Get All Access for $5/mo

FMCG: Why Rural Pockets Are Experiencing Sluggish Growth The last five to six quarters have been the longest period of rural slowdown in the last decade

By Shrabona Ghosh

Opinions expressed by Entrepreneur contributors are their own.

You're reading Entrepreneur India, an international franchise of Entrepreneur Media.

Canva

Rural demand continues to be soft across most FMCG categories, impacted by food price inflation and increase in interest rates that are impacting discretionary income of consumers across low income groups, both in rural and urban India.

The last five to six quarters have been the longest period of rural slowdown in the last decade. "In the past, rural consumption has generally outpaced urban consumption by 1.5 times. However, the last 5-6 quarters has seen rural consumption slow down and volumes decline across most FMCG categories. As a result, most companies across categories have seen value growth on the back of price increases only," said Rajat Wahi, partner, Deloitte India.

"However, with the softening of global commodity prices, resolving of global supply chain bottlenecks, China re-opening, etc, there is a sense that inflationary pressures may start to come down, which could lead to the rural consumption decline bottoming out or even reviving," he added.

With softening of major commodity prices, FMCG companies have taken price cuts and grammage increases in the last six months. This is expected to result in a volume uptick in Q4FY23. However, rural demand conditions still remain soft compared to urban demand, said a report by ICICI Direct Research, published in April.

Recently, HUL's net profit increased to INR 2,552 crore for the three months ended 31 March from INR 2,327 crore a year earlier, the company said in a statement. Surging inflation has dampened consumer demand in India, with rural areas and low-income groups more vulnerable to price hikes. The company said volumes in the rural market declined three per cent in the March quarter from last year while overall FMCG volumes were flat on a yearly basis.

According to the report by ICICI, Dabur is likely to post dismal results during the Q4FY23 with 5.4 per cent revenue growth largely led by prices. Though urban demand conditions have improved during the quarter, rural volumes continue to remain dismal.

A similar trend in the rural market was witnessed in December 2022. The FMCG industry saw a decline in growth in the December quarter of the calendar year 2022 due to a slump in rural demand, according to Nielsen IQ's report. The rural market, which contributes nearly 35 percent of the total FMCG sales, saw its volume declining 2.8 percent, in contrast, urban volumes rose 1.6 percent.

However, pointing towards a revival in the rural market, Nestle India in its quarter results, said, "Our strong performance in e-commerce continued with significant growth in quick commerce. We accelerated our sustained growth journey in RURBAN. The 2/3 growth in RURBAN was complemented by strong momentum in metro and mega cities. Rural growth was also strong, secular and robust, being volume led which gives greater confidence and impetus to our efforts to enhance our footprint."

In an attempt to boost rural economy, In the Union Budget 2022-23, the government introduced schemes of rural women empowerment, enhanced agri-credit aim, fisheries scheme, agri startups, natural farming and other initiatives that could assist raise rural demand for the Indian FMCG sector. Technology can also boost penetration. The Internet has contributed in a big way, facilitating a cheaper and more convenient mode to increase a company's reach. The number of internet users in India is likely to reach 1 billion by 2025 and the e-commerce share of total FMCG sales is expected to increase by 11 per cent by 2030. "The high capex spend by the government on infrastructure, especially transportation and logistics, on agriculture and on driving digital connectivity (with the roll out of 5G) is likely to help revive rural consumption as we look at this and the next two quarters," Wahi said.

So, what can companies do to mitigate challenges? Most FMCG companies continue to focus on improving their rural coverage, expanding distribution into current and new markets and look at efficiencies around their cost to serve models for rural markets. "They are also seeing how they can leverage technology, new business models, pricing and packaging changes and logistics efficiencies, so as to be ready to take advantage of the rural revival as it comes. As much as 65-70 per cent of Indian consumers still live in rural/rurban India and while the current slowdown has been prolonged, the expectation is that digital connectivity, increasing aspirations, growing awareness of brands, etc will have a similar rebound as we have seen in urban markets post Covid," Wahi explained.

Shrabona Ghosh

Correspondent

A journalist with a cosmopolitan mindset. I lead a project called 'Corporate Innovations' wherein I cover corporates across verticals and try to tell stories on innovations. Apart from this, I write industry pieces on FMCGs, auto, aviation, 5G and defense. 
Business News

These Companies Offer the Best Work-Life Balance, According to Employees

The ranking is based on Glassdoor ratings and reviews.

Business News

Apple Is Adding ChatGPT to iPhones This Week. Here's How It Works.

ChatGPT will take over questions that Siri can't answer.

Leadership

As a Leader, Take These 5 Steps to Bridge the Gap Between Innovation and Execution

Companies that want to turn ideas into action must align their people and listen to their customers.

Starting a Business

Nearly 50% of America's Workforce Has a Secondary Source of Income or Side Hustle. Here Are 7 Steps You Should Take to Create Lasting Value for Yours.

Today's entrepreneurs have the opportunity to generate long-lasting supplementary income if they take these steps.

Growing a Business

How to Spot Trends and Anticipate Market Shifts Before Your Competition

Discover how to identify disruptive trends before your competitors by mastering the art of anticipating market shifts. Learn strategies for staying ahead and gaining a competitive edge in business.