FMCG companies bet on festive season booster to speed up rural recovery

Analysts noted that there is optimism, particularly with the upcoming festive season and the harvest, expected to contribute to improved rural demand.

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26 Aug, 2025 12:21

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Consumer goods companies observed a slow recovery in rural demand during the September quarter. While urban markets performed better, rural areas are expected to improve gradually, balancing the overall picture.

Demand in the FMCG market remained subdued in the July-to-September quarter. Volumes in rural markets declined 1 percent on a two-year CAGR basis, while urban volumes increased by 3 percent on a two-year basis.

The demand was weaker than expected, with “limited upward movement, contrary to our and other companies' expectations”, said Ajay Thakur, analyst at Anand Rathi Institutional Equities. “While there was some improvement in Quarter 1, Quarter 2 did not show the anticipated growth, partly due to uneven rainfall. The hope was for better numbers, but challenges persist in the rural sector,” he added.

In a post-earnings call, Varun Berry, Executive Vice-Chairman and Managing Director of Britannia Industries Ltd, noted that the FMCG sector is experiencing a slowdown, which is particularly evident in rural areas. Despite the company’s ongoing efforts to expand into these regions and reach more villages, there has been a noticeable deceleration in the rural economy, he added.

Increasing competition from smaller players

Rohit Jawa, CEO of Hindustan Unilever, noted a surge in the number of local players in the market. In the tea segment, the market value of small players has expanded to 1.4 times that of large players, while in detergents, it has surged to six times that of larger counterparts. Jawa highlighted that during an inflationary cycle with rising raw material prices, regional players tend to withdraw from the market. Conversely, in a deflationary environment, they make a comeback.

“The impact of this heightened competition from regional and local players is evident, affecting larger counterparts. However, it's crucial to note that these smaller entities, largely regional or local, are not significantly eroding market shares.” said Thakur. The personal care segment, which includes toothpaste, hair oils, and other personal care items, has witnessed a modest improvement, outperforming the overall market, he added.

Outlook

Analysts noted that there is optimism, particularly with the upcoming festive season and the harvest, which is expected to contribute to improved rural demand. The focus is on the crucial Q3, which is anticipated to indicate if an upswing is on the anvil. Several companies have a positive outlook for H2 over H1.

For instance, Titan is aiming for mid- to high-teen growth in the jewellery business, with a focus on sustainable and consistent margins, CFO Ashok Sonthalia told CNBC-TV18 on November 6. “…the second half of October has started pretty well for us—our jewellery business and some of the other businesses. So, we are pretty hopeful that we will have a good Quarter 3. Even on the solid base of last year’s Quarter 3, we should be able to deliver some healthy group numbers,” he added.

With retail inflation hitting a four-month low, there’s optimism about aiding the recovery. “The overall decline in inflation is expected to boost consumption. The previous challenges in the rural sector, largely attributed to inflation, may see improvement.” said Preeyam Toila, senior research analyst at Axis Securities. However, the speed and extent of this rural recovery remain to be seen, he added.

HUL highlighted the importance of monitoring uneven monsoons and global commodity volatility. Despite a decline in raw material prices, there may be fluctuation, influenced by the ongoing Israel-Hamas conflict, it said.

The company also pointed at a resilient consumer trend in urban metros. Numerous premium categories present significant opportunities, it noted.

“The focus in Q3 is projected to be more on urban-led growth, with rural areas showing a gradual improvement, better than Q1 and Q2,” said Toila. The outlook for Q3 suggests urban areas will likely outpace rural areas in terms of growth, he added.