After holding fort for months within the fast-moving consumer goods (FMCG) market, urban demand is slowing down, as per Q2 commentary by CEOs of top companies in the space. While the slowdown is a concern, it is limited mainly to the lower half of the urban market, popular and mass segments. The premium products, on the other hand, are showing growth, the CEOs said.
“The secular trend of premiumization remains intact as premium products are doing better than popular and mass-market categories in urban areas.
We have no plans to move away from our premiumization strategy due to the broader urban slowdown,” Rohit Jawa, CEO & MD, Hindustan Unilever (HUL) said in response to urban slowdown and the company’s way forward.
Almost two-third of FMCG sales come from urban areas while rural accounts for the remaining, according to companies and market experts.
In an interaction with FE last week, Tata Consumer’s MD & CEO Sunil D’Souza said that food inflationary concerns had limited the propensity of the urban middle class to make discretionary purchases.
“There is stress on urban demand, though rural demand is recovering. This has to do with food inflation, which in turn, is putting pressure on out-of-home consumption in urban areas,” D’Souza said. Nestle India’s CMD Suresh Narayanan had pointed to a ‘shrinking middle class’, which was curtailing expenditure versus premium consumers in urban areas, who continue to remain confident buyers.
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A recent report released by market researcher NielsenIQ notes that premium brands are growing approximately twice as fast as their non-premium counterparts in FMCG, thanks to a growing aspirational base of consumers. The K-shaped recovery has been fuelled by a growing base of consumers at the top end, almost 70%, who are willing to pay a premium for a good product that will last longer.
“We are observing an increasing convergence of aspirational consumer preferences with higher disposable incomes, as well as the presence and access to premium products,” Roosevelt D’Souza, commercial head – India, NielsenIQ said.
Roosevelt also points to digital platforms, like as e-commerce, emerging as a key enabler of premiumization.
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