For FMCG, rural markets finally deliver some cheer

India’s fast-moving consumer goods industry grew 6.6% in the March quarter as rural demand outpaced urban markets for the first time in 15 months

Suneera Tandon
First Published7 May 2024, 12:23 PM IST
Rural markets have been a significant concern for India’s fast-moving consumer goods companies for longer than a year.
Rural markets have been a significant concern for India’s fast-moving consumer goods companies for longer than a year.

For India’s packaged consumer goods industry, the March quarter signalled a turnaround as rural demand outpaced urban markets for the first time in 15 months.

Rural markets have been a significant concern for India’s fast-moving consumer goods (FMCG) companies for longer than a year, although urban shoppers have more than made up with increased spending on packaged items.

In the March quarter, the FMCG industry reported a 6.6% growth in value terms, driven by a 6.5% increase in volumes, consumer intelligence firm NielsenIQ (NIQ) said on Tuesday. NIQ follows a calendar year.

“The FMCG industry’s growth continues to be driven by consumption trends in Q1’24 , with rural areas surpassing urban growth for the first time in five quarters,” said Roosevelt D’souza, head of customer success, India, at NIQ.

“Notably, home and personal care (HPC) categories have outperformed food categories. While food categories witness higher unit purchases, the growth in HPC is largely driven by the popularity of larger pack sizes.”

Also read | Rough terrain for FMCG cos amid sluggish rural demand

NielsenIQ highlighted a “gradual uptick” in rural consumption that surpassed urban consumption in the March quarter.

While urban markets reported a 5.7% year-on-year rise in demand, the growth was slower than the December quarter’s 6.9% increase. Rural demand, on the other hand, was up 7.6%.

Sequential uptick

Large FMCG firms reported their March quarter earnings this month. Many pointed to a sequential uptick in rural demand that they said had been lagging urban markets for a while.

Godrej Consumer Products said both urban and rural markets grew at “similar levels” in the March quarter. “With penetration levels currently where they stand one does expect rural to grow significantly more than urban. That is something which we are definitely expecting to happen as things start improving in terms of rural demand...,”Aasif Malbari, CFO, GCPL, told Mint on Monday after the quarterly results.

Dabur India’s chief executive Mohit Malhotra emphasized that rural growth had outpaced demand.

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“Rural growth is kind of coming back, in Nielsen data we have seen 120-150 bps improvement in rural areas. Urban growth almost remains same or has come down a little bit, but rural growth is kind of picking up; that’s happening sequentially in the last two to three months...So after almost three years, we are seeing rural ahead of urban. We hope it’s more structural in nature and not a one-off,” Malhotra said. For Dabur, rural markets grew 400 basis points ahead of urban markets in the March quarter.

Meanwhile, NielsenIQ said that within the retail sector, modern trade reported “strong” double-digit volume growth at 14.7% for the March quarter. Traditional trade, on the other hand, experienced stable growth, with volumes growing at 5.6% against 5.3% in the December quarter, suggesting that traditional retail channels are holding their ground.

Modern trade includes large format retail stores as well as e-commerce platforms. Traditional trade typically includes the ubiquitous small groceries or neighbourhood stores.

Across India, both food and non-food sectors contributed to the growth in consumption.

Also read | FMCG firms had two good years. This one may be different

In the March quarter, the non-food category grew twice as fast as the food category. The foods sector reported a volume growth of 4.8% year-on-year, albeit down from 5.3% in the December quarter. NIQ attributed this drop to a slower pace of growth within the staples category.

In contrast, the non-food category saw an improvement with consumption growth reaching 11.1% in the March quarter.

“This improvement can be attributed to an increase in rural uptick, with a growth rate of 12.8% in Q1’24 (versus 9.8% in Q4’23), led by personal care and home care categories ,” NIQ said.

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First Published:7 May 2024, 12:23 PM IST
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