“With kharif output to be sub-optimal, I believe revival cannot be taken for granted,” said Madan Sabnavis, chief economist, Bank of Baroda.
This comes after four quarters of subdued growth in rural markets, which had declined 2-5% as consumers had been either downtrading (buying lower-priced products) or not purchasing as many goods, impacted by soaring food and fuel prices.
Easing commodity prices
Roosevelt D’Souza, lead, customer success, at NielsenIQ, said the “renewed optimism” augurs well for the current festive quarter both in urban and rural markets. “We see recovery in habit-forming categories such as biscuits, tea, noodles and coffee after five quarters,” D’Souza said. He said the increase in consumer spending on discretionary categories such as personal care and home care products suggests that rural consumers are beginning to spend beyond essential categories.
“We are increasingly optimistic of the future as we are seeing green shoots of recovery in rural sentiments; the gap between rural and urban growth has declined,” said Mohit Malhotra, chief executive of Dabur, for which 48% annual sales come from the hinterland. The maker of Real juice and Vatika shampoo said it is investing on distribution infrastructure and brands to deliver volume-led profitable growth, and take up its rural coverage to 110,000 villages from 100,000 last year.
Over the past six quarters, the FMCG sector had seen high price-led growth, with volumes under pressure amid soaring inflation. However, easing commodity prices have led to a reversal now.
India’s villages, crucial for the health of the overall fast-moving consumer goods (FMCG) sector, contribute over a third of its sales. Sequentially, rural markets grew 6.4% by volume, up from 4% in the preceding June quarter. Noting improved consumption trends across the country, NielsenIQ said urban India continued to grow by volume and value as rural markets show signs of recovery. Economists said persistence of the trend would be key.
“Most of the lead indicators right now are pointing towards rural demand picking up. But we have to look beyond the festive demand,” said Upasna Bhardwaj, chief economist, Kotak Mahindra Bank. She noted that urban consumption had held up and that rural demand is picking up. While India’s unemployment rate had dropped to 7.1% in September, it increased again in October to over 10%, according to data from the Centre For Monitoring Indian Economy.
Sunil D’ Souza, managing director at Tata Consumer, which makes Tata Tea and Soulfull breakfast cereals said: “We expect rural demand to further stabilise in the festive quarter, aided by deeper distribution and sops like MNREGA.”
India’s retail inflation had eased to a three-month low in September as vegetable prices declined, while food inflation increased 6.56% in September from 9.94% in August.
Executives also attributed the growth to channels such as modern trade and ecommerce, which enabled wider accessibility of goods. NielsenIQ said modern trade channels (or organised large-format super stores) saw robust double-digit consumption in the quarter, growing 19.5%. Traditional trade, or neighbourhood stores, which contribute the bulk of packaged consumer goods sales, grew 7.5% in the September quarter.
Both packaged foods and non-foods grew 8.7% year-on-year. Growth within foods was driven by impulse categories such as salty snacks, chocolates, confectionery biscuits and tea.
Manish Aggarwal, director at Bikanervala Foods, said: “We are observing a significant shift in consumer confidence and purchasing power.” He said the company, which makes packaged snacks and sweets, has set up a new plant in Greater Noida to efficiently meet surging demand, reduce transportation costs, and ensure swift delivery to tier 2 and 3 cities, as well as rural markets.
NielsenIQ said smaller, regional companies are continuing to grow faster in non-food categories compared with national players, a trend that has been cited by consumer goods companies as well.