Increased rural spend to boost FMCG sales

Rural India makes up 35% of total packaged goods sales and has grown faster than urban the past two years

Consumer product companies have reason to cheer after the announcement of the Budget. At a time when the noise levels over reining in welfare expenditure were getting louder, the Budget has increased allocation for the MGNREGA to Rs 34,699 crore from the current Rs 34,000 crore

The rural market contributes to 35 percent of total sales of the consumer packaged goods industry and has grown at a faster clip than urban sales for the past two years, says a recent report by Nielsen, an insights and information provider.Urban consumption has been stagnant for years now, given the high cost of living, and discretionary purchases flagged.

A recent IMRB study showed that rural areas were the engine behind the FMCG sales in 2013-14. Companies had faster growth in the rural areas in calendar year across key product categories, both in volume and value, except for food. The latter was the only category that grew in urban India and fell in rural India. Now, with increased impetus on rural income, companies and analysts say that it will bring back the acche din for them.

"With increased investments in MGNREGA and social security, a firm roadmap for reduction of corporate taxes, ease of doing business and GST is very reassuring for the long term balanced growth and augers well for the industry, " said Saugata Gupta, managing director & CEO, Marico Limited.

"Proactive efforts to drive demand and increase consumption will bring FMCG recovery back on track. Investments in the MGNREGA and infrastructure augur well for rural consumers," said Vivek Gambhir, managing director, Godrej Consumer Products Limited. At present, GCPL's rural revenues is 27 percent of overall revenues.

Ananlysts say that companies l which have products targetting the rural areas will benefit the most from this. " When rural demand went down, companies like Emami and Jyothi Laboratories were the first to get effected, similarly they will benefit the most now," said an analyst at Sharekhan.

"Rural areas were always important to FMCG companies, a push to increase rural income will definitely help it but the long term impact will also depend on other factors like a good monsoon," said Naresh Bhansali, CFO, Emami.

FMCG companies have already huddled in boardrooms to draw up plans to tap into this bonanza. Analysts expect companies to try out every marketing and promotion trick in the bag to push consumption from value-added package offers, tweaked price and product mixes to stepping up distribution penetration in untapped markets and shoring up alternative distribution channels.

GCPL, for example is launching the OneRural Programme. Under the programme the company aims to tap rural consumers with higher spending capability and product launch specific for the rural markets. According to reports the company expects that the target from the programme is to have rural account for 35 percent of overall revenue product.