FMCGs witness slump in rural growth story

Written by Lalitha Srinivasan | Mumbai | Updated: Jan 7 2014, 06:46am hrs
FMCGAlthough rural incomes remain robust after a bumper kharif harvest, the hinterland is seeing a slowdown in the consumption of FMCG goods.
Although rural incomes remain robust after a bumper kharif harvest, the hinterland is seeing a slowdown in the consumption of FMCG goods. Parle Products, makers of Hide & Seek biscuits, for instance, confirmed rural sales have fallen 5% across categories in the last few months while Dabur India reported that their business has been somewhat lacklustre with a marginal drop in some segments. However, ITC Foods and Britannia Industries have no complaints as yet.

Parle Products GM (marketing) Pravin Kulkarni observed that the growth in rural sales has come off to just 4% in the nine months to 2013.

Dabur India CEO Sunil Duggal confirmed business in rural markets has been dull over the last two quarters. The drop in our rural sales, however, is minimal and we expect a revival this quarter, Duggal told FE.

Dabur, which generates 50% of its domestic revenue from rural markets, has more than doubled the touch points in these markets from around 15,000 two years ago to 33,000 now.

Research firm IMRB International estimates consumption growth in rural markets slowed to 4% year-on-year between January and September 2013 from 7% in the year-ago period.

IMRB-Kantar Worldpanel group business director Manoj Menon said several categories are under stress with consumers down-trading to smaller stock-keeping units or even postponing expensive purchases.

The incidence of consumers moving from branded atta to whole wheat is an example of this, Menon observed adding that the trend in personal care is particularly worrying since this category has always been able to weather a slowdown. IMRB is part of the WPP Group, which tracks purchases across 30 core consumer categories including soaps, shampoos, detergents and packaged staples.

Data from Nielsen Company, too, pointed to a similar trend; the numbers show a decline of 6% year-on-year between January and September.

Analysts pointed out that several food categories are showing a value growth in the range of 2-5%. This, they say, can be considered to be very poor given that the population is growing.

Firms such as Godrej Consumer Products (GCPL) are innovating to beat the slowdown. The company launched Good Knight smart card, a new format in mosquito repellents priced at R 1.

We are holding on to our rural sales and we hope the new initiatives will help revive demand soon, GCPL COO (sales and marketing) Sunil Kataria said.

A note on Hindustan Unilever by IDFC Securities says there are signs of further sluggishness for the FMCG sector. Growth rates have been lower across markets and categories with slack rural growth as well. Hindustan Unilever (HUL), too, has not remained untouched by the same. In fact, a delayed winter has hit HULs skin care products sales, for which Q3 is the most significant quarter, the report noted.

ITC Foods and Britannia Industries are holding on to their rural sales in the last two quarters. We continue to see rural growth like we have in the earlier quarters, said a spokesperson for Britannia Industries.

ITC Foods CEO Chitaranjan Dar said the company had not seen a drop in rural sales in the first half of fiscal 2014.

According to a B2C distribution survey by Ambit Capital, although rural growth rates are stronger versus urban, they are moderating. Whilst our distributor checks during Q2 of FY14 suggested only a marginal weakness in y-o-y rural growth rates, our channel checks during Q3 of FY14 suggested rural revenue growth rates have moderated by 3-5 % points across several product categories, the survey found.

Meanwhile, IMRBs Menon said urban growth, across categories, declined from 8% to 2% and added that the slowdown in the industry seems to be continuing, particularly in personal care and food and beverages.