Two years into the post-pandemic world, consumer and packaged goods companies are still finding it difficult to penetrate the rural markets that continue to wilt under rising prices and stagnant incomes.
This has pushed back the much-awaited revival in the growth metrics of companies like Hindustan Unilever, Marico, ITC and Emami, whose rural sales never really managed to shake off the Covid-induced stupor.
With their budgets under strain from having to fork out more for essentials such as food, rural consumers have been forced to cut down on discretionary purchases and ‘down trade’ to cheaper brands even for essentials such as toothpaste and hair oil.
While FMCG companies are expected a turnaround in the rural market in the July-September quarter the anticipated revival failed to materialize.
“Rural demand remained subdued, with volumes continuing to decline marginally on a two-year basis,” said Rohit Jawa CEO and MD of Hindustan Unilever Ltd, commenting on the company’s September quarter performance.
“Consumers are yet to experience deflation which largely explains why the volume recovery is gradual,” he added.
Similar sentiments were echoed in Emami’s post-earnings call, the latest of the packaged consumer goods companies to detail its quarterly results.
“Rural [demand] is still muted. I would not say that it has bounced back,” said Mohan Goenka Director of Emami in its call today.
The company, home to brands such as BoroPlus, Dermicool, Navaratna and Zandu, expressed concern over the slow-moving rural market. “Unfortunately, as I said, the markets are slightly weak. Once the consumer demand at rural end, any of these channels bounce back, we would significantly benefit,” said the FMCG company.
Another major FMCG player, Marico had also shared similar sentiments on the delayed rural recovery and had the weak monsoon and high food prices responsible.
“There was a noticeable drop in overall sentiment, especially in rural during August and early
September, which seemed to have been triggered by significantly deficient rainfall followed by a spike in food prices across,” said Saugata Gupta CEO and MD of Marico Ltd.
Lower Costs
Despite the subdued rural consumption demand, Emami showed profit growth in the second quarter of FY 2024. The company reported an increase in its consolidated revenue at Rs 865 crores.
The FMCG player remained optimistic about a pick-up in the coming quarters with the festival season-induced sales and the company’s most profitable winter season setting in.
“Anticipated improvements in agriculture yields, the onset of the festive season, rising rural wages and increased government spending on infrastructure projects are positive indicators that bolster our confidence in the recovery of rural markets,” said the Emami management.
“What's even more promising is our outlook for the future. Despite the headwinds, we are optimistic about the coming quarters,” it added.
HUL too remained optimistic about a recovery in rural demand with an uptick in wages.
“We also have seen that real rural wages have now started to get into some positive territory which again in my mind is good news,” said HUL.