FMCG Sector Poised for Structural Shift Driven by Premiumization and Rural Growth: Abneesh Roy
Mumbai, September 29, 2023 – A structural shift is underway in the Fast Moving Consumer Goods (FMCG) sector, fueled by the return of popular price points and rising disposable incomes, according to Abneesh Roy. The anticipated recovery, however, will be selective, with impulse categories, paints, and alcobev expected to benefit more significantly than others.
Roy noted that the FMCG recovery will likely be “a bit later,” citing a post-GST announcement consumer wait for lower prices and trader hesitancy to stock goods at higher MRPs.Hindustan Unilever Ltd. has indicated a potential impact from the GST transition even into October.
He highlighted that impulse categories like biscuits and snacks will see an initial boost due to lower unit taxes, with companies likely to increase grammage to drive volume growth starting in November. While long-term benefits are limited for categories like toothpaste due to constrained consumption increases, paints, alcobev, bhujia, and biscuits are projected to benefit the moast. Gains are also expected in foods like noodles, pasta, chocolates, and confectionery, while Health & Personal Care (HPC) categories will experience a smaller impact.
Roy also pointed to ongoing challenges, specifically the inverted duty structure where services and raw materials are taxed at 18% GST while finished products are taxed at 5%, creating an adverse impact.
He anticipates the full return of popular price points of Rs 2, 5, and 10, extended by five to seven years due to GST cuts, creating a more level playing field with unorganized players. Premiumization will also be a key driver as disposable income rises, with margins expected to improve once the inverted duty issue is resolved. Rural areas and smaller towns are expected to continue outpacing urban markets in growth, with urban recovery anticipated from November.