FMCG: Shipments are going up while retail offtake is slowing, says Nielsen

After clocking a blistering 13.8 per cent in terms of growth rate for calendar year 2017, India's $50-billion (or Rs 3.25 trillion) consumer goods market appears to be slowing as far as retail offtake goes. The latter is industry parlance for actual sales growth seen in stores. This is tracked closely by Nielsen through its  retail audit of various categories.


Retail or consumer offtake, say experts, is considered a more accurate barometer of the health of the market vis-a-vis company shipments. The latter are basically goods pushed by firms into trade  channels and do not necessarily reflect actual sales at the last mile. Companies, however, have challenged this notion from time to time, arguing that shipment data cannot be ignored at all, since demand by trade is also a reflection of consumer demand per se.


Figures released by Nielsen on Tuesday though shows that the pace of retail offtake of fast moving consumer goods (FMCG) has actually slowed to 11.3 per cent in January-March 2018 and is expected to touch high single digits (8-9 per cent) in April-June 2018.


“At this rate, retail offtake growth levels in calendar year 2018,” says Sameer Shukla, executive director, retail measurement services, South Asia, Nielsen, “is forecast to be tad lower than 2017.” 


The market research agency says that actual sales growth in stores for 2018 is likely to be in the region of 10-11 per cent, almost 300-400 basis points lower than the previous year. The question is: Is this cause for concern  at all for companies?


Some market experts believe that a dip in retail offtake does point to consumer fatigue setting in.


Companies and some analysts though beg to differ. Most firms typically report shipment data as gross or net sales every quarter and numbers since the third quarter of 2017-18 (FY18), they say, suggests there is a recovery in the market, led by a lower base.


While the third quarter of FY18 saw a smaller universe of companies report good sales numbers, this set has widened in Q4, Abneesh Roy, senior vice-president, research, institutional equities, Edelweiss, said. And the contributing factor has not only been a lower base, but also an improvement in rural demand, he says.


Nielsen says that rural markets, which had slowed in calendar year 2017 due to demonetisation and introduction of the Goods & Services Tax (GST), has actually bounced back in 2018. “Rural (markets) grew at 1.4 times that of urban (markets) in Jan-March 2018, which is a good sign for players. The last the market saw this pace of growth was between 2014 and 2016,” Shukla says. “In 2017, rural’s rate of growth had dipped to 1.1 times that of urban markets,” he says.


Sanjiv Mehta, MD & CEO, Hindustan Unilever, the country’s largest consumer goods company, said recently that the full impact of rural (demand) would be evident in a few quarters from now by which time the overall market would completely stabilise.


Shukla says that small FMCG manufacturers with a turnover below Rs 10 billion, who were impacted due to demonetisation and GST, are already beginning to turn a corner. Most have  reported better sales growth for the Oct-Dec 2017 and Jan-March 2018 quarters.


Shukla also says that modern trade is growing at 1.5 times that of traditional trade, pointing to the growing interest of manufacturers to push products through organised retail, a result of the challenges faced by them during the high-value cash ban.


Overall, Nielsen though does not have a very pessimistic view of market, saying retail offtake would bounce back in the future. “GDP projections for 2018-19 are higher (at 7.4 per cent) than the previous year. Monsoons are also expected to be good this year, plus government initiatives in rural areas will be higher due to the general elections next year,” Shukla says. “All of this bodes well for firms,” he says.


Ratings agency Crisil has already indicated that FY19 would be good for FMCG companies due to an improvement in rural demand and new product launches. This would help take up revenue growth of companies by 300-400 basis points over the previous year.


The study also said that improvement in revenue growth of FMCGs would positively impact their operating performance and benefit their credit profiles in the future.

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