After squeeze in urban demand price hikes FMCG industry expects consumption revival in 2025

     New Delhi, Dec 23 (PTI) The FMCG industry hopes for a revival in consumption growth in 2025 with some 'green shoots' already visible, after having a challenging year amid escalating input costs and a double-digit rise in food inflation, which ultimately slowed down the pace of the urban market growth in the second half of 2024.
     Soaring prices of commodities such as palm oil, coffee, cocoa and wheat forced FMCG players to go for a hike of 3 to 5 per cent or resort to shrinkflation by reducing pack sizes and grammage to retain attractive price points, fearing a volume loss.
     The makers also expect a shot in the arm in the upcoming annual budget, which would help the stressed middle-income group and stimulate consumption, besides a good monsoon and continued rejuvenation of the rural market.
     A resurgence of high food inflation once again in 2024 disrupted consumption patterns, particularly among mass-segment consumers, said Emami Vice Chairman & MD Harsha V Agarwal, adding elevated food inflation continues to pose a significant challenge.
     "Consumption among the lower-middle and middle-class segments has remained subdued, with approximately 75 per cent of average retail spending directed towards food and grocery, leaving only 25 per cent for discretionary purchases," he said.
     Agarwal, who is also the President of industry body FICCI, said 'positive signs' are emerging on the consumption front as food inflation has begun to ease.
     "A revival in consumption growth looks promising, supported by a good crop and increased government spending on large-scale infrastructure projects and rural schemes in the December quarter," he said.
     Dabur India CEO Mohit Malhotra also said that rising food inflation and a squeeze in urban demand were the key concerns during 2024.
     "While rural demand has been growing quarter on quarter, we expect a recovery in urban demand as the new year progresses. Premiumisation is expected to continue, and this will help improve value growth in 2025," he said.
     Moreover, the FMCG makers also expect the trends of premiumisation, where a customer is ready to pay extra for better quality products, particularly in urban India along with a high growth coming from quick commerce channels, which has transformed the grocery market.
     "Consumers are willing to pay a premium for products that offer better quality, unique features, or enhanced experiences. Premiumisation is expected to continue, and this will help improve value growth in 2025," said Malhotra.
     Tata Consumer Products Ltd (TCPL) MD and CEO Sunil D'Souza said he is 'optimistic' about 2025 and maintains a sharp focus on driving profitable growth and building future-ready capabilities.
     "In India, consumer trends such as premiumisation, health & wellness and convenience are expected to gather pace. Quick commerce has seen exponential growth, but physical distribution continues to stay extremely relevant at the same time," said D'Souza.
     Gen Z and millennials are expected to contribute to an increasing share of consumption, by some estimates, 76 per cent of consumption by 2030.
     "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. It will also require shorter innovation cycles," he said.
     Marico MD & CEO Saugata Gupta said shifts in consumer behaviour have been profound, with sustainability, premiumisation and personalisation emerging as key trends.
     "The direct-to-consumer ecosystem continues to thrive, with digital-first and premium brands demonstrating resilience and growth. The channels are undergoing a tremendous transformation with the consumer shifts that the industry is witnessing. The medium-term growth outlook for the industry is very much intact," he said.
     Gupta expects rural consumption to steadily grow and urban consumption to revive in a couple of quarters.
     "Innovation, affordability, and availability will be key drivers of growth going forward," he said.
     Godrej Consumer Products Ltd (GCPL) CFO Aasif Malbari said: "Despite these challenges, we remain committed to navigating near-term headwinds while investing strategically for long-term growth."
     "As we look ahead to 2025, we are cautiously optimistic, supported by an improving economic outlook and our focus on market development. The upcoming budget should consider proactive measures aimed at stimulating consumption in the larger economy. A consumption boost will lead to a cycle of sustained economic growth in the long run," he said.
     For beverage major Coca-cola, which divested 40 per cent stake of its bottling arm in a deal estimated to be around Rs 10,000 crore, 2024 has been a year of "resilience and growth". Driven by economic progress and expanding opportunities, the Indian market continues to evolve, said its VP Franchise Operations, India Sundeep Bajoria.
     "With rural India witnessing a demand upturn, our well-connected traditional and modern retail ecosystem along with AI-powered tools like Coke Buddy are expanding accessibility and convenience," he said.
     In urban markets, it is steering beverage sales by aligning with top quick commerce platforms, adapting our supply model in real-time and reimagining how consumers interact with the brand.
     PepsiCo India & South Asia CEO Jagrut Kotecha said India continues to be a key growth market.
     "As we look ahead to 2025, we are optimistic about the road ahead, underpinned by our focus on innovation, strong execution, sustainability, and impactful community engagement. Innovation alongside consumer centricity, are two core values at the heart of our iconic brands and the experiences they stand for," he said.
     Nikhil Sethi National Leader Consumer Goods and Co-Lead Customer & Operations KPMG in India said FMCG companies will need to focus on areas as to increase focus on operational efficiency, including managing costs, to have a more predictable outlook towards profit growth.
     They will have also have to consider acquisitions for growth and talent besides innovation for increasing value in core proposition. These steps will "also provides a platform for rapid growth when demand growth recovers," he said.
     Paresh Parekh, Tax Leader for Retail Practice, EY India, said in FY24, larger companies in the FMCG sector faced the impact of a slowdown in consumption, despite long-term optimism. Key challenges included inflationary pressures, rising interest rates, increasing credit costs, and uncertain global economic and political conditions.
     With so many brands available, consumers have plenty of choices, but this also means FMCG companies will need to spend more on marketing and quickly innovate their products and services," he said.

(This story has not been edited by THE WEEK and is auto-generated from PTI)