
Rural consumption to outpace urban markets in FY25 on good monsoon, higher agri-produce prices: Kantar

Summary
- Kantar expects rural volume growth to move up from 4.4% in the year ago period to 6.1% in fiscal 2025; urban volume growth may be little changed at 4.2%
Mumbai: Rural household consumption is set to outpace urban demand by the end of the current fiscal and reclaim the top spot on the back of a good monsoon and higher farm produce prices, market researcher Kantar said in its annual findings released Thursday.
Rural volumes are expected to increase by 6.1% in FY25 compared with 4.4% growth in the previous year, while urban volumes are expected to grow 4.2%, little changed from FY24, according to Kantar India’s household panel data. Kantar tracks the consumption data of household staples and essentials, excluding wheat flour.
The rural markets expanded 5.8% in volume terms in the March quarter, trumping urban volumes for the first time since the September quarter of 2022. Earlier this year, researcher NIQ, too, reported a turnaround in rural demand that outpaced the urban markets for the first time in 15 months.
Tailwinds such as a good monsoon this fiscal, along with a hike in the minimum support price that the government pays for the purchase of 14 kharif crops (grown during the monsoon) for the 2024–2025 season announced earlier this year, may support the sales of packaged goods in villages, Kantar said.
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“Till last year, urban was ahead and rural grew between 2.5% and 3% (for the full year in volume terms). Urban is seeing some fluctuation and it remains where it is," K. Ramakrishnan, managing director, South Asia, Worldpanel Division, Kantar, said in an interview with Mint in Mumbai. “As far as rural is concerned, I think all the factors are working in its favour—monsoons, minimum support price for crops, non-farm employment is good. All the factors which can contribute to the macroeconomics of rural areas are now good. The last time rural was ahead of urban was 2020."
Monsoon impact
Having arrived earlier than expected, the southwest monsoon has been erratic and weak in some places. Rainfall distribution remains uneven across the country—with a 14% deficit in the east and northeast regions and a 16% shortfall in the northwest. In contrast, central and southern India received 12% and 24% more rain than normal, respectively.
Commenting on Kantar’s forecast, biscuit maker Parle Products said it is more optimistic about growth in the rural markets in the second half of the year, depending on how the monsoon progresses.
“Rural is clearly driving the growth ahead of urban and is expected to continue through the year. On the other hand, we see urban areas also growing but slower than rural areas by at least 20%," said Krishna Rao, senior category head at Parle Products.
On Tuesday, Hindustan Unilever Ltd said signs of green shoots in the rural markets surfaced in the June quarter with strong sales of the company’s low-priced packs and categories such as hair care and soaps doing well.
“Monsoon, which is an important factor to agri and therefore rural economy, is trending in the right direction. We will have to wait and watch, but we are hopeful there are green shoots; we will continue to deepen and strengthen our competitive moat in rural areas," Rohit Jawa, CEO and managing director, told reporters virtually after the company’s earnings call.
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The rural markets account for 65% of the households in India and make up 52% of the volumes for makers of fast-moving consumer goods (FMCG). Average spending on FMCG by rural households stood at 0.55 times of urban as of April 2024, Kantar said.
As a result, companies are still focusing on selling smaller packs of basic items like salt, soap, and biscuits in these areas.
While monthly per capita consumption expenditure in rural households jumped to ₹3,773 in 2022-23 from ₹579 in 2004-05, Kantar explained that more money is now being diverted to savings and non-FMCG categories.
Diverse spending
Utility penetration brings in associated expenses such as electricity bills and petrol costs. This, coupled with significant inflation post-covid, has had a bearing on rural demand for FMCG in recent years.
“Any additional money that is coming into the urban household is either going into investments or savings or other categories such as travel and premium purchases. In rural areas, it seems to be going towards other avenues of spending and savings. So there is a higher tendency to spend on categories like motorcycles, tractors, mobile data, gas connections, so money is not coming to FMCG," Ramakrishnan said.
There will be a seismic shift in the rural markets once there is stability in the macro market, Kantar said.
"Despite cornering 65% share of households in India, rural is only 50% of FMCG volumes. That imbalance has to correct itself. It may not happen in a hurry but it will continue to happen. Meanwhile, urban areas will continue to grow on the back of premiumisation efforts and experimentation," he said.