For companies in the fast moving consumer durables space, the rural market is giving a lot of cheer. Though in the past agriculture growth had a direct correlation with sales of FMCG products in the hinterland, since couple of years sales of FMCG products have grown over four times the agriculture GDP, which includes fishing and forestry.
While FMCG companies are seeing volume growth of around 7% in metros, the growth in the rural market is around 17%. The under-penetrated rural market is providing much-needed impetus to consumption off-take and leading FMCG firms are betting big on it to sustain their growth momentum. The government?s continued focus on rural development initiatives like job guarantee schemes and farm loan waivers last year have put money in the pockets of rural households and thereby helped to boost consumption.
But the question that is haunting these companies is whether the growth momentum can be sustained this year considering that the south-west monsoon is still playing truant in certain parts of the country. In a report, Citi Bank observes that a deficient rainfall overall affects consumer staples? revenue growth and one cannot draw any significant statistical inferences from the past trends. The drought of FY03 impacted FMCG sales growth adversely but growth was healthy in FY05 despite a deficient monsoon.
Analysts feel that this time around there is enough liquidity in the hands of rural consumers and demand will keep growing in categories like personal products. Upgradation to high-end products, though, may be marginally hit in case of a bad crop year. Demand for low-unit packs and shift from loose to packaged products is expected to help rural demand outpace urban demand in select pockets. Since the results for quarter ended June this year show that the rural demand is buoyant, companies are in fact introducing stock keeping units dedicated for rural pockets,
ramping up their distribution channel and launching localised marketing initiatives.
Apart from FMCG companies, an analysis of the past five years of rural consumption pattern reveals strong growth in durables, health, education, and transport services. Also, the telecom sector is a major beneficiary of rural spending and all these companies are eyeing a larger pie of the market after the harvest season.