Winning back lost rural ground

These companies know the value of vast rural markets and are betting on consumers in rural India switching from unbranded, loose products to branded ones over the next few years.
Image used for representational purpose only. (Photo|P Jawahar, EPS)
Image used for representational purpose only. (Photo|P Jawahar, EPS)

HYDERABAD:  More than two years after the lockdown struck, the fast-moving consumer goods category is on the road to recovery, even as the pressure of inflation continues.  According to the report, the rural market contributes around 35 per cent of the total FMCG sales. Hence, winning back the lost rural ground is of vital importance, feels Manish Aggarwal, Director, Bikano, Bikanervala Foods Pvt Ltd.

The demand for FMCG goods from smaller towns and cities fared exceedingly well during the pandemic, but it came under some strain during the second deadly wave. In sequence to that, the FMCG industry faced a consumption slowdown in urban markets and degrowth in rural areas in 2021 as stated in the Nielson report. This came on the back of higher inflation levels forcing companies to go for successive price increases. As markets have opened up completely post-pandemic, it is time for FMCG firms to win back the lost rural ground.

Sharing about how demand from rural areas impacts FMCG players in India, Manish Aggarwal says, “Small markets are important testing grounds for companies for new products. They provide data on how much price elasticity is there for their goods. It has been a popular practice for FMCG majors to test their products by launching small packs. This not only helps them with more product penetration but also shifts rural customers from unbranded items to branded ones.”

Elaborating upon FMCG majors chasing growth in rural India, he shares, “It has been a common trend that FMCG has been following over the years, given the volume of sales of these goods in smaller towns and cities. As the pandemic-induced lockdowns disrupted the supply chain of these goods, FMCG firms are now leaving no stone unturned in recovering their sales in rural markets. Over two years into the pandemic, top FMCG firms are back to chasing growth in the country’s villages while ramping up their reach in those markets.

These companies know the value of vast rural markets and are betting on consumers in rural India switching from unbranded, loose products to branded ones over the next few years. FMCG firms have witnessed very less interrupted growth in rural markets and expect the country’s smaller cities and villages to continue driving growth. Another reason why companies are chasing growth in rural India is the addition of 8 lakh new FMCG stores in the country in the last two years, and more than half of that has come into the rural areas. This pace of opening new stores is more than double of the pre-COVID years.”

The current scenario
According to a report released by data analytics firm NielsenIQ, the country’s FMCG industry continued to witness a consumption slowdown in the September quarter. Rural markets registered a higher decline in volumes compared to the three months that ended in June. In comparison to the preceding three months, the FMCG industry witnessed an overall volume decline of 0.9 per cent in the September quarter. Apart from that, in comparison to a decline of 2.4 per cent in the June quarter, rural markets recorded a volume decline of 3.6 per cent in the September quarter.

The report also states that consumers continue to prefer purchasing smaller packets amid companies hiking prices in response to broader inflationary pressures. This can be a good chance for FMCG companies to tap the rural market by introducing smaller packs of all the products and bringing the demand-supply gap.

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