In India’s rural hinterland, Phool Bai’s story isn’t unique. Thousands of vulnerable low-income households are falling back into extreme poverty. They are at the heart of a rural demand slump witnessed by packaged consumer goods makers. India’s villages account for more than 35% of overall FMCG sales.
A combination of stagnating rural incomes over the past two years, dearth of jobs in villages and erratic rainfall has hurt rural households that are mostly dependent on farm income for survival.
“From biscuits to chips to mosquito repellents, retailers are reporting lower sales and are unwilling to stock up," says Aaveg Jain, a distributor for companies such as ITC Ltd, Godrej Consumer Products Ltd, Himalaya, and L’Oreal in the Ganj Basoda town of Vidisha. Daily orders have steadily declined and the fall is most significant for premium products, “basically anything which costs over ₹10 per packet," Jain said.
FMCG companies corroborate his claim. Rural consumers are picking smaller sized packs of detergent bars, hair oils, and washing powders and going easy on buying staples and household goods such as biscuits, cooking oil, soaps and atta, research firm Kantar said in a July report, adding that they were rationing on such items. A liquidity crunch in the market is also forcing traders and stockists to seek longer credit periods.
Jyothy Laboratories Ltd, the maker of Henko and Mr White detergent and Margo soap, said it has ramped up production of smaller pack sizes of its dishwashing bars and detergent powders for rural markets. “Over the last three quarters we have already moved to the smaller stock keeping units— ₹10 is selling faster than ₹100," said Ullas Kamath, managing director at the company, adding that cash-strapped consumers are moving to weekly rather than1 monthly pack sizes of detergents and soaps. “Consumers, in rural, are buying only as much as is required," he said.
Vivek Gambhir, MD at Godrej Consumer, agrees. “If shoppers were buying five soaps earlier they are managing with 4.5 soaps now," he said. The company makes the popular Godrej No.1 and Cinthol soaps.
Over the past two quarters, Dabur India Ltd, too, has rolled out smaller pack sizes of ₹10 across its range of oral care, hair oils and juices and even expanded direct distribution in villages in India to counter consumption slowdown and stimulate demand.
“Our rural business actually grew by around 13% in the last quarter on back of a lot of initiatives that we had taken to increase our rural reach and also launch a lot of accessible price points, which has done well for us and the strategy has given us dividends going forward," CEO Mohit Malhotra said in the June quarter earnings call. Dabur sells brands such as Babool toothpatse and Vatika hair oil and draws 45% of its business from the hinterland.
In an effort to push sales, companies are resorting to micro-marketing. Both Godrej and Dabur said they are focusing on regional markets with specific ad campaigns to attract shoppers. In the last two quarters, Dabur has rolled out advertisements in south India featuring local celebrities to promote its hair oil brands.
In August, Hindustan Unilever Ltd, India’s largest consumer goods maker, slashed prices of soap brands Lifebuoy and Lux by 4-6%, prompted by benign commodity costs and cooling demand.
Companies such as Wipro Consumer Care & Lighting and Godrej are pushing promotions on toilet soaps too.
“Consumers are definitely down trading. They are continuously looking for offers and discounts and we are also seeing trends that consumers are moving to some cheaper, localised brands," said Mohan Goenka, director of Emami Ltd that sells Navratna oil and Zandu balm, adding that the slowdown was happening across urban and rural markets but was more pronounced in rural ones.
“The biggest pinch is happening on Fair & Handsome cream which is a discretionary product and not something important in their life; while cooling oil brand Navratna continues to do well in rural markets," said Goenka.
Research firm Kantar, which tracks household consumption of fast-moving consumer goods, observed that shoppers are stretching their purchases for longer. “When there is a tight situation, people don’t stop consuming. They stretch what they have a little bit more," said K. Ramakrishnan, managing director, Worldpanel Division, South Asia, Kantar.
In the last few years, rural markets were growing 3-5 percentage points faster than urban markets for FMCG companies on account of increasing affordability and availability, Nielsen said in a quarterly demand forecast in July.
However, in its last monthly update on the sector, it noted that growth in rural markets was slowing down at double the rate of urban; this has brought rural growth closer to urban growth in the second quarter of the current year.