Margins Crash, FMCGs Sweat

DECODE THE NEWS

As Margins Shrink And Loyalties Shift, FMCG Giants Hit Reset

What’s Happening?

India’s FMCG sector is facing its sharpest slowdown in years. Market leaders like Hindustan Unilever Limited (HUL), ITC, Britannia, Marico and others are seeing revenue growth flatten, margins compress, and volume trends disappoint, particularly in urban markets.

In December 2024, HUL rolled out its 'Samadhan' distribution model, bypassing traditional channel partners by taking over warehousing and logistics. The move triggered sharp backlash from distributor groups like All India Consumer Products Distributors Federation, which accused the company of eroding trust and viability in general trade.

What’s driving this? Urban consumption fatigue. Stressed by stagnant wages, rising EMIs, and inflation, city dwellers are cutting back, especially on non-essentials like snacks, beauty products, and packaged foods. At the same time, companies are grappling with cost pressures from global inflation in raw materials such as palm oil, wheat, and dairy. And competition has intensified: consumers are increasingly choosing cheaper private labels or trying out digital-first D2C brands that feel more relevant or affordable.

Why It Matters

Experts trace the financial pressure on FMCGs players to premium buyers who are now shifting discretionary spending toward experiences like travel and dining out. Meanwhile, middle and lower-income shoppers are sticking to essentials, often in smaller pack sizes. HUL’s own CEO recently noted that urban buyers are behaving like rural buyers—preferring sachets and small stock-keeping units (SKUs) to stretch household budgets.

At the same time, kiranas and supermarkets are turning to private labels to protect their margins, and affluent buyers are exploring niche, digital-first alternatives. “Online carts are being abandoned the moment one item isn’t found—even if you have a 99% fill rate,” said Alok Chawla, founder of kirana digitisation platform Kiko Live, capturing how brand loyalty is eroding in real-time.

What This Means for You

As a consumer, you’ll likely notice more discounts, smaller packs, and a wider choice of store-brand or startup products at your local kirana or app. If you’re watching this sector from an industry lens, the bigger takeaway is this: brand loyalty is weakening, input costs remain high, and growth will depend less on old-school distribution strategies and more on new-age relevance.

CORE NUMBER

Rs 26.3

That’s the average cost of a home-cooked vegetarian thali in April 2025, according to Crisil Intelligence’s monthly food plate tracker. The price is down 4% year-on-year, largely due to falling vegetable prices. Tomatoes saw the sharpest decline, dropping 34% to Rs 21/kg, while potatoes and onions fell 11% and 6% respectively, all due to a high base effect. A non-veg thali as of April 2025 costs Rs 53.9 on average, which is also 4% cheaper year-on-year, thanks to a 4% dip in broiler prices (which make up half the cost). The cost slide, however, was tempered by rising vegetable oil and liquified petroleum gas (LPG) prices.

—✈️ Aeroplanes Interrupted. India’s escalating conflict with Pakistan has hit domestic airlines like IndiGo, Air India, SpiceJet, and Akasa Air, forcing them to cancel flights due to airport closures. With 16 northern and western airports, including Jammu, Srinagar, and Chandigarh, shut, belly cargo in passenger flights is grounded. IndiGo alone cancelled 165 flights till May 10, affecting cargo movement. Air India Express is offering a full refund or free rescheduling for flights to and from Amritsar, Gwalior, Jammu, Srinagar, and Hindon until 05:30 am on May 10, 2025. Road transport now remains the most reliable cargo option.

—📈 Coal Takes Charge! India is doubling down on coal as renewable energy struggles to gain momentum. New rules allow independent power producers to secure long-term coal contracts without power purchase agreements, pushing for 80 GW of new coal capacity by 2031–32, up from 222 GW now, Reuters reported. The focus is on pithead plants to cut transport costs to distant and remote places where power plants are often located. This comes as renewables face hurdles — weak tender demand, land acquisition issues and delayed projects — threatening the 500 GW clean energy target by 2030.

