Rural races ahead of urban on sales of branded goods
PremiumRural markets contribute over 38% to sales for makers of fast-moving consumer goods. Companies have been widening direct reach in India’s villages over the last few years
NEW DELHI : Rural India spent heavily on salty snacks, talcum powders, sanitizers, toilet cleaners and insecticides among other fast-moving consumer goods in the 12 months ended 31 May, market researcher Kantar said, racing ahead of larger urban markets.
Rural markets outshone urban in both value and volume terms, Kantar’s 2021 Consumer Connections report said, with value growth of 11.6% against 10.2% in urban, and volume growth of 4.4% against 3.3% in urban.
Rural households also reported higher growth in the average number of FMCG categories bought in the same period. In fact, during the second pandemic wave, when cases spread to places with weak healthcare infrastructure, FMCG volumes held up much stronger in rural areas. This was helped by fewer mobility restrictions in villages. In contrast, volumes plunged in the urban markets as the spike in covid infections triggered strict closures.
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Kantar estimates the penetration of sanitizers at 44 million homes in villages, more than the 42.6 million urban homes between June 2020 and May 2021.
Across rural and urban, FMCG volumes—including wheat and flour—grew 4% in the year ended 31 May, while value grew 11%.
As the pandemic broke out last year, states offered free wheat and flour to consumers. As a result, households went easy on buying wheat flour from the market. If the atta category is excluded, the volume growth would be higher.
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Overall FMCG demand was driven by consumer switch from unbranded to branded foods and consumer movement from cheaper products to more premium brands, lifting demand for packaged foods. Introduction of new, high-value categories like hand sanitizers or surface cleaners into the consumer purchase basket helped as well.
“The FMCG basket only expanded in the last year, with consumers trying new categories and unaffected by the perceived stress of income," said K. Ramakrishnan, managing director, South Asia at the Worldpanel division that prepared the report.
Households in villages also adopted more personal care and hygiene categories such as sanitizers and hand washes for the first time, Ramakrishnan said. Sanitizers overtook hand wash liquid to become a larger category in rural India, helped by firms pushing affordable price packs. Within food and beverages, in-home snacking categories grew faster in rural in the 12 months. Surprisingly, grooming categories too reported year-on-year growth. In rural, sales volumes of talcum powder and hair colours rose 26% and 12% respectively. In urban markets, both categories reported a year-on-year decline as lockdowns drove consumers to continue working from home.
In the last one year—rural growth has been better than normal, said Ullas Kamath, joint managing director, Jyothy Labs, which makes Pril dishwashing liquid, Ujala whitener and Margo soaps. Rural markets are treading 1.3 times ahead of urban with higher demand for insecticides and soaps in villages, he said. However, smaller pack sizes continue to do well in rural markets, impacting profitability.
“Companies that have production facility under their control, and have the logistics, distributors, stockists and supply chain completely under their control, they have done far better," Kamath said.
Fundamentals in rural markets remain firm, said Ramakrishnan.
“The monsoon is expected to be good; last year, monsoon was good and support price and harvest is good; there’s nothing that has gone terribly wrong. And even the non-farm income —those factors are pretty strong in rural. Yes; the second wave did hit rural by surprise, but they recovered also quite fast," Ramakrishnan said.
Rural markets fetched over 38% of FMCG sales. Recently, India’s largest consumer goods company Hindustan Unilever said rural markets remained “resilient". “If you were to look at it through the lens of the FMCG industry, May month was severely impacted. However, as curbs lifted, June month rebounded to March’21 levels," Sanjiv Mehta, chairman and managing director, HUL, said in a post-earnings call on 22 July.
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