Some green shoots, but rural a stressor for FMCG companies

Companies manufacturing fast-moving consumer goods (FMCG) continue to see rural stress sustain and it continues to trail urban demand.

At the Confederation of Indian Industry’s FMCG summit, managements of various companies pointed out urban demand continued to grow while rural demand remained under pressure because incomes were under stress in rural areas.

“Due to rural stress, volumes continue to remain an issue for the industry and we are yet to see any revival in demand,” Sudhir Sitapati, managing director (MD) and chief executive officer (CEO) at Godrej Consumer Products, told Business Standard.

Companies said while there were green shoots, the gap between rural and urban markets was shrinking.

“For Dabur, the festival season has been better this year with e-commerce and modern trade driving demand in urban India.

"While green shoots of recovery are visible, rural demand is still trailing urban markets.

"We are still seeing liquidity issues in rural areas, despite the festival season kicking in,” said Mohit Malhotra, CEO of Dabur India.

He added: “That said, we are hopeful of rural markets posting a strong recovery.

"We are already seeing the gap between rural and urban growth continuously shrinking.

"We have also enhanced our distribution footprint in the hinterland, taking our coverage to over 107,000 villages from 100,000 in March this year.”

Rural demand has been under pressure after the pandemic because incomes have been affected and companies have been waiting for a revival in demand in the hinterland.

After announcing its July-September results, Hindustan Unilever (HUL), the country’s largest FMCG major, pointed towards the continuous stress in rural consumption.

The management had pointed out HUL’s rural volumes continued to remain under pressure in Q2, and noted rural demand remained subdued.

Adani Wilmar expects rural demand to pick up only after the rabi harvest season, which is in April.

“Household consumption in rural has been under pressure but urban consumption has remained steady.

"Agri GDP growth contribution is low at 1.2 per cent as compared to an average of 3.5 per cent because incomes in these areas have been impacted,” said Angshu Mallick, MD and CEO of Adani Wilmar.

Mallick pointed out out-of-home consumption was strong due to the ongoing marriage season and also owing to people moving out of homes more frequently in the winter season, which is a big game changer for the staples business.

He also pointed out urban demand was doing well due to government spending to improve infrastructure in these areas.

Also, another issue that has cropped up is regional brands have started entering the market, eating into the share of larger players.

Regional and local FMCG brands are gaining momentum but at the cost of national brands for the second quarter in a row.

According to HUL’s investor presentation after its Q2 results, it said in August the market value growth of regional players in the last three months compared to last year in tea was 1.4 times that of large brands and in detergents regional brands gained six times faster in the same period.

It had pointed out this issue even in the quarter ended June and had then said that regional players in tea grew 1.6 times faster than national brands in the three months ended May compared to last year and three times faster in detergents compared to last year.

ITC also pointed out local brands had been gaining traction and said in its post-results update that certain categories such as biscuits, snacks, noodles and popular soaps witnessed increasing competitive intensity including from local/regional players against the backdrop of commodity price deflationary conditions.