The middle and rural India, which quickly recovered and bounced back to pre-COVID-19 level, is driving the "strategic priorities" of the FMCG companies, according to market research firm Nielsen.
Nielsen defines middle India as urban but towns with population of 1-10 lakh, excluding rural centres and metros.
The FMCG companies are now increasing focus on the villages which retail close to 40 per cent of industry sales and have the least impact of the pandemic, said Nielsen in the fifth edition of its FMCG forecast COVID-19 -- Evolving consumer trends".
"This increased focus on Middle India and Rural was also reiterated as the majority of CXOs (chief experience officers) claim that they are increasing focus on Middle India and Rural markets over the next six months," said the Nielsen report.
FMCG consumption was the hardest hit in bigger cities in India during the lockdown period, it said adding that the sector is seeing a cautious recovery in the country.
Moreover, the report also said that the contribution of smaller towns is also rising in the e-commerce channels, which has made rapid gains after showing resilience against the tougher times during the lockdown.
"From our analytics solutions of e-commerce channels, we see the same phenomenon reflecting in different sectors beyond FMCG also, where there is an increasing contribution of lower town classes to overall e-commerce in the period of May to August vis-a-vis pre-COVID levels," it said.
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Besides, the research firm reported that consumers are either downgrading to more affordable offerings or shifting towards value-for-money large packs as the pandemic and ensuing lockdowns leave many households cash strapped.
"There is a visible sign of consumers either downgrading to more affordable (mass and popular) offerings or shifting towards value for money large packs," the report said.
Moreover, share of private labels of the retailers is going up in the modern trade, it added.
"Manufacturers and retailers on the other hand are guided by the consumer perception and behaviour and are strategising to adapt to the cautious revival of the industry," the report.
Now, the regional players are performing better than the national players during the COVID period, which actually hints at affordability reset in the play, it added.
"When we consider India within this framework, we see clear evidence of the basket reset, weighted by the affordability reset. The tension in the consumer basket is that they are trying to reconcile the old needs with the new ones; the health/hygiene and product value proposition competing with each other," said Diptanshu Ray, Lead, Retail Intelligence, South Asia, Nielsen Global Connect.
In addition to that there is also prioritisation of items by manufacturers and retailers, leading to an optimised store shelf, the market research firm said.
Retailers are rationalising assortment by operating with fewer items to focus investment and shelf space on fast moving items, it said.
“This strategy of assortment rationalisation is echoed by the industry leaders also - 36 per cent CXOs Nielsen talked to stated their plan to rationalise consumer offerings in the next six months," the report said.
According to Nielsen the coming festive season sales may get a boost from pent up demand from lock down.
"The shoppers today are anticipating and holding back their purchases for sale periods. While some categories such as home appliances are seeing a pent up demand in lieu of safety and personal home convenience. We believe the festive season will see a big release of this pent up demand with e-commerce players gearing up for the upcoming sale season," Kunal Gupta, Lead, Consumer Intelligence, South Asia, Nielsen Global Connect.
E-commerce contributes around 3 per cent of the total FMCG sales.
Earlier in July, Nielsen had revised its outlook for branded FMCG industry in India, expecting the year to be in the flat growth range (-1 per cent to 1 per cent).Follow our full COVID-19 coverage here