The outlook for India’s packaged goods industry soured with market researcher Nielsen on Thursday downgrading its 2020 growth forecast for the sector as the lingering effects of the supply chain disruptions caused by the lockdown continued to weigh heavily on companies.
Nielsen’s latest report forecasts a contraction of 1% to 3% for 2020. That compares with a July forecast of packaged food and household goods’ sales remaining little changed from a year earlier. The sector, however, returned to a 1.6% growth in the September quarter from a year earlier, after a 19% contraction in the preceding three months.
While demand for consumer goods is on the mend, led by rural India, the sales lift in the remaining three months of the year is unlikely to be robust enough to avoid a full-year contraction as the pandemic continues to weigh on economic activity. “While the market has initiated a recovery, the demand and supply disruptions caused by the world’s severest lockdown from end-March have severely curtailed economic activity. It is gradually returning to normalcy as restrictions are relaxed,” Nielsen India said. “However, the continued spread of the pandemic is keeping the economy watchful.”
Analysts at Nielsen said that the industry would need to record very high growth in the December quarter to make up for the sharp decline witnessed during the lockdown. “While there are some green shoots and some tailwinds, the fact is that headwinds—whether it’s overall consumer confidence, which has plummeted; or GDP, which is still yet to get back into the green zone; or inflation, which is still inching towards higher levels; or IIP, which is still somewhere around the borderline—are outweighing tailwinds,” said Rajesh Shirali, lead, data science, South Asia, Nielsen Global Connect.
Nielsen has revised its estimate for the third time since it first forecast a 9-10% growth for 2020 before the Covid-19 outbreak in India. In April, it cut its forecast to 5-6%, factoring in the economic fallout from the pandemic; in July, it said growth will remain flat. Still, growth has returned to the positive territory in the September quarter as consumption habits normalised. The quarter saw a 1.6% growth in value terms, led by double-digit growth in staples. Rural markets continued their growth trajectory in line with what some of the country’s top packaged goods companies have reported.
Overall, the revival in the September quarter was aided by businesses opening up. Diptanshu Ray, lead, retail intelligence, South Asia, Nielsen Global Connect, said all FMCG categories are now showing signs of recovery, including the personal care and home care segments. Health and hygiene categories continued to boom with an estimated 3,000 new products launched during the September quarter. Nielsen expects urban demand to grow in the current quarter.