FMCG companies reported slower-than-anticipated rural recovery trends in the September quarter. Players, with significant exposure to rural markets, said that rural consumption continued to lag urban consumption trends in the second quarter amidst uneven rainfall. However, consumer goods companies are hopeful of a gradual recovery on the back of higher MSPs, government spending on infrastructure and surge in consumption due to the festival season among others.
Mohit Malhotra, CEO, Dabur India, said that while the macro-economic indicators were showing improving trends, uneven distribution of rainfall and deficient monsoons impacted rural consumption in the September quarter.
On an investor call, the company’s management pointed out that syndicated FMCG industry data suggests that after witnessing a negative growth trajectory for three quarters, rural growth was pegged at 0.3 per cent in the March quarter, at four per cent in the June quarter and has moved to 6.7 per cent in terms of volume.
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“So the growth trajectory of rural is becoming positive but on a lower base. I think rural will continue to gain traction, albeit slowly, but it will happen surely, with factors such as the MSP increases, sustained infrastructure investments by the government, direct benefit transfers in place, robust crop sowing, and the onset of the festival season. With the election season coming up some sops are also likely to happen. That said rural growth is still lagging urban demand,” Malhotra stated on the investor call.
Marico’s management also pointed out that deficient rainfall in August and a spike in food prices impacted the rural consumption trends during the second quarter. On a recent earnings call, Saugata Gupta, Managing Director and Chief Executive Officer, Marico Ltd said, “Q2 started on a positive note with reasonably encouraging demand trends in rural and urban in the month of July. However, there was a noticeable drop in overall sentiment, especially in rural during August and early September, which seemed to have been triggered by significantly deficient rainfall in August, followed by a spike in food prices across. We have seen some recovery since the second half of September and we are optimistic about the gradual pickup in consumption.”
Gupta added that rural consumption trends are expected to improve in the next 2-3 quarters with the onset of the festive season, range-bound retail and food inflation, and government spending between now and the elections.
Britannia also said FMCG growth has been faster in urban compared to rural. “Our potential in rural continues to remain high and hence, expansion in rural distribution continued despite the reported rural slowdown,” the company said in its earnings statement.
With moderation in inflation, companies such as Asian Paints are also betting on the festival season, wedding season, and government spending to boost rural demand.