Demand for daily household products and groceries continued to be challenging in villages during October-December quarter, potentially hurting volume growth of the overall consumer goods sector.
Rural volumes, which have been lagging urban growth for over a year, could either decline or remain flat due to inflation and proliferation of smaller regional players, said companies and analysts. Upcoming general elections and a further reduction in inflation are likely to lead to a gradual improvement in FY25.
“Rains have been patchy, especially in a few crucial markets, and we did not see any visible recovery in the rural areas last quarter. While inflation has been a concern, we expect rural demand to recover as companies cut product prices and sentiments improve due to election spending,” said Krishnarao Buddha, senior category head, marketing at Parle Products.
According to Boston Consulting Group, prices of household care products, foods, and beverages more than doubled in the past 10 years, but the price hike was steeper after Covid. While prices of rice, milk, soap, and detergents rose between 1.5% and 6%, categories including shampoo, hair colour and flour (atta) fell 1-3% over the past year, according to Bizom.
Prices of edible oil, a segment that saw the highest inflation in the consumer basket post Covid, have fallen 13-30% over the past year, significantly easing consumer wallets.
“High rural unemployment, along with demand for NREGS, reflects rural stress. El Nino derailed the initial green shoots seen at the start of FY24. Increased aggression of smaller players and alternative avenues of spending such as higher spends on education, medical, telecom charges, are leading to softer growth in the FMCG sector,” said Abneesh Roy, executive director at Nuvama Institutional Equities.
“In Q3FY24, winter demand and festival demand were also weaker than initial expectations for most players. We expect Q4FY24 volumes to remain muted for most players and, hence, expect a gradual recovery in FY25.”
Since a year ago, there has been a noticeable drop in rural volume due to inflation and erratic monsoons. FMCG volume growth for the September quarter was 7.2% year-on-year. Rural FMCG sales expansion was about 6% year-on-year in the June-September 2023 quarter, while the urban sales volume grew by 8%, according to Kantar.
While the demand in cities is leading the overall growth with urban incomes more resilient, companies expect rural volume to recover on the back of a decent monsoon, which generally translates into higher sales after a quarter-long lag.