—🇬🇧🇮🇳 UK-India FTA Details Released. India's Free Trade Agreement with the UK has finally come through, but won’t get duty concessions. These include sensitive industrial goods such as diamonds, silver, smartphones, optical fibres, and plastics. A PTI report said that India has also restricted its no-duty concession on the UK’s petrol and diesel engine vehicles to a set quota; there’s a quota for no-duty British electric vehicles as well. The two countries have been hashing out this deal for three years now. Last year, India’s merchandise exports to the UK stood at 12.92 billion dollars. On the other hand, the UK exported 8.41 billion dollars of goods to India.

—🎥 Tariffs Strike Bollywood! India’s film industry is worried that US President Donald Trump’s tariffs will significantly affect their revenue, with actor and producer Prakash Raj calling it “tariff terrorism,” as per a Reuters report. The US forms 40% of India’s overseas market, and experts say students form a big chunk of that. If the US imposes a 100% tariff on foreign films, students will likely not be able to afford those ticket prices. As well, India has become a hub for post-production of American movies too–these tariffs could impact that market as well.

THE MEDIA ROOM

AI Can Help Digitise Media, And Indian Startups Are Harnessing Its Power

When we watch a YouTube short or a reel on Instagram, we rarely notice the manual work that is actually needed in the making of these videos. From adding the right transcript to captions, these are things that were earlier done by people mechanically. But the advent of artificial intelligence (AI) is making things easier for organisations that have to manage large volumes of such videos.

Frammer, co-founded by Suparna Singh, is one such AI-based video tool that ingests hours of video, and then edits and packages it into bite-sized videos and snippets for social media.

Singh, in the latest episode of The Media Room, told journalist Vanita Kohli-Khandekar that Frammer works with several news outlets in India and other digital media organisations in the country.

How does Frammer help? “So, when, for example, a debate show in the evening is recorded, they toss it into Frammer and then Frammer will get that entire debate show ready to be published on YouTube or on their site and app. And in that attempt, it will also not just create the headlines and the thumbnails,” Singh said.

Another guest in this episode was Mandar Natekar, co-founder and CEO of Neural Garage, which offers a visual dub technology that can lip sync voice dubs for other languages.

Natekar explained that Neural Garage can help a video shot in Korean and dubbed in English look like it was shot in English by changing the lip syncs. What does that actually mean? Natekar shared the example of the Ultratech Cement ad film shot with Shah Rukh Khan.

While the film was shot in Hindi, the company wanted it expanded to its English networks as well. Khan recorded an English voiceover, but Neural Garage helped with the visuals. “Visual dubber technology was used to make it look as if it was filmed in English itself. So now in the same production shoot, now you have the capability thanks to visual dub of actually filming in two different languages at the same cost and that film was then run on all English networks to great success and we had a great time working with Ultra Tech Cements on that and it was received quite fabulously,” Natekar said.

How else can AI tools like Frammer and Neural Garage help digitalisation of visuals?

PODCAST

On Episode 575 of The Core Report, financial journalist Govindraj Ethiraj talks to Gaurang Shah, Senior VP at Geojit Financial Services, Bjarne Schieldrop, Chief analyst commodities at SEB as well as Prabhu Dhamodharan, the convenor of the Coimbatore-based Indian Texpreneurs Association.

• Resilient markets close in the positive in the face of India attacks on Pakistan

• India sees never before levels of airport closures on border conflict

• China buys even more gold, cuts interest rates

• Could $2.5 trillion of Asian holdings in USD start flowing out?

• Oil prices are facing multiple demand and supply stress points? Where could they land?

• After UK, could EU be next as India’s apparel industry gears up to capture more share

👥 THE TEAM

✍️ Zinal Dedhia, Salman SH, Kudrat Wadhwa | ✂️ Rohini Chatterji | 🎧 Joshua Thomas