INDIAN CONSUMERS GIVE THE ECONOMY A VOTE OF CONFIDENCE
- Consumer sentiment emerges as a reliable indicator of FMCG sales pattern with a time lag of two quarters.
- Nielsen Consumer Confidence Index (CCI) shows a positive upswing in consumer sentiment in the first half of 2014, which could boost sales in the rest of the year.
Indian consumers have tightened their purse strings as a precautionary measure for the better part of the last four years. While most of us are still saving for a rainy day, consumer confidence levels are hitting their highest point in over two years, setting up for positive changes in the country’s retail landscape over the next few months.
CCI – Our Window To Urban FMCG Sales
Consumer Confidence Index (CCI) is Nielsen’s pulse of the world’s consumer sentiment, measuring consumer perceptions of job prospects, personal finances and immediate spending intentions in 60 countries. To better understand the effect of these consumer sentiments and spending intentions, we mapped them with fast-moving consumer goods (FMCG) sales. And in India, a clear correlation of changes in CCI and FMCG sales growth emerges, with a gap of two quarters.
With the urban Indian consumer’s confidence reviving and stacking up well against other countries in the region, the future looks brighter for retailers and manufacturers.
Urban Indian consumers are bullish about the economy based on the second-quarter CCI. This is partly due to the positive sentiment towards the new government and expectations that inflation will be brought under control. This sentiment aligns with an initial recovery that is already visible in the first two quarters of 2014. This positive sentiment could continue to positively affect urban Indian FMCG sales over the next two quarters.
The FMCG Sales Trajectory In Urban India
FMCG sales in urban India have grown four times their size over the last decade. However, if we take a closer look at the sales figures over the last two years, the sales growth rate has been slowing down. This dip in the growth rate is consistent with the slowdown in CCI.
When mapped together, value sales growth and consumer sentiment show a staggering 75% correlation with a lag of two quarters. So, we have reason to believe that given the current positive consumer sentiment in quarter 2 of 2014, we could start seeing positive changes in FMCG sales two quarters from now.
The lag is quite understandable. Consumers typically tend to wait and watch before making changes to their spending patterns. In this case too, while the confidence in the economy improved in the early part of the year, partly due to inflation slowing down and expectations from a new government which strongly emphasizes ‘development,’ consumers will wait for the situation to improve before loosening their purse strings.
The current value sales growth rate in 2014 seems to reflect the corresponding change in CCI two quarters ago in 2013. And we believe the same lag could indicate performance in the second half of 2014.
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