The fast moving consumer goods (FMCG) sector is expected to see a 'significant growth' in FY24 with rural demand showing improvement and inflation beginning to moderate, said Jyothy Labs in its latest annual report.
The urban demand continues to remain steady, the report said.
Growth is "fuelled" by large packs as there is a distinct trend of consumers upgrading to medium and high-value packs for its various key FMCG categories, said Jyothy Labs, maker of branded products like Ujala, Henko, Margo, Exo and Pril.
"In this pack size transition has been observed in beverages, personal care, and branded product categories. Now that input prices have exhibited a downward trend and end-consumers have sufficient purchasing power, FMCG businesses are likely to experience an increase in the volume of demand and consequently volume-led growth this year," it said.
The urban demand is steady now and the rural market is "increasingly exhibiting signs of normalcy" helped by easing inflation and growing agricultural revenues, which are causing a gradual recovery in those regions.
Besides, various government initiatives, including the minimum support price (MSP), increased spending on rural infra, and rising credit to agriculture and other non-agricultural economic activities, will increase employment and income levels in rural areas, thereby driving demand for FMCG products, it said.
"With the rural economy increasingly exhibiting signs of normalcy as a result of an improving labour market and rising terms of trade for rural production, the demand for FMCG products will increase in 2023," said Jyothy Labs.
Consumer spending was influenced by inflation over the previous year, which has been reflected by consumers in the shift to smaller packs. The industry was witnessing a slowdown due to price growth.
While talking about the key trends, the company said consumer preferences are shifting. Now in addition to perceived value and shelf life, consumers are selecting products based on usage efficiency.
"They are seeking value-for-money products in order to optimise their budgets. Additionally, consumers are becoming more informed and continue to view their purchases as a reflection of the ethical standards of the businesses they support," it said.
Over the outlook, the company said the share of the unorganised market in the FMCG sector declines, the growth of the organised sector is anticipated to increase, aided by a rise in brand awareness and the expansion of modern retail.
"The increasing youth population, predominantly in urban areas, is a second important factor driving demand for FMCG products in India," it said, adding by 2025, the number of internet users in India is expected to reach one billion and e-commerce will play a 'crucial role' for companies attempting to penetrate the hinterlands.
Moreover, consumer buying trends have been significantly affected by the growth of social media.
"Social media influencers may assist firms in retaining customers, ultimately contributing to sector-wide sales growth," it said.
Citing data from Statista.com, Jyothy Labs said the Indian FMCG industry is projected to grow at a CAGR (compound annual growth rate) of 14.9 per cent from USD 110 billion in 2020 to USD 220 billion in 2025 and to USD 615 billion by 2027.
Jyothy Labs, which had a revenue of Rs 2,486 crore in FY23, will be further expanding its distribution network.
"We shall focus on growing our small pack segment to increase penetration. We shall continue to increase our footprint in geographies showing greater potential for growth, in both the rural and urban markets," it said.