FMCG Retail Navigate Inflation Challenges; Eye Festive Season Boost
RBI recently reflects these mixed signals, acknowledging a slowdown in high-frequency indicators but expressing optimism for a potential recovery
With corporate earnings under pressure and inflation impacting consumers, FMCG and retail companies have managed to navigate the challenging festive season this year.
Market players report that persistent inflation has affected both sales and margins across urban and rural areas. However, they have observed a rise in demand with the festive season at its peak.
"Rising commodity inflation is always a challenge for FMCG brands, as it directly impacts consumers' purchasing power. With the festive season spanning from Rakshabandhan to Diwali, we've observed an increase in demand," said Manish Aggarwal, Director, Bikano, Bikanervala Food.
This year, we're heavily focused on both quick commerce and traditional e-commerce platforms. Given the high demand for our products during festive periods, we prioritise quick commerce to ensure swift deliveries, Aggarwal added.
The Reserve Bank of India (RBI) recently reflected these mixed signals in its October bulletin, acknowledging a slowdown in high-frequency indicators but expressing optimism for a potential recovery.
Inflation has intensified, with rural inflation at 5.9 per cent surpassing urban inflation at 5.0 per cent in September. Food inflation rose year-on-year to 8.4 per cent in September from 5.3 per cent in August.
However, the RBI noted that spending seems to be rising in smaller towns and lower-tier cities, possibly driving a festival-season revival, based on reports cited in its monthly bulletin.
"We are aware of the inflationary pressures on raw materials, especially during such a crucial time, but it will not impact consumers because quality and affordability remain essential, particularly in the festive season," Aggarwal said.
Kuldip Raina, Director of Shalimar Paints, echoed the challenges inflation poses for sales across market segments.
"Inflation significantly impacts sales in both urban and rural markets, driven by factors such as consumer behaviour, income levels, and expenditure patterns," Raina noted.
He added that rising costs due to inflation are squeezing margins, prompting companies to optimise supply chains and explore local sourcing options.
"Consumer demand is weak this year, as seen in the results of leading consumer goods companies. Sales and margins are both under pressure," said Ravi Saxena, CEO and Co-Founder of Wonderchef, supporting the views of other industry leaders.
To address these challenges, many FMCG companies are implementing strategies to counter rising costs, such as streamlining supply chains, reducing operational expenses, and adjusting pack sizes to maintain price points.
"We are closely monitoring the situation and may reassess our pricing strategy if necessary to ensure the long-term sustainability of our business," Aggarwal noted.
In these circumstances, companies are also expanding beyond metro centres, with rural consumption growth surpassing urban growth, particularly in the non-food category, as observed by RBI's Industry Monitoring Group.
"We are intensifying our focus on tier 2 and tier 3 markets, where rising incomes are driving demand. While inflation remains a challenge, the overall outlook is optimistic," said Rajeev Jain, Senior Vice President, Corporate Marketing, DS Group, adding that despite prevailing conditions, companies are deploying strategies to capitalise on the festive season.
Despite inflationary pressures, FMCG and retail players remain optimistic that strategic adjustments and deeper penetration into smaller towns and rural areas can help them capture the festive season's potential. (ANI)
