FMCG companies are entering the upcoming festive season with cautious optimism, expecting consumer sentiment to remain strong despite some headwinds. According to reports from Business Standard, companies anticipate high single-digit to double-digit growth this festive season, building on the strong performance seen last year when GST 2.0 and tax rebates drove robust festive sales. However, companies note that while demand continues to march on, they remain cautiously optimistic given the current market conditions and ongoing challenges from geopolitical tensions.
The implementation of GST 2.0 has significantly benefited FMCG companies, with many price cuts from the previous system being partially offset by inflation driven by geopolitical tensions in West Asia. As reported by Business Standard, Tarun Arora, CEO of Zydus Wellness, explained that GST 2.0 helped ease the pain that would have come had those price cuts not been introduced, with prices slowly moving to pre-GST 2.0 levels due to inflation. The government's measures including tax rebates and lower interest rates continue to boost consumption, with companies noting that consumers are buying more this year compared to previous periods. Arora noted that without GST 2.0, price increases would have been higher as they would have come in on pre-GST prices, with the West Asia crisis having an impact on inflation but not as severe as it could have been without the new tax structure.
Uneven rainfall distribution could significantly impact rural demand during the festive season, according to industry executives. According to AWL Agri Business (formerly Adani Wilmar), September rains have eased pressure in agricultural states, particularly Gujarat, though monitoring kharif crop harvest stocks will be crucial for determining rural demand patterns. As reported by Business Standard, Angshu Mallick, executive deputy chairman at AWL Agri Business, noted that the kharif crop harvest starting in October will be crucial for rural demand, with the company expecting at least high single-digit growth this festive season. The company sees buoyant demand this festive season despite the rainfall deficit and rising prices due to geopolitical tensions.
Parle Products anticipates strong demand this festive season, with demand already in the high single digits and expectations to inch towards double digits closer to the festive season. According to Business Standard, Mayank Shah, chief marketing officer at Parle Products, explained that while the rabi harvest was good this year, the kharif harvest is yet to be seen, though stress might be seen in pockets. The company noted that last year's festive season saw strong demand despite stock availability issues during the transition period, with tax rebates and rate cuts aiding overall demand. Shah added that while the kharif harvest is yet to be seen, he doesn't expect it to completely dent demand, though stress might be seen, likely in pockets.
While maintaining optimistic demand outlook, FMCG companies are implementing judicious price increases of around 2-5% to offset rising input costs and protect margins. As reported by multiple industry executives, companies are prioritizing volume growth over aggressive pricing, with most firms having absorbed a significant part of inflation through cost management initiatives and portfolio reduction. ITC CEO Hemant Malik noted that the company would maintain cost pressures, with sugar prices touching new highs alongside sharp cost inflation in key inputs such as edible oils, coffee, cocoa and crude oil derivatives. However, companies remain focused on June quarter performance to partly offset higher input costs, with most FMCG firms having implemented only modest price hikes of around 3-5% despite facing much higher cost pressures.
