For FMCGs, rural market is platform for growth

Written by Rishi Raj | Updated: Jun 7 2012, 07:58am hrs
FMCG firm Dabur India, which posted a topline growth of 23% during the January-March quarter, remains upbeat on the country's consumer story. Its revenue base is fairly stable with a balanced one-third coming from urban, rural and overseas markets. The company's CEO Sunil Duggal in an exclusive interview with FE's Rishi Raj said the FMCG business is generally viewed as boring during boom times but stable during downturns. Edited excerpts:

If you see the fourth quarter results of fast-moving consumer goods companies, especially in the current economic scenario, they are all doing well. On the other hand, the same is not true for companies in the manufacturing sector, which generally do well during boomtime. How do you view this phenomenon

FMCG is what you can call a defensive sector. It doesn't have huge cyclical variations. The consumer story in India is still very strong even though we have governance issues and fundamentals on many other issues are very weak. But consumption, especially in the staple domain, is still a compelling story. Consumption is still high and visible in terms of future growth. Its not much affected by the external factors and is a safe place to put your money.

In terms of volatility, you will find that the consumer stocks are actually rising where anybody else is falling. Its a bit of contrarian play here. Similarly, when the economy is booming, the consumer sector loses its sheen when people say it has a steady growth but is boring and predictable. That's how the volatile sectors come into play. That is how it performs. Feast or famine kind of situations do not occur like in other sectors where stocks drop 40-50% in six months. Here, the rise and fall is a bit muted. So momentum is there during periods of decline when the economy is facing sluggishness or utter certainty.

Your revenues grew by 23% in the latest quarter. Where is the growth coming from

The consumption story is very strong and is improving day by day in the rural sector. People are buying branded staples to an extent that was never seen in the past. The availability of products in the deepest hinterland has also improved. The number of TV households, coupled with other media platforms like mobile phones, has increased exponentially and the rural household is now more aware of branded staples than earlier. And, for a change, there is also the spending capacity to buy them.

Hence, companies like us have made special efforts to reach out to the rural markets, especially with small populations of 5,000 or 10,000 people. It means the consumption story will be further accelerated there. The urban market with the growth of modern trade is looking up again, but the rural market is a platform for growth.

What is your ratio of sales from urban and rural markets

Broadly you can say one-third of our sales come from urban, one-third from rural and another one-third from overseas markets. But the urban share may ultimately decline a bit and the rural share is likely to go up. This is because we are deliberately concentrating more on the rural areas as we believe the rural areas are a source of great strength for us in terms of our infrastructure and in terms of our understanding of the rural consumer.

Our ability to craft products specifically for rural consumers is much more than multinationals as they tend to play more on their global platforms and products. Our levels of customisation can be really high and we have multiple platforms to grow as we are strong in various domains and portfolios such as health and care, food and beverage. We have the armoury, and we would be foolish not to utilise it to the fullest. The urban market, on the other hand, suffers from a high level of density with an increasingly large number of players offering various products at various price points, so its a tougher market.

Please elaborate on how are you focusing on the rural market and what are you doing to address it...

We already had a substantial presence in the rural market, but it was largely through secondary wholesale channels. Our products were available in 3.5 lakh rural outlets, which is a huge number.

About 20 years back, our products essentially consisted of hair oils and other such items for which the wholesale channel was legitimate. But as and when we entered into more value-added and niche products, getting away from our mainstay brands and into skincare, food and beverage, we realised that reliance on the wholesale channel is not going to take us to the next level. With the huge diversification of products, it became necessary for us to have a direct contact with rural retailers.

Your international sales have been growing. Going forward, what prospects do you see from overseas operations

We don't have a revenue number in mind. But we have a strategic framework that is to focus upon a certain set of priorities in terms of portfolio: focus on certain products in certain geographies. We don't have ambitions to expect half of our revenues to come from the overseas markets as we are content with the current levels.