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Festive excitement is in the air after a long wait, and businesses across consumer categories are bucking up to ride on the prevailing positive sentiment. With the Purchasing Managers’ Index (PMI) data for Sep’21 riding to 53.7 from 52.3 in Aug’21, the much-awaited green shoots seem to be in place.
The PMI numbers, too, have reported an expansion for three consecutive months, affirming the expansion is largely driven by the consumer goods sector. This is indicative of the consumers’ loosening up their purse strings to spend on items from pulses to electronic gadgets in the upcoming festive season. As per the data intelligence agency Axis My India, 42% of families have indicated their intention of spending extra during this year’s festive season.
To capitalize on this exhilarating opportunity, online and offline players have launched discount sales in India. According to a recent Forrester report, the Indian festive season will generate US$9.2 billion in online sales, which is a 42% YoY rise.
What is driving this upbeat spending mood?
One key reason is gradual lockdown relaxations, aiding an economic uptick, alongside releasing pent-up demand. Besides, accelerating vaccination and its expanding coverage has significantly improved people’s mobility, leading to increased footfalls at malls and supermarkets.
Rural markets continue to showcase resilience, aided by a normal monsoon for the third year in a row, better MSPs, MGNREGA-led employment opportunities, and other Government support schemes. Demand in Tier 2/3 towns is outpacing urban and metros due to rising internet penetration and rapid adoption of digital/online shopping. At Myntra’s festive fashion sale, more than 40% of the orders were from Tier 2/3 cities. Post a devastating COVID 2.0, urban areas, too, are showing recovery due to extensive vaccine coverage.
In Sept’21, staple category sales rose by 1.1% month-on-month vs. a 14.5% decline in Aug’21, indicating a trend reversal. This was led by stocking up at Kirana stores for general merchandise from essential staples to discretionary items like beverages, sweets, and packaged foods ahead of the festive season. According to a Bizom survey, FMCG sales grew by 29.7% YoY almost nearing pre-pandemic levels. Within the FMCG pack, packaged foods sales surged robustly at 94.5% YoY, led by ready-to-eat products aided by growing out-of-home (OOH) consumption as the economy opened up. Beverage sales were up nearly 23%, despite an off-season, led by rising OOH consumption and continued in-home consumption. Confectionary sales grew 16.5% YoY due to significantly higher availability this year vs. last year.
The pandemic has changed the way people shop online, and buyers are much more comfortable now with online shopping than ever before. Even though smart phones remain the largest category sold online, grocery is growing faster, which is again a post-pandemic development. As per Forrester study, grocery will emerge as the fastest-growing group, with the highest festive-themed categories within grocery moving online, aided by an increase in the basket size, during this period.
The offline channel is not far behind in terms of higher footfalls at both General and Modern Trade. DMart retail chain reported a 46.6% rise in its standalone sales for Q2FY22. Q3FY22 is expected to deliver further growth, aided by festive-led shopping enthusiasm.
Besides apparel, the Beauty & Personal Care (BPC) segment continues its positive trend. At Myntra’s Big Fashion Sale 2021, the BPC segment recorded 190% YoY growth, as consumers increasingly spent on products enhancing their overall wellbeing, indicating focus shifting to discretionary products from essentials, as against the previous year
In this backdrop, we foresee companies such as Hindustan Unilever, Dabur, Godrej Consumer, to benefit in the Home and BPC space. Within the Foods & Beverage space, Marico, Nestle, Dabur, Britannia, Varun Beverages, and Tata Consumer Products are expected to gain, owing to a rise in demand for beverages, snacks, and ready-to-eat products.
While the festive season demand appears to be strong, its sustainability beyond the festive period would be critical in the backdrop of rising raw material (RM) prices. On an average, prices of RMs across metals, crude, agri-commodities have seen a 10-50% rise, and are expected to rise further. While the profitability of most companies may come under pressure due to the RM risk, companies have taken price hikes ranging between 3-14% across segments and product categories to mitigate this challenge.
However, given that the economy is still not out of the woods and the risk of third-wave remains, it would be too early to call a recovery to pre-COVID levels.
(The writer is Senior Research Analyst, Axis Securities. Views expressed are personal.)