FMCG sector grapples with inventory surge as demand slumps

FMCG

The fast-moving consumer goods (FMCG) sector is grappling with persistent low demand, resulting in a bottleneck in the supply chain and an increase in inventory days, as reported by Business Standard.

Distributors are reportedly extending credit terms to retailers for up to 45 days, citing a doubling of inventory days and stress in consumer purchasing patterns.

Major brands are also affected, with some food sector companies witnessing up to 60 days of inventory accumulation. The festive season and summer wedding season failed to provide relief, leading to a build-up of inventory over the past few months. Distributors are cautious about the post-rabi season demand.

Across the country, the situation is uniform. In North India, inventory days have more than doubled to approximately 40 days, compared to the typical 15 days. One distributor in the region reported a 30-35% decline in demand during the festival season.

Retailers are requesting higher credit days, but some distributors are opting to sell lower stocks instead. In North India, a distributor reported a 20% drop in sales due to this strategy. The credit period for fast-moving stock-keeping units has increased to 25–26 days, while for slow-moving items, it has risen to 35-40 days.

Contrary to this, reports from NIQ and Bizom suggest growth in the FMCG industry in both rural and urban areas. Rural markets show signs of recovery, with consumption increasing in the September quarter compared to the previous year, according to NIQ. Bizom reported a 1.6% growth in consumer goods sales in urban areas and a substantial 10.2% increase in rural areas.

However, big FMCG companies acknowledge the slowdown. Varun Berry from Britannia Industries Ltd mentioned a rural slowdown during the post-earnings call. Marico attributed the slower-than-expected recovery in rural demand to higher food inflation and uneven rainfall distribution. Hindustan Unilever and Dabur also noted that rural markets lag behind urban areas.

Despite varied reports, a decline in rural consumption is reported by PTI, citing persistent food inflation and uneven rains. The FMCG industry faces challenges amid subdued consumer demand, and doubts about the revival in rural demand have surfaced in the second quarter of FY24.

It’s crucial to note that one-third of consumer goods companies’ revenues are linked to rural demand, highlighting the significance of the rural economy in the overall growth and inclusive development of the country, especially considering the majority of India’s population resides in rural areas.

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