As Covid-19 enters hinterland, FMCG heads divided on rural revival timeline

Some CEOs circumspect, others confident recovery will last

Over the past two months, a chorus of voices on the sales uptick in rural areas for fast-moving consumer goods (FMCG) has increased, led by reverse migration of labour, progress of monsoon, and higher government spending in the hinterlands.

However, there is now a view emerging that rural revival may not be sustainable in the quarters ahead, owing to rising Covid-19 cases in smaller towns, and the net monthly gain from government intervention in the countryside being minuscule. Rural contributes a third of the FMCG industry’s sales.

In a July 20 report by brokerage Credit Suisse, analysts Neelkanth Mishra, Arnab Mitra, Abhay Khaitan, and Pratik Rangnekar say the net monthly gain from government spending in rural areas is only 0.9 per cent of gross domestic product (GDP). India’s rural economy is 47 per cent of the country’s GDP.

The analysts also say that weak domestic remittances (due to reverse migration) and weak perishables output (in the past few months) do not leave rural households to spend much on FMCG and other products. This comes even as market research agency Nielsen has said that June FMCG sales had rebounded to pre-Covid levels on the back of beauty, food, hygiene, and rural areas. Though Nielsen has halved its FMCG growth forecast for the financial year that ends on March 31, 2021, to 5 per cent, the market researcher remains largely positive on the rural ticking higher than urban in terms of sales for companies.

 

Yet, some FMCG chief executives remain circumspect about future demand in rural areas.
 

Sanjiv Mehta, chairman and managing director (MD), Hindustan Unilever, says, “We are pleased with what the government is doing to improve demand, especially in rural areas. However, uncertainty remains. 

If supply-side disruptions ease, the September quarter should give us a good picture of the underlying demand,” he had said last week, when quizzed about the FMCG market’s growth prospects.
 

Suresh Narayanan, chairman and MD, Nestlé India, says the wait will get longer. 

“We have to wait and watch for two to three quarters... with numerous operational hurdles, markets and trade being open erratically, it is difficult to assess the nature of demand at this stage,” adds Narayanan.

Sunil Kataria, chief executive officer (CEO), India and SAARC, Godrej Consumer, says there are multiple variables at play and that he’d wait for the situation to ease. “There have been a series of localised lockdowns in July. How this pans out will be a key monitorable,” says Kataria, adding, “Besides, the progress of the monsoon and to what extent the overall GDP will be impacted due to the supply- and demand-side disruptions will be important to note.”

Yet, the cautious approach taken by some CEOs has not deterred some others from betting on a sustained rural revival this financial year. “I remain optimistic about rural growth,” says Varun Berry, MD, Britannia Industries.

“While the localised lockdowns are a concern, they will have a limited impact on business. As far as the increase in the Covid-19 infection rate goes, especially in smaller towns, my view is that the urban areas remain more vulnerable,” says Berry.

Mohit Malhotra, CEO, Dabur India, says rural revival will lead the way for the next two quarters.