Rural consumption revival pushes digital demand in small towns
- Festive season spending patterns show that semi-urban and rural consumption demand is reviving
Indians in smaller towns are spending more online than their urban counterparts on the back of a much-awaited revival in rural demand.
Festive season spending patterns indicate a revival in semi-urban and rural consumption demand, with smaller cities seeing a significant rise in spending.
A Diwali insights report by Amazon India said 70% of the platform's prime members who shopped during the festive season were from tier II and III cities compared to 60% a year ago.
Smaller platforms also recorded similar trends. For e-commerce platform Meesho, which draws around 80% of its users from tier II cities and beyond, there was a 45% increase in new-to-e-commerce users in its recent festive sale.
Also Read: Rural demand is finally taking off. FMCG firms capitalize with strategic moves
Milan Partani, general manager for user growth at Meesho said in a 7 October statement that during the sale, the company saw over 40% growth in orders. It witnessed 1.45 billion customer visits, with close to half of shoppers hailing from tier 4 cities.
According to Kushal Bhatnagar, associate partner at Redseer Strategy Consultants, tier II and beyond cities were at the forefront of the growth in gross merchandise value during the festive season, showing steady spending patterns and a strong interest in the expanding choices available online.
“Tier II+ cities saw a 13% rise in spending, outpacing metros and Tier I cities. Smaller cities embraced e-commerce, demonstrating growing comfort with online platforms. Consumers in these areas are also willing to spend on high-ASP categories such as electronics and appliances if offered at competitive price points,” Bhatnagar said on 14 November.
In tier II and beyond cities, spending on essentials, electronics, and general stores took the lead, according to a report by Kiwi, a credit-on-UPI platform.
Urban demand slowdown
Meanwhile, growth in urban segments was driven largely by luxury segments such as dining, travel, and jewellery, even though the urban middle class spent less this time around.
This recovery in semi-urban and rural consumption comes at a time of early signs of a slowdown in urban demand. To be sure, urban spending did grow year-on-year, according to the finance ministry’s monthly economic report for September. However, the pace of growth slowed down compared to the last two years, which saw a post-covid boom in urban consumption.
On the other hand, the growth rate for semi-urban and rural demand, which had been sluggish since the pandemic, saw a significant rise.
Urban consumption growth in the September quarter fell sharply to 2.8% from 10.1% in the March quarter, while rural growth increased to 6% from 5.2% in the previous quarter, the monthly economic report said.
According to a 3 November report by Citi Research, its activity tracker showed that rural consumption momentum convincingly took over urban consumption for the first time since the 2020-21 lockdown.
“The initial uptick in rural demand was led by farm activity, which could find further support from non-farm activity in H2 FY25,” the report said, adding that on the other hand, lack of support from key drivers such as wages, excess savings and leveraged consumption and a high base from last year, is likely to keep urban consumption momentum subdued for now.
Also Read: Consumption data exposes the depths of India’s caste divide
According to Citi, its economic activity index, ‘GATI,’ showed that urban consumption has been at its lowest level since early 2022, with a sharp fall over the last six months into negative territory (below pre-covid momentum). “Our proxy for urban wage growth continues to suggest subdued momentum. Preliminary data indicates that wage cost growth of listed companies fell further to 6% on-year in September 2024 compared with 6.4% in June 2024 and 9.5% for the 10-year average,” Citi Research said.
Auto, FMCG feel the impact
Lenders, FMCG, and automobile companies have also started feeling the impact of the improvement in rural growth and slowdown in urban growth, with several companies predicting muted growth in the current quarter.
According to SBI Research, domestic passenger vehicle sales, an indicator of urban demand, as well as other indicators of consumption and demand like diesel consumption, electricity demand, and bitumen consumption, have eased. On the other hand, with rural consumption and demand gaining buoyancy, domestic tractor sales showed a jump in growth in October 2024, and two- and three-wheeler segments showed consistent growth led by acceleration in rural wage growth in August 2024.
Raul Rebello, managing director and chief executive of rural and semi-urban-focussed non-bank financier Mahindra Finance, recently said tractor demand has been strong since the beginning of October, likely owing to the good monsoon.
"The rainfall has been good, and we expect with the MSP being positive and the overall yields also being positive that the rural and agrarian outcomes for the next half of the year, we will see tractor having a good patch, and we should be able to ride that,” Rebello said at the September quarter earnings call.
Other financial services companies with rural presence also witnessed demand scenarios. “Urban demand has definitely slowed down, but rural demand is picking up, which is a good sign for us,” said Y.S. Chakravarti, managing director and chief executive of Shriram Finance.
Also Read: Rural consumption to outpace urban markets in FY25 on good monsoon, higher agri-produce prices: Kantar
Those in the FMCG segment have also highlighted the slowdown in urban demand. Leading FMCG companies such as Hindustan Unilever, Nestle, and Dabur, among others, reported weaker demand from the urban market leading to a hit on their revenue and profitability.
According to NielsenIQ's Quarterly report for Q2 FY25, the Indian FMCG industry grew 5.7% in value terms, 4.1% in volume, and 1.5% in terms of prices. In the previous quarter, value growth was at 6.6% and growth in terms of volume of sales was 6.5%.
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Business NewsEconomyRural consumption revival pushes digital demand in small towns
First Published:15 Nov 2024, 01:29 PM IST
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