 "FMCG")
Food companies are betting on rural growth and consumption, as concerns remain about a long, dry summer of scarce rains.
While the food business grew due to price-led factors in Financial Year 2023 (FY23), industry experts expect it to be driven by volumes in the new financial year.
Fast-moving consumer goods (FMCG) companies are preparing new offers and building inventories, anticipating a strong demand for products in summer.
For food majors, a slowdown in rural demand has been a major concern for the past 4-5 quarters. For FMCG major Dabur, rural demand slump has bottomed out and it is witnessing revival.
Dabur said that a long summer would be good for products, particularly its beverages and glucose portfolio.
“We are already witnessing good demand for these products and have started building inventory for the same, both at the retail and stockist end,” said Adarsh Sharma, chief operating officer, Dabur India.
Dabur covers more than 100,000 villages and with a campaign called ‘Project Yoddha’ it is reaching smaller places and appointing village-level entrepreneurs.
Bikanervala, a packaged food company, said a long summer would not impact growth. “Summers have always been a good season for us. We always see growth in our sales numbers during the summer. What’s more, beverage sales go up during this season further boosting our numbers,” said Manish Aggarwal, director of Bikanervala Foods, which sells under the Bikano brand name.
Despite the pandemic, the food industry grew 10-11 per cent (compounded annual growth rate) between FY20 and FY22. The industry’s revenue is expected to grow by 13-15 per cent in FY23, according to CRISIL.
“Growth this year has been stronger for categories like ready-to-eat/ready-to-cook and instant food which is expected to grow by 20 percent on-year,” said Pushan Sharma, director – research, CRISIL Market Intelligence and Analytics.
Volume growth dropped in the rural market due to wheat prices rising 11 per cent and impacting bakery products, Pushan said. Revenue is expected to rise 10 per cent this fiscal despite this, aided by growth in price.
Adarsh believes that the Union Budget, presented in February, will encourage rural demand and help consumer products companies with a strong rural footprint.
Experts said that premium categories like ready-to-eat and ready-to-cook will continue clocking healthy growth. An expected reduction in palm oil prices next fiscal and resultant decline in product prices will also aid demand.
“In retail, volume for Rs 5 packs was huge but the trend is now shifting to Rs 10 pack size. Rural demand is continuously growing. After the pandemic, there has been a pronounced shift from open food items to packed food items. With time, people are becoming increasingly inclined towards packed foods and well-known brands,” Aggarwal said.
Temperatures in February indicated the possibility of a hotter than usual March. Wheat and mustard crops maybe affected by early maturation of grains in case of wheat in Rajasthan, Gujarat and Maharashtra and poor pod setting and low oil content for mustard in parts of Rajasthan, Haryana and UP, which will likely decline the crop output, Pushan said.
Industry experts said that fruit crop yield might also be affected due to soaring temperatures which can affect demand and supply for some categories.
“Crops like mango fruit setting may reduce if temperatures continue to soar especially in regions of UP which contributes about 22 per cent to India’s mango production. This could have a bearing on both supply as well as demand for the FMCG food segment,” Sharma said.
