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Key Points

The FMCG sector is navigating a complex economic landscape with significant urban market challenges. Reduced consumer spending, high interest rates, and intense competition have dampened performance in metropolitan areas. Interestingly, rural markets are showing resilience with steady recovery signals driven by government policies and agricultural improvements. Companies remain cautiously optimistic about potential volume growth in the upcoming quarters, anticipating a more meaningful recovery in the second half of the fiscal year.

Key Points: FMCG Sector Struggles Urban Demand Finds Rural Lifeline

  • Urban markets contribute 50-60% of FMCG sales and face significant challenges
  • Rural demand shows steady recovery with easing inflation
  • Competition from D2C and Q-commerce platforms impacts consumer behavior
  • Companies expect volume growth recovery in next 1-2 quarters
2 min read

FMCG companies see muted Q4 performance amid weak urban demand; rural recovery offers some relief: Report

Axis Securities reveals FMCG companies face challenging Q4 with urban market weakness, rural markets offering potential recovery signals

"Urban markets continued to struggle with reduced discretionary spending - Axis Securities Report"

New Delhi, June 7

Fast-moving consumer goods (FMCG) companies reported a muted performance in the fourth quarter of FY25 due to continued weakness in the urban market, according to a report by Axis Securities.

The report highlighted that sluggish demand, higher competitive pressure, and broader economic challenges weighed on the sector's growth during the quarter.

It said "FMCG companies have reported muted performance due to weakness in the urban market, owing to increased competitive intensity and subdued demand environment".

The report also mentioned that the Urban markets, which contribute around 50-60 per cent of total FMCG sales, continued to struggle. Companies attributed the slowdown to several factors, including reduced discretionary spending, slow wage growth, high interest rates, and rising rentals and EMIs.

Additionally, growing competition from direct-to-consumer (D2C) brands and increased penetration of quick-commerce (Q-commerce) platforms also impacted demand from urban consumers.

On the other hand, the report added that the rural markets showed signs of steady recovery. This was supported by easing inflation, higher government spending, and an increase in minimum support prices (MSP) for key crops.

According to the report, rural demand has started to outpace urban demand and remains more resilient.

Despite the weakness in urban consumption, companies remain optimistic about a recovery in the coming quarters. Most managements expect a pick-up in volume growth within the next 1-2 quarters.

A more meaningful recovery is likely to be seen only in the second half of FY26, driven by factors such as lower inflation, anticipated interest rate cuts, a favourable monsoon forecast, and a good harvest and sowing season.

On the financial side, the report highlighted that topline growth remained muted across most staple FMCG companies, with low single-digit volume growth. Gross margins were under pressure due to rising prices of key raw materials like palm oil and other agricultural commodities.

As a result, companies saw subdued margin performance. With input costs remaining high and volume growth yet to pick up, EBITDA margin improvement is expected to stay limited in the near term, as firms take a cautious 'wait and watch' approach.

- ANI

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Reader Comments

R
Rajesh K.
Not surprising at all! In Mumbai, even middle-class families are cutting back on branded products. Everything from biscuits to shampoo - we're opting for local brands or smaller packs. Companies need to realize urban India is struggling with high costs of living. 🏙️
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Priya M.
Good to see rural markets recovering! Farmers finally getting better prices after years of struggle. Maybe companies should focus more on affordable rural-centric products rather than premium urban offerings. Jai Kisan! 👩‍🌾
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Amit S.
The D2C brands are eating FMCG giants' lunch! Why pay premium for Surf Excel when smaller brands offer same quality at 30% lower price? Big companies need to wake up and match these new players on pricing and innovation.
S
Sunita R.
As a small kirana store owner in Pune, I've noticed people buying smaller quantities but more frequently. The quick commerce apps are hurting our business too. Hope the government looks into this before local shops disappear! 😟
V
Vikram J.
The report misses one key point - FMCG companies have been increasing prices steadily while reducing quantities (shrinkflation). Consumers are fed up of paying more for less. No wonder demand is down!
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Neha T.
Hoping for better days ahead with monsoon predictions being good. Our village in MP has seen better crop prices this year, and it's showing in local market purchases. Maybe the FMCG recovery will start from Bharat rather than India this time! 🌾

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