2017: A mixed bag for Indian FMCG

The FMCG sector, with barely 4 per cent growth in the last two years (primarily due to three consecutive years of bad monsoons), has witnessed the slowest growth this decade. The growth just about seemed to comeback during Diwali of 2016, but demonetisation and GST bruised it again. What is heartening though is that most FMCG companies have posted a healthy growth in the last quarter. This surely is an indication of revival of consumption. However, it is only the established FMCG brands which saw growth. Most of the smaller regional brands post demonetisation and GST were not to be seen in the shop shelves of the rural and semi-urban markets.

Rewind to August-September of 2016. A kirana store in a rural and semi-urban market was flooded with regional food and even personal care brands. They shared shelf space with brands from the HUL and ITC stable. It was the same with consumer durable brands. LG, Videocon and Godrej shared shelf space with local brands such as Hilton, Melbon etc, and the latter actually had more takers as they had a 30%-40% price advantage over the established brands. The kirana stores offered consumers a whole bunch of locally packed snacks, which were priced at par with brands such as Lays and Bingo, but offered greater quantity. The distributors of these local brands offered the retailer higher margins and the latter was more than happy to push these products to the consumers. The scene was quite different when one visited these markets post demonetisation and GST. The local brands, which thrived on cash transactions were nowhere to be seen. The local consumer durable brands had also vanished.

The established companies on the other hand increased their direct distribution muscle manifold. A company such as…