Consumer goods makers see rural slowdown

New Delhi: Rural demand for personal and home care products has begun to taper off, worrying packaged consumer goods makers such as Dabur India Ltd and GlaxoSmithKline Consumer Healthcare Ltd that have relied on sales in the countryside to counter a cutback in spending by urban households.

According to data by research firm IMRB International, which tracks sales in 30 core consumer categories such as soaps, shampoos, detergents and packaged staples, growth across rural markets between January and September slowed to 4% from 7% in the year-ago period. Urban growth (across categories) declined from 8% to 2% in the same period.

Personal care products, packaged food and beverages paced the decline in the past three quarters.

“Even rural growth—which was really shoring up the aggregate growth—has come off now,” said Sunil Duggal, chief executive officer (CEO) at Dabur, maker of Real juice and Vatika hair oil. The company generates 50% of its domestic revenue from rural markets.

The gap between urban and rural growth rates for companies has narrowed, Duggal said. The pace of growth in both the cities and the villages is now in the low single digits, he added

“Rural (market) is slowing down dramatically,” said Jayant Singh, executive vice-president of marketing at GlaxoSmithKline Consumer Healthcare.

“Even though rural markets have fared better than urban (ones), they are not where they used to be and it’s showing,” he said. “The past three-four quarters have seen a downward trend...though rural (markets) have been a bit better (off than urban markets). But in this quarter, even rural markets are creating a bit of a problem.”

Chitranjan Dar, who heads ITC Ltd’s food division that sells the Sunfeast brand of biscuits, among other products, said demand across markets has been under stress, although the rural markets were doing better.

But the gap between growth rates in urban and rural markets has narrowed, he admitted. “The numbers are probably the lowest being seen by consumer companies over the past three-four years.”

Demand in the hinterland, home to two-thirds of India’s population, has helped consumer product makers offset slower urban sales growth in the years since the 2008-09 global financial crisis took its toll on economies worldwide, including India. Rural demand has outpaced urban demand since 2007, even before the crisis took hold.

In the year ended March, India’s economy grew 5%, its slowest pace in a decade, and economists and multilateral agencies expect it to grow at an even slower pace in the current financial year. Inflation, meanwhile, has been stubbornly high. Consumer price inflation was 10.11% and 10.2% for rural and urban areas, respectively, for the month of October.

That has dented the confidence of consumers in the cities, where households have cut back on discretionary spending and are switching to cheaper soaps, shampoos and toothpastes, a phenomenon known as down-trading.

The trend is now manifesting itself in the countryside, where until last year the story was about consumers moving up to more upmarket brands and bigger pack sizes.

“Consumers in rural markets are down-trading to smaller stock-keeping units or postponing more expensive purchases. For instance, the shampoo market is seeing more sachet off-takes than bottles,” said Manoj Menon, group business director at IMRB International.

Inflation, particularly, is taking its toll on spending power.

“How inflation will play out in the next couple of quarters will play a critical role in ascertaining demand,” said N. Krishna Mohan, CEO, sales, supply chain and human capital, at Kolkata-based Emami India Ltd, maker of Navratna cooling oil and Boroplus cream, and which earns half its revenue from rural markets.

Mohan expects demand to rebound by the fourth quarter of the fiscal year.

To be sure, rural market growth is expected to keep outpacing urban growth at least in the near term, said a November report by Prabhudas Lilladher Pvt. Ltd. A bountiful monsoon will boost farm production and spending on rural areas is likely to increase ahead of the general election due next year.

According to Dar, more government spending on account of the elections is likely to put more money in the hands of rural consumers.

Some companies are seeking to boost rural demand by launching products tailored to consumers in the villages.

For instance, Godrej Consumer Products Ltd, which sells Godrej No. 1 soap and Good Knight mosquito repellent, has launched Good Knight smart card—a new format in mosquito repellents—priced at ₹ 1. Sunil Kataria, chief operating officer for sales and marketing at the company, said the response from rural consumers was good.