The Fast-Moving Consumer Goods (FMCG) sector in India, covering essentials like food, beverages, personal care, and household products, is one of the pillars of the economy. Valued at nearly ₹20 lakh crore, it contributes significantly to India’s GDP and employment while being deeply embedded in everyday consumption. Traditionally, FMCG has been considered a defensive sector, resilient to economic cycles, given the non-discretionary nature of its products.
However, the past two years (2024–2025) have highlighted cracks in this long-standing resilience. Volume growth — a true measure of consumption — slowed to 5.1% in Q1 FY25 (March quarter), significantly lower than earlier periods. Revenue growth is projected at 7–9% for FY25, largely led by price increases, not demand expansion. In simple terms, people are paying more for goods, but they are not consuming much more. This signals underlying demand stress, especially in price-sensitive segments.
In this analysis, we break down six major reasons behind the sector’s slowdown, drawing on recent data, market trends, and company performance, while also exploring the road ahead.
1. Persistent Inflation and Price Hikes Eroding Affordability
Inflation has been the biggest culprit behind the FMCG slowdown. Companies have consistently raised prices to protect margins, but this strategy has come at the cost of volume growth. In the March quarter of 2025 (Q1 FY25) alone, FMCG firms hiked prices by 5.6%, leading to 11% value growth. But beneath this headline number, actual consumption (volume growth) remained sluggish at 5.1%.
This pattern has repeated since 2022. For instance, in FY23, the sector clocked 8.5% revenue growth but only 2.5% volume growth, as households absorbed higher prices by cutting back on non-essential consumption. The pressure is especially severe in lower-income households, which account for the bulk of FMCG demand.
- Consumer response: Instead of buying regular-sized packs, buyers are switching to smaller packs (₹5–₹10 SKUs) to manage daily budgets. This phenomenon is evident in the higher unit growth relative to volume growth reported by NielsenIQ, showing consumers are stretching purchases across smaller quantities.
- Corporate impact: Hindustan Unilever (HUL) recently warned of a 2% decline in Q3 FY25 profits, citing the dual blow of inflation and weak volume demand. Similarly, Nestlé India, despite strong product equity, had to revise profit expectations downward, as inflation reduced household consumption of premium products.
The squeeze on affordability is not only about FMCG pricing. Broader economic conditions — including slow wage growth, rising household debt, and persistent food inflation — have forced consumers to reprioritize spending. Essentials like rice, wheat, and vegetables have seen sharp inflation, leaving little space for branded packaged goods.
In short, while inflation has protected revenue growth for companies on paper, it has simultaneously hollowed out real demand, leaving the sector dependent on price-led growth rather than consumption-driven growth. This model is unsustainable in the long term and is a critical reason behind the slowdown.
2. High Commodity Costs Squeezing Margins and Profitability
While inflation hits consumers directly, commodity price volatility has added a second layer of pressure by hurting company margins. FMCG firms are heavily reliant on raw materials like edible oils, wheat, milk, sugar, and cocoa, which have seen steep cost increases in recent years.
- Edible oils: Prices rose by 5.6% in Q1 FY25, impacting everything from packaged snacks to soaps.
- Milk: Prices have risen by 20% since 2020, affecting dairy-based products, beverages, and chocolates.
- Cocoa: Prices have doubled since 2016, creating headwinds for confectionery makers like Nestlé, Mondelez, and ITC.
These raw material costs have led to measurable margin compression:
- HUL reported an 83 basis point YoY contraction in gross margins in FY25.
- Nestlé India posted a 5.2% drop in Q4 FY25 net profit to ₹885 crore, citing higher commodity costs and inventory corrections.
- Sector-wide profitability is projected to fall 6% in Q3 FY25, with retailers cutting back on excess stock to manage working capital.
Companies have tried multiple mitigation strategies:
- Procurement optimization: Bulk buying and hedging against commodity prices.
- Cost rationalization: Reducing advertising and promotional spends temporarily.
- Selective price increases: Passing on costs to consumers, but in smaller increments.
Yet, these efforts have not fully neutralized the impact. When companies raise prices, they risk further demand destruction, while if they absorb costs, margins shrink. This profitability vs. volume growth trade-off has become the defining challenge for the sector in FY24–FY25.
3. Urban Demand Slowdown Amid Changing Consumer Preferences
Urban India, which contributes nearly 65% of FMCG revenues, has historically been a strong engine of growth. But in FY25, even urban demand has lost steam, with volume growth falling to 2.6% in Q1 FY25, down from 4.2% in the previous quarter.
Several dynamics are at play:
- Bifurcation of demand: While premium categories (e.g., “mass-tige” skincare, organic foods) are still seeing growth, mass-market items are stagnating. This polarization reflects the unequal income recovery across urban households.
- Downsizing trend: Middle-class households are cutting back by buying smaller pack sizes — for instance, switching from 1-liter juices to 200 ml packs.
