By Kritika Arora & Shubhra Tandon
A slowdown in rural demand as a result of rising inflation — which pushed the real wage growth into the negative territory — continues to impact FMCG companies like Hindustan Unilever (HUL), Dabur India, Adani Wilmar, Tata Consumer Products and Marico, going by the July-September earnings of these firms and management commentary.
Rural markets account for nearly 40% of the FMCG industry’s volumes, which is now pinning hopes on some recovery in the second half of the fiscal on the back of a good harvest, monsoon and higher minimum support prices. Quoting data from research firm Nielsen IQ, Sanjiv Mehta, CEO and managing director, HUL, said at the analyst conference after the company’s July-September earnings that sales by volume on a moving annual total (MAT) basis declined 9% in rural markets and by 3% in urban markets.
“Rural inflation was higher than urban. Volume continues to decline in both rural and urban, with more pronounced drop in rural. It is natural for consumers, especially at the lower income level to feel the pinch on their wallets due to inflation, and they do adjust volumes and prioritise essentials versus discretionary to manage their household budgets,” Mehta said, adding: “FMCG market context has not changed significantly this (September) quarter and continues to remain challenging.”
Dabur India, where sales from rural markets account for nearly 50% of total sales, reported muted growth from the hinterland in the September quarter, after five quarters of no major impact. “Rural for Dabur was trending ahead of urban, but this is the first quarter it is lagging behind. We have seen rural growing only by 1% in the September quarter and our urban business growing around 6%. We have seen credit pressures, liquidity pressures coming in the rural business, and more so in the rural heartland of Dabur which is more UP and Bihar, where the problem got exacerbated due to monsoon being patchy in these states,” said Mohit Malhotra, CEO, Dabur India, during a post earnings analyst call.
Subdued semi-urban and rural demand impacted edible oil business volumes and profitability at Adani Wilmar as well in the July-September quarter. “In the edible oils segment, the quarter that went by saw multiple challenges in consumer demand with several macro headwinds in the form of high inflation, rising interest rates, delayed monsoon and tepid rural demand,” the company said.
Similarly, for Tata Consumer Products, subdued consumer sentiment could be seen in the beverages volumes for the September quarter. Sunil D’Souza, CEO at Tata Consumer, said the India tea business is witnessing softness primarily in rural and semi-urban areas, while the premium category is doing well. “Stress is at the bottom and at very specific geography. So its not broadbased,” he told analysts.
Similarly, Marico said the divergence in rural and urban growth grew starker with the former reeling under persistent inflationary and liquidity pressures. It was reflective in the company’s de-growth in volumes for Parachute oil due to muted consumption trends and sluggishness in loose to branded conversions while premium hair oils fared better.
However, for Nestle India, the demand sentiment was robust across smaller towns and rural markets in the September quarter on the back of deeper expansion in lower tier towns and villages. Suresh Narayanan, chairman and MD, Nestle India, had clarified in July that the company has a lower base in rural markets and its growth in those areas should be viewed in that context.