size, unit growth bounced back to 8.9 per cent in June quarter, from 1.5 per cent in the previous quarter. This indicates consumers are buying smaller packets but more units.”

“The industry also observes positive momentum in volume, along with price-led growth,” NielsenIQ said recently in its press statement.

HUL reported volume growth of 6 per cent YoY in the June quarter. “On a year-on-year basis, the June quarter looks better than the March quarter… (But) growth in rural markets continues to lag urban markets,” Sanjiv Mehta, MD & CEO of HUL, told investors in its post-earnings conference call.

He pointed out that on a three-year basis (for a normalised baseline), “we can see that volumes are nearly flat, in both March and June quarters”.

Dabur India witnessed YoY volume growth of 5 per cent in its domestic FMCG business despite a high base of 34 per cent in the year-ago quarter. Its CEO Mohit Malhotra, CEO, during a conference call after the results, noted that there was demand compression in rural India and that the impact of inflation was much greater in rural India than in urban India.

Nestlé India also saw its volumes growing 7 per cent YoY in the June quarter, according to analysts. “Growth is broad-based and while being primarily driven by pricing, (it) has a healthy underlying volume and mix evolution,” said Suresh Narayanan, chairman and managing director of Nestlé India, after the results.

“Some companies witnessed volume growth in the quarter despite a high base, while others lagged against the backdrop of a high base and sharp inflation, which pushed companies to raise prices in the quarter, thus impacting volume consumption as consumers dialled back on their spending,” said Sachin Bobade, V-P at Dolat Capital.  

Godrej Consumer Products witnessed its domestic volumes contract by 6 per cent. But the maker of Cinthol soaps said in its presentation that with inflationary pressure abating, it expects a recovery in consumption.

Phillip Capital, in its report on the company, said: “The volume decline of 6 per cent was below our estimates. There was a subdued performance by the household insecticides category.” The company attributed its soft performance in the segment to a relatively muted season and a high base.

Britannia Industries also saw its volumes contract in the June quarter. “There has been a drop as far as volumes are concerned. But the number of packets we sell is flat. Hopefully, this will start to rise,” Varun Berry, managing director of Britannia Industries told investors, after the results. Phillip Capital, in its report on the company, noted there was a volume decline of 2 per cent, compared to an expectation of 3-4 per cent growth in the quarter.

The brokerage said: “We believe the performance has been dismal due to increased downtrading in favour of LUP (low unit packs) and pressure on consumer wallet.”

While Marico announced its results on August 6, it did not release its volume numbers. The company said in its quarterly update ahead of its results that its India business volumes declined by mid-single digits.