- E-commerce shift: Urban consumers are increasingly shopping through digital channels, fragmenting traditional distribution. This has led to weaker sales for companies heavily reliant on offline trade networks.
Company-level commentary underscores this urban fatigue. Dabur and Marico have reported weaker sales in metros, while noting stronger rural traction. In metros, discretionary categories like packaged juices, beauty care, and premium foods have seen subdued uptake due to inflation.
Moreover, changing consumer behavior is reshaping preferences. Young urban consumers are spending more on experiences (travel, dining, entertainment) and less on routine FMCG categories. At the same time, health and wellness products are gaining ground, but traditional FMCG companies have been slower to innovate in this segment compared to agile D2C brands.
Thus, urban demand is divergent — growing at the top of the pyramid but shrinking in the mass-market segment, creating a structural challenge for large FMCG firms.
4. Fragile Rural Demand Despite Signs of Recovery
Rural India, contributing 35–45% of FMCG sales, has historically been the growth engine of the sector. Rural demand has shown some recovery in recent quarters, but its fragility remains evident.
- NielsenIQ data: Rural FMCG volumes grew 8.4% in Q1 2025, slightly below the 9.2% recorded in the previous quarter, but still outpacing urban markets.
- External pressures: Rural demand is highly vulnerable to monsoon variability, unseasonal rains, and poor harvests, all of which directly impact farm incomes.
- Inflationary stress: Rising food and fuel prices continue to erode disposable incomes, limiting FMCG purchases beyond essentials.
While the Union Budget 2024–25 emphasized higher rural spending, including allocations for MNREGA and infrastructure, the benefits have yet to translate into sustained demand momentum. Moreover, some categories are approaching saturation — such as soaps and detergents — making incremental growth harder to achieve.
The rural story is thus mixed: while rural demand has outpaced urban demand for five consecutive quarters, it remains dependent on government support and stable monsoons. Without these, the recovery risks losing steam quickly.
5. Intense Competition from E-Commerce and Quick Commerce
The distribution revolution has further disrupted the FMCG sector. E-commerce and quick commerce platforms have emerged as major challengers to traditional trade.
- Market size projections: E-commerce is expected to account for 11% of FMCG sales by 2030, while quick commerce could expand to ₹4 lakh crore.
- Market share shift: Traditional trade’s share fell by 1.5% YoY to 62.5%, as modern trade and online platforms gained ground.
- Online growth: FMCG e-commerce sales surged 26% annually, led by platforms like Amazon, Flipkart, Blinkit, Zepto, and Swiggy Instamart.
While online platforms provide reach and convenience, they have also introduced price wars. Heavy discounting on e-commerce has eroded pricing power, while offline distributors — long the backbone of FMCG reach — are under pressure. This dual-channel conflict has increased operational costs and margin stress.
Companies are investing in D2C strategies, digital advertising, and data-driven supply chain optimization. However, the transition is expensive and cannibalizes existing offline growth, contributing to the sector’s slower overall momentum.
6. Broader Economic and Regulatory Factors
Finally, the FMCG sector is being buffeted by broader economic and regulatory headwinds:
- Economic weakness: Job creation and wage growth remain muted, limiting discretionary spending.
- Regulatory burdens: Frequent GST revisions, bans on single-use plastic packaging, and stricter nutritional labeling rules have raised compliance costs.
- Investor sentiment: The NIFTY FMCG Index gained only 1.48% in 2024, compared to the NIFTY 50’s 8.16%, reflecting muted investor confidence in the sector.
These headwinds, when combined with inflation and competitive disruption, underline why the FMCG sector has lost momentum despite being inherently defensive.
Outlook: Short-Term Pressures, Long-Term Opportunity
Despite the slowdown, India’s FMCG sector remains a long-term structural growth story. Industry projections suggest a 27.9% CAGR from 2024–2030, with the sector potentially reaching ₹1,07,89,290 crore by 2030.
The recovery will likely be driven by:
- Rural revival, supported by government spending and improved agricultural cycles.
- Premiumization, as aspirational consumers trade up once inflation cools.
- Digital expansion, leveraging AI-driven procurement, personalized marketing, and D2C channels.
- Sustainability, as eco-conscious consumers demand recyclable packaging and healthier products.
The near-term outlook, however, remains cautious. Inflation, commodity price volatility, weak urban mass-market demand, and competitive intensity are unlikely to abate soon. Companies that adapt — by innovating in affordable health-focused products, deepening rural penetration, and embracing digital-first strategies — will be best positioned to ride the next growth wave.
Conclusion
The slowdown in India’s FMCG sector is the result of multiple converging pressures: persistent inflation, rising commodity costs, weak affordability, uneven rural demand, urban demand bifurcation, and digital disruption. While the challenges are real, they are not insurmountable. The sector remains vital to India’s economy and consumer landscape, and with adaptive strategies, it can return to its long-term trajectory of sustainable growth.