FMCG companies watch rural demand with bated breath as pain persists

In October, FMCG sales in rural areas stood at 0.8 per cent while urban sales declined 0.1 per cent against September, according to data by Bizom- a retail intelligence platform

Indian fast-moving consumer goods (FMCG) companies are in wait-and-watch mode amid the slowdown in rural areas. While some expect respite thanks to a good monsoon, others see rural demand reviving only in the next financial year.

In October, FMCG sales in rural areas rose 0.8 per cent month-on-month (MoM), while urban sales declined 0.1 per cent against September, according to data by retail intelligence platform Bizom. 

Overall demand was largely flat at 0.5 per cent growth MoM. Until Diwali (October 1-24), demand rose 5.6 per cent MoM, while it declined 15.1 per cent after the festival, according to Bizom.

“With strong revenge buying, we saw strong FMCG sales growth in urban areas until Diwali. However, with excessive stocks billed in kiranas, we’re seeing some of that liquidation continuing to well after Diwali and into November too,” said Akshay D’Souza, chief of growth and insights at Bizom. 

D’Souza added that the post-Diwali period was very important to assess how consumers are reacting to high inflation and to gauge the trend in agricultural incomes after the kharif harvest, especially in rural areas.

Dabur India’s Chief Executive Officer Mohit Malhotra said he expects another quarter of rural pain. He said recovery in the rural areas might come only next fiscal. “There wasn’t a good monsoon in Uttar Pradesh, Bihar and parts of West Bengal,” he said, adding that as a result agricultural incomes may have taken a hit.

D’Souza said rural consumers could remain watchful of expenditure because of the double whammy of inflation and lower agricultural incomes driven by erratic monsoons.

Category wise, beverages reported a drop of 31 per cent and the personal care category also saw a MoM dip of 23.6 per cent in value. However, commodities and confectionary categories reported growth in October.

“The key products seeing an uptake have been mainly branded commodities that were stocked up for the festival and there has been a definite challenge in discretionary products where growth has been slow and this could be due to inflationary pressures,” added D’Souza.

He added that brands may not focus on growing by increasing consumption rather than relying on price-led growth.

Firms too seem to be pinning hopes on a rebound in rural demand. For instance, Marico said in its near-term outlook on rural areas, “We will closely watch rural growth and are hopeful of a recovery in rural sentiment on the back of reasonable good rainfall coverage in the heartlands, government subsidies and higher crop realisations in the hands of rural consumers.”

While the market remains cautious on rural demand, Parle Products the maker of the Parle-G expects demand to be robust in the hinterlands. “We have not seen any major difference in rural demand. During festive times, biscuits are not the major items consumed. Compared with previous Diwalis, there was a growth of over 5-6 per cent this year. There was no dip as such in the rural market,” said Mayank Shah, senior category head at Parle.

He said the kharif crop was reasonably good because prices of commodities like wheat and sugar were high. Also, farmers were getting good realisation for their harvest, which resulted in a positive sentiment in the rural market.

“We also anticipate growth in other categories as well in the coming months. The government has also declared higher minimum support prices for the next financial year, which has started getting factored into prices now,” added Shah.