Major FMCG firms are placing their bets on a gradual resurgence in rural demand for the current year, fueled by improving macroeconomic conditions, sustained government expenditure, and strategic price reductions. Several companies have reported that the industry experienced subdued rural demand during the December quarter, while urban consumption maintained its lead over rural demand.
During the Q3 earnings call, Saugata Gupta, the Managing Director and CEO of Marico Ltd, highlighted that the FMCG volume growth, based on a four-year CAGR, stayed in the low single-digits. Additionally, he noted that the rural and mass categories were “tracking lower” compared to the urban and premium categories.
“So far, while the pace of recovery in consumption has not been on anticipated lines, we remain optimistic of a gradual uptick in consumption trends over the course of the next calendar year, in light of improving macroeconomic indicators, continued government spending, lower inflation and substantial cuts in consumer pricing implemented by large organised players in response to an accommodative and stable input cost environment,” he added.
Hindustan Unilever also observed that the impact of an uneven monsoon on the Kharif crop affected rural incomes and agricultural yields. In its Q3 earnings report, the company highlighted that urban growth continues to surpass rural growth across various industries, including FMCG.
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“Looking ahead, in the near term, we remain cautiously optimistic. We expect the gradual recovery in market demand to continue, aided by increased government spending, recovery in winter crop sowing and better crop realisations. At the same time, rural income growth and winter crop yields will be key factors that determine the pace of recovery,” said Ritesh Tiwari, CFO and Executive Director, Hindustan Unilever.
During a recent global earnings call, the global leadership of Colgate-Palmolive conveyed a positive outlook regarding the recovery of rural markets in India.
“We’ll see the continued return to the rural segment, the vitality of the rural segment, which will bode well for volume as we look forward,” the company’s Chairman and CEO Noel Wallace stated.
Dabur India has reported the onset of a revival in rural markets, attributing it to factors such as easing inflation, the expansion of its rural distribution footprint, and the strategic curation of a rural portfolio. The FMCG giant highlighted that in the December quarter, rural demand outpaced urban demand by 200 basis points.
Noting that the company’s performance in rural markets is contrarian to peers, Mohit Malhotra, CEO, Dabur India, said, “The gap between urban and rural growth at the FMCG industry level has been reducing, which is a positive sign. So, as the gap narrows between urban and rural growth with prices going up, I think rural recovery is imminent.”
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