Why FMCG Companies Are Seeing An Uptick In Rural Demand Focusing on rural distribution, enhancing supply chain, leveraging local partnership, consumer activations are some of the measures by FMCG companies such as Dabur, GCPL, Bikano, to ramp up penetration in the remotest of pockets

India's aggregate demand momentum is improving, thanks to recovery in rural expenditure. The FMCG industry saw rural consumption outpace urban consumption in the March quarter (Q1, CY24) after nearly five quarters.

Fast moving consumer goods (FMCG) companies such as Dabur, Godrej consumer Products (GCPL), Bikano have made strides in rural penetration. So, what has worked? Continued capex in infrastructure building by the government, focusing on rural distribution, enhancing supply chain, leveraging local partnership, consumer activations are some of the measures that has ramped up penetration in the remotest of pockets.

Understanding consumer needs

The 2023-24 financial year saw Dabur expand its rural footprint to 122,000 villages, adding 22,000 villages in one year. Syndicated data shows that rural demand for the FMCG industry has for the first time in 34 months, grown ahead of urban by 100-120 bps. The company expects to see this trend continue in the future as urban growth is now lapping over the base and pricing growth has flattened out.

"At Dabur, we have seen our rural growth outpace urban markets in Q3 of 2023-24 and continue to grow ahead of urban markets in Q4 too. We have expanded our product basket in the rural market by way of newer affordable and rural-specific packs across categories to feed these markets and push demand growth. We feel that we will continue this drive growth in rural areas through increased penetration, while urban demand growth would ride on our premiumisation initiatives in e-commerce and modern trade channels. We expect the new-age channel to grow at double digits," said Mohit Malhotra, CEO, Dabur India Limited.

As per NIQ (NielsenIQ), volume growth of the industry in rural markets was at 7.6 per cent over a year ago, while urban volume growth stood at 5.7 per cent.

"We recognize that rural-urban dynamics are evolving, with rural areas becoming more accessible due to improved infrastructure. Aspiration and relevance are increasing in rural areas, but affordability remains a challenge. Our goal is to crack affordability, which we see as a key driver for growth in these markets. I feel like rural distribution is going to be a big driver for growth. The second growth driver would be democratize packs. In terms of insights into rural areas, one of things I'm finding is rural pockets are getting closer and closer to urban physically than it was," said Sudhir Sitapati, MD & CEO, GCPL.

Overall, the FMCG sector witnessed a value growth of 6.6 per cent at an all India level. This was driven by 6.5 per cent volume growth and 0.1 per cent price growth. The NIQ report added that volume growth for Q1 CY24 has been higher than volume growth in Q1, FY23 (3.1 per cent).

Bikano has made strides in rural penetration by enhancing its supply chain and leveraging local partnerships, "We have ensured our products are available in even the most remote areas. Our rural market sales have surged by approx. 25 per cent, indicating strong acceptance and demand," said Manish Aggarwal, director, Bikano, Bikanervala Foods Pvt Ltd.

Bikano's strategy to increase reach has been multifaceted, focusing on both traditional and innovative approaches. It has invested significantly in expanding the distribution network, and forging strategic partnerships with distributors and retailers to ensure products are readily available across diverse channels. Additionally, the company has ramped up digital marketing efforts, leveraging social media platforms and e-commerce channels to connect with consumers directly. "Our targeted advertising campaigns and promotional activities have helped us effectively communicate our brand message and attract new customers. Overall, our comprehensive approach has contributed to significant growth in reach, enabling us to connect with consumers nationwide," Aggarwal added.

Categories driving growth

Dabur has aggressive plans to grow all its businesses, across healthcare, home & personal care and foods & beverages. "This will ride on our entire strategy of focusing on power brands, expanding the portfolio and enhancing our distribution footprint," the CEO said.

Non-food categories, witnessed an improvement in volume growth at 11.1 per cent in March quarter over year ago period, which was almost double the growth as compared to food category. GCPL's focus on rural distribution, particularly for new categories through wholesale channels, have proved beneficial for non-food categories. "With initiatives like large rural van operations, we are reaching many villages and finding potential for categories such as Crème and air care products," Sitapati explained.

For Bikano, the categories that have been instrumental in driving growth from the domestic & export markets include namkeen, snacks, sweets, frozen foods, and ready-to-eat (RTE) products. These segments have collectively contributed significantly to its overall revenue growth. "We've observed robust demand and consumer interest in these categories, prompting us to focus our efforts on innovation and expansion within these product lines. Through strategic product development and marketing initiatives, we've been able to capitalize on emerging trends and preferences, further fueling revenue growth across these key categories," Aggarwal added.

Road ahead

To sustain and further accelerate growth in rural areas, companies are implementing a multifaceted strategy focused on several key pillars. "We are intensifying our distribution network by partnering with local retailers and leveraging technology to streamline supply chain operations. We are actively engaging with rural communities through targeted marketing and promotional campaigns tailored to their specific preferences and needs. We are investing in product innovation and diversification to cater to evolving consumer tastes and preferences in rural markets. By introducing new and innovative offerings tailored to the rural palate, we aim to expand our market share and capture untapped growth opportunities,"said Aggarwal of Bikano.

Over the next two to three years, Bikano plans to invest substantially in infrastructure development, research and development, and talent acquisition to drive growth and innovation. This includes establishing new manufacturing facilities and distribution centers, exploring new product categories, and adopting advanced technologies. By focusing on these strategic investments, Bikano aims to strengthen its market position, expand its product portfolio, and enhance operational efficiency to sustain long-term success in the dynamic food industry landscape.

Similarly, Dabur's expansion drive will continue as it is now working towards achieving the next milestone of 130,000 villages. "We have also invested in consumer activations in rural India to better reach out to customers in the hinterland, giving them an opportunity to touch, feel and experience our products," said the CEO.