Rural consumption outpaces urban: How FMCG giants are changing their strategies

There is a sustained recovery in demand in the rural markets and wider acceptance of branded products. (Ramesh Pathania/Mint )
There is a sustained recovery in demand in the rural markets and wider acceptance of branded products. (Ramesh Pathania/Mint )

Summary

Rural markets in India are witnessing an impressive 7% increase in distribution of packaged products, defying urban trends. FMCG giants like Zydus Wellness and Godrej are ramping up their efforts to cater to this burgeoning demand by introducing smaller, affordable product sizes. 

New Delhi: Makers of fast-moving consumer goods (FMCG) are increasing the availability of products in smaller packs and introducing rural-specific brands following a sustained recovery in demand in these markets and wider acceptance of branded food and confectionery.

Zydus Wellness, Godrej Consumer Products and Dabur have intensified their marketing in rural areas and have prioritised the supply of affordable hair colours, energy drinks and talcum powder. Godrej Consumer Products has introduced smaller-sized products such as Godrej Expert hair colour, Goodknight incense sticks, and KS deodorants to widen their availability in the rural markets.

"We have increased our rural workforce, enabling us to double our outlet and village coverage," said Krishna Khatwani, head of sales (India) at Godrej Consumer Products. “This is a strategic, long-term investment aligned with our goal of building and expanding key categories. We are continuously working to expand our distribution network as well increase our consumer reach in both urban and rural markets."

Demand in the rural areas surpassed that in the urban areas for the third consecutive quarter in the three months ended September. India’s FMCG sector registered a value growth of 5.7% in the September quarter, according to data from consumer intelligence firm NielsenIQ (NIQ). Volume growth in the rural markets was 6%, twice as fast as in the urban markets, which increased 2.8%.

The rural areas continue to surpass urban areas in volume growth across most regions of India, NIQ said, making it the third quarter where rural growth outstripped urban demand. As a result, companies are back to capitalising demand in these markets with local activations as well as stocking up more low-priced packs.

Good harvest

“Rural demand continues to grow on the back of strong tailwinds like favourable monsoons and a good harvest this year," said Biplab Baksi, executive director at Dabur India Ltd, which sells hair oils, shampoos, toothpastes and spices. “We have been focusing on strengthening our competitive edge in the marketplace by investing in scaling up our rural footprint and rolling out consumer-centric innovations."

The distribution of packaged goods in non-urban and rural markets grew 17% in October from a year ago and 7% in November, according to data sourced from Bizom, which tracks retail sales of packaged goods across millions of outlets in India. Bizom monitored the distribution of branded products such as beverages, chocolates, dairy, personal care, commodities such as edible oil, and personal care products in retail stores.

In comparison, the distribution of these products in the urban markets grew 4% in October and dropped 1% in November versus a year ago.

According to Bizcom, rural consumers have become more accepting of branded commodities and dairy products than they previously were.

“Even in November, when urban stocking decreased post-festive season and the impact of an overall slowdown, rural stocking points saw a 7% increase when compared to last year. Penetration of branded commodities, dairy products, and packaged foods and confectioneries continue to improve in rural markets," Bizom said in a statement.

The rural markets account for 37% of sales for FMCG companies. Typically, low-priced packs and more staples sell in these markets.

Zydus Wellness, which sells Complan and Glucon-D energy drinks, said it has stepped up its presence across rural markets over the past two quarters.

"In rural areas, the opportunity still remains in terms of servicing them better. We will be looking to go deeper as far as rural distribution is concerned," said Tarun Arora, CEO of Zydus Wellness. “Secondly, having products or stockkeeping units which are focused on making our brands more accessible in rural as well as in the lower pop-strata in urban markets, making even our premium products available at more accessible price points, improving our direct access availability—those fundamentals will remain."

The company gets about one-fourth its business from rural areas.

“Nycil, our talcum brand, has seen a substantial increase at the ₹10 price point, which goes very deep in rural Uttar Pradesh and some of the other markets also. We've increased our presence across haats and melas in rural markets and participated in various other local activation programmes," said Arora.

 

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