Rural demand growth for FMCGs beats urban sales

Mumbai|Kolkata: Growth in sales of fast-moving consumer goods (FMCG) in villages outpaced that in cities for the first time in nearly three years, an early indication of demand recovery, helped by a lower base and price cuts to offset hyperlocal competition.

Rural markets grew 6.5% by volume in both December and January, and by 11.1% in February, according to executives citing NielsenIQ data. Urban markets, in comparison, grew 6.1% in December, 4.7% in January and 8.7% in February, data showed.

Rural demand has been dragging down overall growth in the past few years, along with underperforming urban markets, until November 2023. Villages last exceeded cities in FMCG sales expansion in March 2021.


“We have seen demand from the hinterland return to growth trajectory in the third quarter,” said Mohit Malhotra, chief executive of Dabur.

Malhotra said rural demand outpaced urban demand by 200 basis points in October-December. He added that Dabur’s rural distribution had grown the most among FMCG peers. “We have been investing ahead of the curve in expanding our rural footprint, (growing it) by 17,000 villages in the current fiscal, from 1-1.2 lakh,” he said.

Rural demand, which had been rising at twice the rate of urban areas till before the pandemic, declined or grew slower than in cities last year until the December quarter, when it was at 5.8%. Against that, urban areas expanded 6.8%.

“Rural markets benefited from a good harvest this time and also had lower base last year,” said Krishnarao Buddha, senior category head for marketing at Parle Products, India’s biggest foods company. “After price cuts by most companies, we see bigger national players regaining share from regional and local companies, allaying concerns, especially in rural markets.”

Most consumer goods companies raised prices by more than a quarter in the past two years to offset rising rates for raw materials, supply chain and energy. The cost inflation began with the pandemic but was exacerbated by Russia’s invasion of Ukraine. Over the past three quarters, companies have been cutting prices amid lower inflation and consumers downgrading to cheaper products.

Companies said there has been an overall recovery sequentially, with some green shoots in rural markets as well, but they need to see a longer-term trend to assess demand sustainability.

“Rural demand has seen some pick-up. But we need to see a sustained jump for a few quarters to say demand recovery or green shoots are in sight,” Sudhir Sitapati, managing director at Godrej Consumer Products, told ET in February.

Villages, which account for nearly 40% of the overall FMCG market, saw a 3-5% drop in demand during the year to December due to inflation and an erratic monsoon.

“We are observing that the growth rate gaps between urban and rural are narrowing down from 4-6% to 1%,” said Roosevelt Dsouza, head of customer success, India, NielsenIQ.

William Murphy

Related post