The FMCG sector, a cornerstone of India's retail landscape, has experienced a turbulent journey in 2024. Amid inflationary pressures, rising commodity prices, and a shift in consumer behavior, growth has decelerated, leaving industry players to reassess strategies. However, even in the face of these challenges, there are signs of a resilient sector beginning to find its footing again. Experts are hopeful, seeing 'green shoots' of recovery, with some even predicting a growth surge as early as 2025. 

According to Kantar’s latest FMCG Pulse Report, volume growth in the August-October 2024 period was 4.3%, a notable decline from 6.4% in the same period the previous year. But despite this dip, the sector is showing signs of revival, fueled by strategic pivots and emerging trends. Industry leaders are not only adapting to these changes but are also setting the stage for a rebound in 2025.

Inflation Woes

The primary culprit behind the slowdown is inflation, which continues to make its presence felt in both urban and rural markets. According to Kantar’s insights, the price of FMCG goods in urban areas jumped from Rs 133 per kg to Rs 137 per kg from May-July to August-October, reflecting an inflationary surge similar to what was seen in early 2022. This spike in prices has put a considerable strain on volume growth, even as the value growth for FMCG products has increased.

"Inflation is a major challenge, particularly for lower-middle and middle-class consumers," says Harsha V Agarwal, Vice Chairman and MD of Emami, and President of the FICCI industry body. "Consumption in these segments remains subdued, with 75% of their average retail spending directed towards food and grocery. This leaves only 25% for discretionary purchases."

But not all is lost. While volume growth has taken a hit, spending per household continues to climb. The average expenditure per household in the October quarter rose by 13% from the previous two years, reaching Rs 6,761. This indicates that while the pace of consumption is slower, consumer spending power hasn’t waned.

Rural Markets

While urban markets have seen a sharp decline in growth, rural markets are also grappling with their own set of challenges. The report revealed that rural volume growth stood at just 4% in the October quarter, down from the 4.5% observed in urban regions. The major drag on rural growth? The wheat flour category, heavily influenced by government-supplied free grain programs.

Yet, the outlook for rural markets isn’t all grim. The report notes that growth in non-atta categories and personal care products in rural areas has been “stable and growing seasonally.” Personal care, in particular, has seen a significant uptick in rural demand, growing by 5.4% in the October quarter compared to just 2.8% last year. This shows that despite inflationary challenges, rural India is still finding ways to spend on discretionary items.

"Rural markets have faced challenges, but the continued focus on rural development by the government will sustain growth. Despite concerns about the upcoming Rabi season’s rainfall, the agriculture sector is expected to grow," says Kantar’s report.

Moreover, Agarwal shares an optimistic note on rural growth: "The government's focus on infrastructure and rural schemes will pave the way for sustained rural market performance in the first half of 2025."

Furthermore, Indraneel Chitale, Managing Partner, Chitale Bandhu Mithaiwale added, "We anticipate a significant recovery in rural markets, driven by favorable monsoon conditions. The critical trends in the FMCG sector for 2025 will drive the industry forward in the coming year. Innovations in omnichannel strategies, particularly those integrating quick commerce, are expected to gain traction and profitability, posing challenges to traditional modern and general trade businesses.  We foresee Direct-to-Consumer (D2C) brands maturing within the sector, seamlessly blending quick commerce and general trade operations. Additionally, we expect health-conscious business trends, such as products labeled 'No Palm Oil' and 'Baked,' to strongly influence urban consumers as they focus on improving the quality of their consumption choices."

Signs of a Recovery

Despite the downturn, there are signs of an impending recovery, particularly as inflationary pressures ease. Leading FMCG players are optimistic about a rebound in 2025, with Mohit Malhotra, CEO of Dabur India, noting that premiumization and quick commerce will be key drivers of growth. "Premiumization is expected to continue, and this will help improve value growth in 2025," says Malhotra. Urban consumers, he explains, are willing to pay more for high-quality products, creating opportunities for FMCG players to push premium products despite the price hike.

This is a sentiment echoed by Tata Consumer Products Ltd MD and CEO, Sunil D’Souza, who adds, "Consumer trends such as premiumization, health & wellness, and convenience are expected to gather pace. Quick commerce has seen exponential growth, but physical distribution remains highly relevant." These trends indicate that while inflation is a challenge, it’s also leading to a shift in consumer behavior that is likely to persist in 2025.

The rise of quick commerce is transforming the grocery market, allowing for more convenient and efficient delivery channels. In fact, quick commerce has not only become a preferred shopping option for many consumers but has also helped companies like Coca-Cola stay agile in an uncertain market. 

The Game Changers

One of the most promising developments in the FMCG sector is the growing influence of Gen Z and Millennials. These younger consumers are predicted to make up 76% of FMCG consumption by 2030. With this demographic increasingly willing to spend on premium products, healthier food options, and mini-meal solutions, the FMCG industry is already shifting its product offerings to cater to their demands.

D’Souza sees this trend as an opportunity for companies to innovate: "This presents an opportunity for cooking aids, packaged food, healthier and guilt-free snacking, and mini-meal options, all of which we have added to our portfolio in the last few years."

This generation’s affinity for personalization and sustainability is also driving a significant transformation in product offerings, a trend that Marico MD & CEO Saugata Gupta highlights. "Sustainability, premiumization, and personalisation are the key consumer behavior shifts that we are witnessing," says Gupta. This shift is also fueling the growth of digital-first and direct-to-consumer brands, which are thriving as they align with younger consumers’ values and preferences.

The Role of Government Support

Another critical factor in the revival of the FMCG sector is the government’s continued focus on rural development and agriculture. The Indian agricultural sector, which contributes 18% to the country’s GDP, is expected to experience growth in 2025. Shivraj Singh Chouhan, the Union Minister of Agriculture & Farmers Welfare, reaffirmed the government’s commitment to strengthening this sector. "India's agricultural roots are deeply embedded in our culture, and we are committed to sustainable farming practices to enhance production quality," he said.

This emphasis on rural and agricultural growth will play a key role in sustaining FMCG growth in both urban and rural regions. Aasif Malbari, CFO of Godrej Consumer Products, shares a similar perspective: "We remain committed to navigating near-term headwinds while investing strategically for long-term growth. A consumption boost will lead to a cycle of sustained economic growth."

Inflation: The Elephant in the Room

Despite all the optimism, inflation remains the elephant in the room. As Paresh Parekh, Tax Leader for Retail Practice at EY India, points out, rising costs, interest rates, and political uncertainty are significant roadblocks to FMCG growth. However, he remains optimistic in the long term, stating, "The long-term outlook for FMCG remains strong, despite the short-term challenges posed by inflation."

Pallab Roy, Partner at KPMG, highlights the rise of D2C brands and the need for FMCG companies to innovate rapidly to remain relevant in the highly competitive market. "Indian consumers are willing to try new brands if the right value proposition, experience, and purpose alignment are present," says Roy.

The FMCG sector is poised to adapt and thrive, despite the challenges it currently faces, making 2025 an exciting year for both businesses and consumers alike.