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Last Updated : Sep 05, 2019 12:51 PM IST | Source: Moneycontrol.com

Explainer: Why is rural demand important for India's consumption story?

High base means firms posted high volume growth rates in 2018

Himadri Buch @himadribuch
 
 
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What is a rural slowdown for the FMCG industry?

Slowdown in the fast-moving consumer goods (FMCG) industry means households are squeezing their spend for buying consumer goods, particularly from rural areas. This is termed as a rural slowdown.

This is a worrying factor, given that people are going slow on making everyday purchases. The volume growth, or the number of packs sold, of companies has slowed down over the last one year.

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Rural growth is slowing down double the rate of urban in recent quarters.

Slowdown was witnessed across all food, as well as non-food, categories with salty snacks, biscuits, spices, toilet soaps and packaged tea leading the slowdown.

How much does rural India contribute compared to the urban?

Rural India contributes to 37 percent of overall FMCG spends and has historically been growing around 3 to 5 percentage points faster than its urban counterpart on account of increasing affordability, availability, and demand.

Is urban consumption not impacted at all?

Urban consumption is also impacted due to weak liquidity and moderation in demand, but it is better than the rural one. Better brand recall, premiumisation seems to have helped companies such as HUL, Britannia and Nestle in urban India.

What is impacting rural slowdown?

According to FMCG research firm Nielsen, macroeconomic factors, government policies, weak monsoons and a high base effect are the factors impacting rural slowdown.

A high base means firms posted high volume growth rates in 2018. In general, in 2018, there was a little contribution from price hikes. Now, with volume growth turning normal, the effect of price hikes or the lack of it will become visible.

How does the rural slowdown impact the consumption sector?

Consumption is the most important part of the Indian economy, given that it forms around three-fifth of the Indian economy. And, any slowdown here is bound to affect the overall economy.

Which FMCG companies have witnessed a rural slowdown?

Almost all consumer-facing companies are facing rural slowdown. To name a few, Hindustan Unilever, ITC, Godrej Consumer Products, Dabur, Marico, Britannia Industries, Prataap Snacks, and Emami.

How is the rural demand expected to pan out in the coming quarters?

Nielsen estimated that, for the year-end of 2019, all India FMCG growth will be in the 9-10 percent range.

Within this, food categories are expected to grow at a higher rate at 10-11 percent whereas personal care and home care are expected to grow in the 7-8 percent respectively.

The outlook for the third quarter (July-Aug-Sep) stands at 7-8 percent and the second half of 2019 (July-Sep) in the range of ~8 percent.

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First Published on Sep 5, 2019 12:25 pm
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