Rural demand lifts hope as inflation, monsoon slow FMCG growth in cities

FMCG growth dips to 4.1% amid high inflation and heavy rains; rural demand shows signs of recovery as monsoon boosts hopes for the kharif crop, while urban markets face slowdown

In the face of persistent inflation and heavy monsoon rains, the growth rate for household products and groceries across urban and rural areas has slowed significantly. Consumers have cut back on their purchases of packaged food and beverages, nearly halving the growth volume for daily household items, according to The Economic Times.

 

According to recent data from Kantar, which tracks both branded and unbranded household consumption, the overall fast-moving consumer goods (FMCG) sector grew by just 4.1 per cent in volume during the September quarter — down from 7.2 per cent during the same period last year. Urban markets grew by 4.3 per cent, while rural areas grew by 3.9 per cent, a marked drop from 8.1 per cent and 6.3 per cent, respectively, a year ago.

   

Rural markets show recovery signs

The report quoted Sunil D’Souza, managing director of Tata Consumer, as saying that rural areas are showing signs of recovery, and a strong monsoon could boost the kharif crop, aiding rural demand. However, the sector hasn’t yet reached the double-digit growth rate, D’Souza said, adding that inflationary pressures are softening urban demand, particularly impacting food inflation and consumer spending.

 

Kantar’s report indicates that food and beverages, which make up approximately 70 per cent of the total volume in the FMCG market, have felt the most strain, particularly in the snacking segment. This quarter, the category grew by 4.4 per cent, down from 8.6 per cent a year prior, as mentioned in the report.

 

While snacks like noodles and salty snacks have maintained healthy growth, biscuits lagged behind, said K Ramakrishnan, managing director for South Asia at Kantar's Worldpanel Division.

 

Among listed FMCG companies, quarterly performances have varied. Hindustan Unilever and Tata Consumer recorded a modest 2 per cent growth, while Nestle reported 1.2 per cent. Meanwhile, Godrej Consumer’s domestic operations grew 7 per cent, with Colgate registering a 10 per cent rise in sales.

 

Optimism for rural demand recovery

Companies are viewing this downturn as temporary, anticipating a stronger demand in the latter half of the year.

 

The news report quoted Rohit Jawa, managing director of Hindustan Unilever, saying rural growth is gradually surpassing urban demand, which has been the trend for several quarters now. He added that favourable monsoon conditions and a good kharif harvest could drive rural economic growth, which is critical as rural regions represent a substantial portion of the FMCG market. 

Over the past decade, rural India has become pivotal for branded daily essentials, with consumer spending closely tied to agricultural success. While rural markets have been stable, urban demand is showing signs of weakening, marking a shift in purchasing trends that will be key for FMCG firms moving forward.