FMCG companies in a faster lane in rural markets | Economic Times

MUMBAI | NEW DELHI: Consumption growth in rural India is outpacing the rate of expansion in cities and has already reached 85% of pre-Covid average sales underpinned by higher farm income, minimal retail disruption during the lockdown and migrant workers returning home.In comparison, urban market sales were relatively lower at 70% in May, according to Nielsen’s latest data. In the next nine months, the overall fast-moving consumer goods (FMCG) segment is expected to grow at around 5% but rural will expand at double the rate of urban, reversing the trend of the past two years when slowing demand in the hinterland dragged the entire market down.More than half a dozen consumer goods companies including Hindustan Unilever, Nestle, Dabur and Parle are expecting rural demand to drive the bulk of their growth during the fiscal year as the urban market, led by discretionary categories, remains stressed. “Rural demand will continue to outpace urban demand,” said Mohit Malhotra, chief executive officer at Dabur India. 76681526Rural Sales Outpacing City Growth“With migrant workers shifting back to their hometowns and the government announcing additional spend on MGNREGA (Mahatma Gandhi National Rural Employment Guarantee Act) and higher MSPs (minimum support prices), rural consumption would surely see an uptick,” he added. Dabur India will add 8,000 new villages in its reach this fiscal year.Consumption in rural India that had been outpacing the rate of expansion in cities tapered off over the past two years since purchase behaviour is largely linked to farm output and farm-gate prices. While rural growth has been consistently slowing, its expansion during the September quarter last year had been slower than urban for the first time in seven years. “Relatively relaxed lockdown in rural, further corroborated by lower store closure days--seven days in rural compared to 13 days in urban--has been instrumental in rural looking healthier than urban when it comes to FMCG consumption during the lockdown months,” said Prasun Basu, South Asia zone president, Nielsen Global Connect.While FMCG companies have increasingly relied on the rural hinterland, home to more than 800 million people, the market contributes just 36% of overall industry sales despite having over two-thirds of India's consumer base.“With a predicted good monsoon, a very good harvest of the primary staple goods in the country, and benefits the government has recently announced in terms of going beyond APMC (Agricultural Produce Market Committee) for farmers to be able to sell their produce to the highest bidders, I do hope that it shores up rural incomes,” Suresh Narayanan, chairman and managing director, Nestle India, told ET recently, adding that it has been witnessing stronger demand in rural and smaller towns compared to urban India.Crisil, which analysed 57 companies that accounted for nearly 50% of the sector’s revenues, said India’s FMCG companies’ sales are expected to contract 2-3% in the current fiscal but rural India should fare better.The government’s economic package has increased allocation under the MGNREGA by an additional Rs 40,000 crore from the earlier allocation of Rs 61,000 crore to enhance employment in villages.Hindustan Unilever, the country's biggest consumer goods firm, said pantry loading was more an urban phenomenon than rural because most shops were open in the hinterland and consumers don't have the money to spend on such stockpiling.“Even before Covid, the rural economy was going through stress,” HUL chairman Sanjiv Mehta told ET last week. “So the focus of the government in having direct transfer of money to the rural people, increasing the minimum support price, improving the outlay on MGNREGA, the focus has been absolutely right.”The trend is true even for discretionary categories. A recent Motilal Oswal report said 80% stores of regional players, selling apparel to home products, have opened in smaller towns and are clocking sales at 60-70% of pre-Covid levels with only serious buyers turning up.“With the migrant labourers also moving, I think there's a possibility that rural and smaller town are less impacted and that is an opportunity for us,” United Spirits managing director Anand Kripalu said last week.