Urban Consumption Slows as Rural Demand Boosts FMCG Sector

Urban consumption has faced significant pressure due to high inflation, leading consumers to tighten their spending. This trend has resulted in a further deceleration in the March quarter, impacting the volume growth of companies, according to NielsenIQ's latest FMCG snapshot.

Rural areas have shown remarkable resilience, with increased spending on essentials like lotions, shampoos, and detergents. However, the demand for staples has been tempered by the high prices of edible oils.

Comparative Growth Rates Highlight Rural Dominance

"In Q1 2025, rural consumer demand grew at a slower pace compared to Q1 2024, yet it remained four times faster than growth in urban areas," analysts noted. Rural volumes grew by 8.4%, starkly contrasting with urban areas' 2.6%.

The Shift to E-Commerce and Its Impact

The slowdown in urban volumes, especially in the top eight metros, is partly attributed to the growing preference for e-commerce. NielsenIQ's methodology, which separates online and offline retail sales data, may not fully capture this shift's impact on total volumes.

FMCG Sector's Value and Volume Growth

The sector witnessed an 11% value growth in the March quarter, up from 6.5% the previous year, aided by a 5.6% price increase. Volume growth slightly declined to 5.1% from 6.1% a year ago, with a notable shift towards smaller pack sizes due to rising commodity costs.

Unit growth, indicating the number of individual units sold, stood at 6%, reflecting consumers' adaptation to economic pressures by opting for smaller, more affordable options.

Underlying Factors Affecting Urban Consumption

Slow wage growth and a weak job market have disproportionately affected the urban middle class, as highlighted in recent earnings calls by company executives. These factors, combined with high inflation, have led to a cautious approach to spending among urban consumers.