With pumped up demand in rural areas, FMCG companies loosen purse strings

New Delhi: Higher demand across rural India, which is being seen as the only silver lining for economic growth over the next two-three quarters, has led packaged consumer goods companies to accelerate spending on hinterlands. The companies are expected to spend more on distribution outreach, consumer promotions and products in rural India than in urban markets this year.

“We believe 2020 will be the year of rural markets. Higher MNREGA spends, reverse migration and good monsoon have led to a surge in rural consumption,” said Varun Berry, managing director, Britannia Industries. The rural market is now growing at three times the pace of urban for the biscuits and dairy giant, which now has more than 21,000 rural distributors. “We are leveraging rural buoyancy by increasing the reach and penetration of low unit price packs of both premium and value portfolios,” Berry said.

On Monday, a report by credit ratings firm CARE Ratings said the southwest monsoon, with rains at a six-year high so far, could be a catalyst for rural demand. The agriculture sector contributes nearly 15% to GDP, and the economy is banking on the farm sector to grow 3.5-4% across all quarters this year to prop up overall economic growth, it said. While company executives cautioned about the risk from the spread of Covid-19 in rural and semi-urban areas, they said much of the focus this year was on these markets.

“With urban growth and discretionary spending continuing to be constrained, we are investing heavily on rural markets this year. Macro indicators of growth are visible in rural India,” said Saugata Gupta, managing director of Marico that makes Saffola edible oils and Parachute hair-care products.

Companies are pinning hopes on a rural bounce back fuelled by higher farm income, good monsoon, government stimulus and reduced impact of lockdowns on agriculture activities, as macro indicators suggest challenges in the immediate term to a revival in the overall economy. On Tuesday, Fitch Ratings slashed its projection on India’s economy for FY21 - it now expects the economy to shrink 10.5%, compared with a 5% contraction estimated previously. “With the lockdown easing now, we plan to restart the expansion of our rural footprint and expand our product basket with newer low unit price packs across categories to feed these markets and push demand,” Dabur chief executive Mohit Malhotra said. Daburis on track to increase its rural network by nearly 20,000 villages by fiscal year end, from 44,000 in March 2019.

The India unit of beverages and snacks maker PepsiCo has, for the first time, partnered with government-backed Common Service Centres (CSC) to list its brands Lay’s, Kurkure and Uncle Chipps on CSC’s grameen eStore platform. PepsiCo senior director Aditya Sinha said, “We are working to enhance last-mile connectivity in rural communities; this partnership will boost deliveries of our products at consumers’ doorsteps.” Rival Coca-Cola had inked a similar partnership recently to list its beverages on CSC’s platform. Others such as Hindustan Unilever and ITC are also investing ahead of the curve in rural-specific packs, distribution and promotions.