These days, chief executives of most fast-moving consumer goods (FMCG) companies are a worried lot. With weather forecasts pointing to deficient rainfall this year, companies have begun drawing contingency plans. These include a greater focus on mass products, doling out incentives to retailers and distributors, and more consumer offers and promotions.
What is driving companies to take these measures is the impact of poor rainfall on consumers, especially rural ones, a key driver of growth for most FMCG companies.
Data from the Indian Meteorological Department (IMD) shows despite rainfall covering most parts of the country, so far, it has been 30-35 per cent deficient. Last week, Agriculture Minister Sharad Pawar had alluded this year could be rainfall-deficient.
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Companies, as well as analysts, admit deficient rains would hit rural incomes and, therefore, rural demand. On an average, sales in rural areas contribute 30-40 per cent to an FMCG company’s revenue. In the last three years, these sales have been growing at 15-16 per cent, while sales in urban areas are growing at about 10 per cent a year.
Owing to inflationary pressures, sales in rural areas, at 12-13 per cent, have seen a slight deceleration in the last few months. Analysts say with low rains, the growth could decline to 10-11 per cent. “There is no denying the impact of weak rainfall on sales in rural areas,” says A Mahendran, managing director, Godrej Consumer Products Limited (GCPL).
Harsh Mariwala, chairman and managing director, Marico, says, “The impact would begin to show with a lag.”
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While companies expect volume growth of 9-15 per cent for the quarter ended June, they may face challenging times in the current quarter, when demand deceleration is likely to kick in, say experts. Companies are also bracing for a rise in downtrading in the wake of high inflation and falling incomes.
C K Ranganathan, chairman and managing director, CavinKare, says in such a scenario, the focus cannot be on premium products. “You cannot have a premiumisation strategy when consumers are battling inflation and uneven rains threaten to lower rural incomes. The focus would be mass, because you have to catch consumers who are trading down. They cannot be ignored.”
Companies such as Hindustan Unilever (HUL) have increased their regional focus with brands such as Ruby Tea in the south and region-specific soaps such as Breeze, Rexona, Hamam and Moti. Keeping in mind the lower spends of rural consumers, GCPL has launched small packs of the Godrej No 1 soap, a strong brand in rural areas, at Rs 5. Tata Global Beverages is aggressively pushing its tea products in rural channels, offering economical packs to drive consumption.
Companies are also wooing retailers and distributors with foreign tours and offering discounts of up to five per cent on bulk purchases of their products. This is in addition to the five-six per cent margins most traditional trade retailers and distributors earn on FMCG products. Traditional trade accounts for nearly 90 per cent of FMCG sales in India.
Various offers and promos are underway in categories such as soaps & detergents, shampoos and hair oils---all highly popular in both urban and rural segments. HUL and Procter & Gamble are promoting their detergent brands, offering gifts such as plastic containers to buyers. HUL is running an offer on the Lux beauty soap, while Procter & Gamble, through the ‘Thank You, Mom’ campaign, offers discounts on products, as well as the chance to win a diamond pendant. Dabur is offering up to 20 per cent extra on specific packs of hair oils and shampoos.