BackConsumption in bharat is key, but will it sustain?
It’s not just FMCG, the auto sector is also reporting improved sales in rural India
PremiumIt’s the million-dollar question that most consumer goods companies are asking themselves. Market research firm Nielsen said that demand for packaged goods has returned to near pre-covid levels in June after lockdown restrictions were eased. Millions of migrants returned to their villages, giving a fillip to rural consumption. Nielsen pointed out that demand recovery in rural markets outpaced urban areas as migrant workers moved back and a good monsoon propelled sales of packaged goods.
Last week, speaking at the Virtual FMCG Supply Chain Expo 2020 organized by the Federation of Indian Chambers of Commerce and Industry (Ficci), Sudhanshu Panday, secretary, department of food and public distribution, said that India’s firm fight against the coronavirus pandemic is now visible in the “economic revival that we see. Already in FMCG, the revenues have come back to 85% of pre-covid times".
He tossed up several numbers reflecting that rural markets were not starved of cash. This year, during the rabi crop season, procurement increased by 12%, which is almost 59 million metric tonnes. This has put more than ₹1 trillion in the farmers’ hands. In addition to this, kharif procurement has also broken all records and another ₹1.15 trillion has reached the farmers. The sugarcane industry has given them another ₹85,000 crore. In all, these crops have pumped in more than ₹3 trillion in rural India.
He also mentioned the support that the Mahatma Gandhi National Rural Employment Guarantee Scheme has provided the migrants. To be sure, in May, the Centre moved to allocate additional funds to the scheme to cushion the rural economy.
FMCG companies admit to better sales in rural markets. In an earnings call for the June quarter, Hindustan Unilever Ltd (HUL) said rural markets grew ahead of urban, reversing the pre-covid trend when the growth rate in the hinterland, which accounts for 40% of the company’s sales, was slower.
“If you recall, we always used to say that the rural growth in the quarters preceding the crisis had come down below the urban growth rate. I think it’s too early to pick up a discerning trend, but if I were to look at the last three months that have gone by, there is clearly a bounceback as far as the rural growth is concerned. Not in absolute terms, but certainly vis-vis urban growth," said Sanjiv Mehta, chairman and MD at HUL.
In an interview, Ullas Kamath, joint managing director, Jyothy Labs Ltd, said rural India is doing well owing to a good monsoon, better minimum support price given by the government to all farmers and the big support package for rural markets.
“Moreover, the government has announced it will give free ration till November, covering 800 million people. So, the money that was used to buy ration is now coming towards non-food requirements, and FMCG is the first one to get it," he said.
In its consumer goods sector update in July, equity research firm Edelweiss Securities said while lockdowns in big cities affected demand, government initiatives for rural India, among other things, aided increased sales for FMCG. Quoting Nielsen, it said over the next nine months, the overall FMCG segment is estimated to grow at ~5%, but rural markets will expand at two times that of urban, reversing the trend of the past two years.
It is not just the FMCG category that has seen an uptick. The automobile category is also reporting improved sales. According to a Mint report, two-wheeler manufacturer Hero MotoCorp said rural sales is not just pent-up demand but a robust recovery. The company expects the current demand for its motorcycles to sustain till the upcoming Navratri and Diwali festivals.
Analysts tracking the sector admit that the government has spent money to boost the rural economy; no doubt. With money in their hands, people are spending it on building houses and buying two-wheelers. “Increased sales of roofing material have been reported," said an analyst, declining to be named. “Besides rural India has been less impacted as people in villages do not really follow any lockdown rules. So, supply chains of consumer companies have functioned," he added.
But once migrant workers return to cities, as they are beginning to do now, it remains to be seen if this demand will sustain or taper off.
Shuchi Bansal is Mint’s media, marketing and advertising editor. Ordinary Post will look at pressing issues related to all three. Or just fun stuff.
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