Weekly FMCG Update: Distribution disruption, growth forecast

FMCG sector faces distribution disruption
The FMCG sector in India is facing significant challenges, with the BSE FMCG index dropping 20% since September 2024. The rise of quick commerce, offering rapid delivery, is disrupting traditional distribution channels, leading to a shift in the sector's dynamics. While FMCG companies are adapting by rethinking distribution strategies, increased competition, price wars, and a changing retail environment could undermine margins and valuations. The sector's future remains uncertain, with consolidation likely in the quick commerce space.

CRISIL: FMCG industry set for growth
According to a CRISIL Ratings report, the FMCG industry is expected to achieve revenue growth of 6-8% in FY26, representing an improvement of 100-200 basis points from the more modest 5-6% growth in FY25. The recovery in urban demand, alongside steady rural demand, is anticipated to drive this growth, with volumes projected to rise by 4-6% in FY26.

Pidilite maintains growth amid challenges
Although the Nifty Next 50 has fallen by 9% so far in 2025, Pidilite's stock has only dropped by 6%, thanks to its ability to maintain solid volume growth. The company has reiterated its target of double-digit volume growth and an EBITDA margin of 20-24%. For 9MFY25, volumes grew by 9.2%, with the EBITDA margin approaching 24%, keeping it on track to meet its FY25 goal.

Parliament criticises food processing ministry
A parliamentary panel has criticised the Ministry of Food Processing Industries for consistently underutilising funds for key programmes such as Pradhan Mantri Kisan Sampada Yojana (PMKSY) and Pradhan Mantri Formalisation of Micro Food Processing Enterprises (PMFME), citing poor planning and execution. By January in FY25, only 40% of the allocated funds had been spent. The committee also pointed out underperformance in the previous two years. With the highest-ever allocation for 2025-26, the ministry is urged to enhance infrastructure, competitiveness, and ensure full utilisation of funds moving forward.

India poised for multiple FTAs
According to reports, Sanjiv Puri, president of the Confederation of Indian Industry (CII), suggested India could soon sign multiple Free Trade Agreements (FTAs), including with the US and EU. Speaking at a CII conference, Puri highlighted that an India-US trade agreement would lower tariffs, boosting India's competitiveness. The EU FTA, under discussion for over two decades, is also expected to conclude this year, addressing global trade challenges, excess capacities, and tariff-related uncertainties impacting India’s economic progress.

India’s coffee exports rise
India’s coffee exports have risen by over 40%, surpassing USD 1.54-billion in the April-Feb period of the current financial year, up from USD 1.10-billion last year, driven by higher global prices. February exports grew 22%, reaching USD 178.68-million. Italy, Germany, and Russia are the largest markets. India is the seventh-largest coffee producer and fifth-largest exporter, benefiting from supply shortages in Brazil and Vietnam.

BIS tightens environmental management standards
The Bureau of Indian Standards (BIS) is tightening standards for Environmental Management Systems (EMS) certification. It requires businesses to take measurable steps to reduce their environmental impact and improve performance, with penalties for non-compliance. Based on the IS/ISO 14001 standard, EMS helps companies minimise their environmental impact. New requirements include identifying negative impacts, creating reduction plans, implementing pollution prevention, conducting audits, and taking corrective actions. Operating sustainably offers competitive advantages, and non-compliance may result in penalties.

Indian beer brands embrace innovation
Beer brands in India are increasingly experimenting with unique, refreshing flavours to appeal to younger consumers, particularly Gen-Z. United Breweries has expanded its Kingfisher range with lemon masala and mango berry twist variants, drawing inspiration from Indian cuisine and street culture. Other brands, like Latambarcem Brewers and Lone Wolf, are introducing innovative flavours such as tea-infused beer and citrus-coriander brews. The growing curiosity for novelty and the influence of food pairings have driven this trend, offering consumers exciting and sophisticated options.