Is rural demand all about small pack story?

Broking firm Credit Suisse expects low end consumption in India to stay strong and sees it as one of the key theme for the next one year. In an interview to CNBC-TV18, Jayant Singh, Executive VP-Marketing, GSK Consumer and Umesh Revankar, MD, Shriram Transport spoke about the current trends in rural consumption.

FMCG player GSK Consumer is seeing good traction in rural demand which is racing ahead of urban demand. Executive VP-Marketing Jayant Singh said that small pack size and low unit packs are the key for FMCG product, but that is not the only mantra to become successful in the rural market. Such product presentation works from affordability perspective, but to tab the wide Indian rural market, companies should opt for deeper media penetration, he told CNBC-TV18 in an interview. Meanwhile, he expects better harvest to ease pressures on input costs.  GSK Consumer recorded volume growth of 12-13 percent in Q2FY14. On the other hand, commercial vehicle financer Shriram Transport said that rural market demand has remained resilient. Company MD Umesh Revankar elaborated that in the current scenario where economic activities are low and availability of vehicles is high, one would not see boost in new vehicle sales over the previous year. However, second-hand vehicles continue to be in demand, he added. Also Read: Devising strategy to get most out of rural demand, says Marico Below is the edited transcript of the interview with CNBC-TV18 Q: You have seen a good volume growth of 12 percent odd and Neelkanth Mishra, Head of India Equity Strategy, Credit Suisse believes that the low end consumption story is the story for the next one year. What are you noticing in terms of rural demand and what could the next one-two years look like? Singh: Rural demand stays strong although as per Nielsen survey it is showing a bit of pressure, but it continues to be far ahead of the urban demand. In terms of rural demand across categories, one thing which most fast moving consumer goods (FMCG) organizations know is that small packs tend to perform better in these areas from an affordability point of view, but that is not the only story. To tackle rural space and to make yourself available to the rural consumers; you need to do much more than just a small pack story. Q: What are the other things that companies can do? How have you expanded and what are the plans going forward in reaching out to newer areas in terms of distribution? Singh: There are number of things. One, if you look at the rural consumption; there is a strong role for community in it. The rural consumers still live in a very strongly tightly knitted community. So, how do brands involve community in their demand generation? However, Horlicks has done that with some of its rural programmes. The second important things is the outlay and the small stock keeping units (SKUs) premise in terms of low unit packs becomes important here.  Thirdly, the dimension of media. In many of our rural markets the role of media has to extend much beyond television. Mobiles are becoming increasingly important to reach the rural consumers. So, the ability to experiment with different media choices apart from television alone is another factor which organizations must look at in terms of driving rural demand. Q: Have you seen an improvement in demand because with the ban on mining and slowdown in construction, do you think rural demand has taken a beating? Revankar: I see increased rural demand in the last two months especially harvest started coming into the market, people are having cash and we are able to see lot of food demand for credit in rural. However, unlike earlier, rural market is more integrated with Indian economy, they are able to sell their products, they are able to buy the fast moving consumer goods (FMCG) products and for that they need transportation. Increased numbers of rural people are buying vehicles especially for transportation and even the travel from village to city has increased very much. The teledensity, road network and increased labour wages are making the rural space very vibrant and demand for credit is increasing. Q: The split of transportation, do you see any pick up on the light commercial vehicles (LCV) side because at least for manufacturers - there is no pick up in demand so October was good, November has been horrible. So you see any recovery or strength there? Revankar: Last year, the sale of new LCV was quite high especially in the smaller vehicles segment; it was up by 5 percent of the previous year. Five years back, the sale of small commercial vehicles, which are 5 tonne and below was around 1 lakh unit in a year. Now it has become around 4 lakh unit in a year. If they are able to maintain at 4 lakh units, it will be a great achievement because so much has increased in the last three-four years. One will not be able to see year on year increase immediately especially in this year, when economic activities are low and vehicle availability is high. Even heavier vehicles are competing with smaller vehicle sometimes. I do not see pick in vehicle sales over the previous year, but demand for vehicles especially, secondhand vehicles is seen because in the rural areas, people invest low margin. So, rural demand will not get into new vehicle sales, it will be more on used vehicle. We are in the niche segment of financing, are able to see certain traction in certain geographies. Q: You have seen about 12-13 percent volume growth in the quarter gone by. What could the sustainable volume growth be for the second half of the year for GSK? Singh: It is hard to speculate in the current environment, but with good monsoon we hope from a point of view of good harvest, the pressure on input prices should ease off a little bit. There should be more money in the hands of our consumers and therefore the growth in terms of small pack and small stock keeping units (SKUs) should continue. However, at the same time, food inflation continues to be a worry which does impact spending in all the discretionary categories. So, these will be the two factors which will be balancing each other.