FMCG companies see sales recovering faster in rural areas

FMCG majors are witnessing a revival in sales in rural areas after the easing of lockdown. While there was a sales loss of nearly 30 to 45 days between April and June, companies see rural demand as more stable and outpacing urban demand.

Overall, the FMCG segment is expected to grow 5 per cent for the next nine months, but rural growth will expand two times that of urban, say sources. Rural markets account for over 36 per cent of FMCG spends.

While consumption growth in rural areas reached 85 per cent of pre-Covid levels in May, urban market sales were lower at 70 per cent, said Edelweiss Securities in a recent report, quoting Nielsen data.

This surge was underpinned by higher farm incomes, minimal retail disruption during lockdown, migrant workers returning home, good monsoons, and a bumper rabi crop.

“We are seeing a general good growth in rural demand post March, which is overall on a par with last year. We expect further good growth, going forward, in double-digits this year,” Harsha V Agarwal, Director, Emami Ltd, told BusinessLine . Nearly, 50 per cent of its domestic revenues come from rural markets.

According to CMIE data, rural unemployment rate stood at 7.78 per cent in the week ended July 5. Although the rates were marginally higher, a fall from 10.96 per cent in past weeks to 7.26 per cent in June 21 week indicates job avenues have increased.

Consumer staples companies and their super and sub-stockists have started hiring people in small towns and rural areas, said Edelweiss.

Product preferences

Health and hygiene offerings dominate demand. Packaged foods such as biscuits and noodles, staples, chyawanprash and honey are popular, too. Demand for personal care products, except for soaps, remains disappointing. Upsizing is happening in some categories, but the preference is for sachets.

“Consumers are indeed demonstrating a clear preference towards mass and popular segments,” said B Sumant, Executive Director, ITC Ltd, adding that health and wellness and hygiene and immunity-boosting products are at the forefront in rural markets.

According to him, the needs of rural consumers are not very different in the categories that ITC operate. The divide in aspirations and consumer behaviour had been narrowing. “The only difference is in the absolute size and lower penetration levels in rural areas, which is an opportunity to tap into,” said Sumant

In food consumption, upsizing happened in snacks, refined oils, tea and juices in April; in non-foods, soaps were bought in large packs. “ITC is witnessing encouraging consumer franchise for Sunfeast biscuits, Bingo! snacks and Yippee! noodles in rural markets,” he added.

According to Sumant, hand hygiene, specifically hand-wash, has seen an exponential rise. Savlon hand sanitisers launched in sachet format (at 50 paisa) will address issues of accessibility, affordability and availability. “We expect quick adoption of Savlon sachets by rural consumers,” he said.

Emami’s Agarwal pointed out that growth in the rural market is “largely driven by smaller packs”, which are the growth drivers.

“Launches like sanitisers and soaps are showing early signs of good demand. We have also launched Kesh King Shampoo in sachet formats to give rural push,” he added.

Expanding rural network

Stockist networks in rural areas are also being increased. While companies such as ITC have “strengthened direct reach in rural markets” by increasing the number of vans to service rural demand, Dabur India will be “restarting expansion” in rural areas with the lockdown easing.

According to Mohit Malhotra, CEO, Dabur India, over the past one year, its rural network grew from 44,000 villages in March 2019 to a little over 52,000 villages in March 2020. “With the lockdown easing now, we are restarting the expansion of our rural footprint, and will take it up to 60,000 villages by the end of this year,” he said.

Marico expects the rural sector to recover faster (than urban) and remain strong. Sales from rural India contribute to about 31 per cent of its domestic turnover. The company says direct distribution will be a key. It reaches 58,000 villages through the stockist network. “As rural demand continues to grow, we aim to drive direct distribution and value to consumers,” the spokesperson added.