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The Indian fast-moving consumer goods (FMCG) market is experiencing a slowdown in urban areas, primarily due to the rising cost of housing and limited income growth. Britannia Industries, a leading FMCG player in India, highlighted this trend in their recent earnings call, stating that urban areas, which account for 60% of total FMCG sales, are experiencing a decline in demand, particularly in metropolitan cities.
Britannia's executive vice chairman and managing director, Varun Berry, explained that housing costs in urban and metro areas have risen significantly, putting pressure on consumers' budgets. The cost of housing now represents 22% of the consumer price index (CPI) basket, a significant portion of household spending. This rise in housing costs, coupled with limited income growth, particularly for non-salaried workers in urban areas, is creating a double whammy for consumer spending.
While the urban FMCG market is facing challenges, rural areas are showing signs of recovery. The past year has seen a surge in FMCG sales in villages, driven by a lower base, price cuts, and a strong monsoon that boosted agricultural output. This rural growth is outpacing urban demand, indicating a shift in consumer spending patterns.
Several factors are contributing to the divergent trends between urban and rural markets. The rising cost of living in urban areas, coupled with limited wage growth, is eroding consumer confidence and disposable income. In contrast, rural areas are benefiting from a rebound in agricultural activity, leading to increased spending power. This situation is reflected in the global consumer market, where despite a rise in consumer confidence, wage growth has lagged behind inflation, resulting in lower savings and a more cautious spending environment.
While the current slowdown in urban FMCG demand may seem concerning, industry experts are cautiously optimistic about a potential rebound. They believe that the downturn is a temporary phenomenon driven by the combined impact of the COVID-19 pandemic, inflation, and economic uncertainty. They expect consumer behavior to normalize as economic conditions improve and consumer confidence returns.