At FMCG Box Office, Rural to Script Summer Blockbuster

Synopsis:

Over the past two years, fast-moving consumer goods (FMCG) companies such as ITC Limited , Dabur India Limited , Marico Limited , Britannia Industries Limited , Parle Products Pvt. Ltd , Emami Ltd , and Hindustan 联合利华 have focused on premiumisation due to sluggish demand in rural areas. The increase in prices of daily essentials, vegetables, and fuel led consumers to cut down on spending. More than 60% of launches by large FMCG companies during this period have been in the premium segment.

Introduction

Consumer goods companies are now launching low-unit packs and increasing distribution to and stocking of kirana stores in rural areas, shifting attention back to rural India.

This shift contrasts sharply with the last two years, when FMCG companies prioritized premiumisation due to sluggish demand in villages. Rising prices of daily essentials, vegetables, and fuel forced rural consumers to cut down on spending. During this period, over 60% of launches by large FMCG companies were in the premium segment.

Companies are investing in “consumer activation” efforts to increase engagement with rural buyers. With expectations of an above-normal monsoon that could bolster farm incomes and policy measures in the July 23 budget, companies are optimistic about a revival of rural demand.

Aspirational Rural Shoppers

Dabur India Limited , maker of Real juice and Vatika shampoo, is adding close to 100,000 villages in the current fiscal year to the 122,000 it served in FY24. Dabur India Limited is also pushing Rs 10 packs across its portfolio of hair oils, shampoos, and juices to benefit from improved rural consumer sentiment. “We are expanding our product basket in rural markets with newer, affordable, and rural-specific packs to push demand and investing in consumer activations in the hinterland,” said Mohit Malhotra , CEO of Dabur India Limited , which derives 48% of its Rs 9,100 crore annual sales from rural markets.

Marico Limited and Dabur India Limited noted sequential improvement in rural demand in the preceding two quarters in their June quarter pre-earnings updates. They forecast similar growth going forward, aided by the monsoon and anticipated budget steps aimed at greater rural employment and increasing farmers’ incomes.

“The premium segment led to post-pandemic recovery in consumption. However, most categories are now witnessing a revival in the mass segment,” said Anand Ramanathan , partner, consumer products, and retail at Deloitte India . “The budget will be an excellent opportunity to add momentum to the revival of the mass segment. A normal monsoon, festival season, and replacement demand will help drive volumes beyond urban markets to rural and semi-urban centers.” Demand from villages is crucial for the overall growth of the FMCG sector, with well over a third of the annual sales of large companies dependent on the hinterland.

“Rural growth is where the volumes come from, and that’s where we can grow the base,” said Mayank Pravinchandra Shah , vice president at Parle Products Pvt. Ltd . The company is pushing low-unit packs of even premium brands such as Milano and Hide & Seek. For example, Milano is sold in packs priced at Rs 40 in urban markets but is being rolled out in Rs 10 packs for rural consumers. Hide & Seek is sold in Rs 30 packs in cities and in smaller Rs 10 packs in villages. “This is because the aspirational demand of rural consumers is changing very fast,” Shah said. “They also want to try premium brands but in lower-priced packs.”

In the January-March period, rural consumption surpassed that in urban areas for the first time in five quarters, noted consumer intelligence firm NielsenIQ . The June quarter reflected similar trends, executives said. NielsenIQ is expected to release June-quarter updates early next month.

ITC Limited is focused on driving low-unit packs and distribution-led penetration through rural stockists, said Sandeep Sule , divisional chief executive, trade marketing, and distribution at the company that makes Sunfeast biscuits and Vivel soap. “We have enabled the sales force in rural markets with analytics support for accessibility and servicing, machine learning to drive distribution, end-to-end digital infrastructure, and investments in consumer activation and merchandising across high-potential rural markets,” Sule said.

Companies are pushing demand even in villages with populations below 1,000, said an executive at the All India Consumer Products Distributors Federation. This is happening both through direct distribution and indirectly by collaborating with wholesalers to reach remote villages, the person said.

“All eyes are on the government’s initiatives to boost rural incomes in the upcoming budget,” Motilal Oswal Financial Services Ltd vices said in a July 6 report. “Companies have been focusing on driving their core portfolios through various initiatives, like distribution expansion, product relaunches, and a step-up in marketing budgets.”