Godrej Consumer to keep investing in rural areas

Idyllic surroundingsThe company has taken a contrarian view compared with those of most consumer goods firms

Godrej Consumer Products Ltd (GCPL) will continue to bet on rural areas, even as its rivals turn their attention to cities. Taking a view contrary to those of most chiefs of consumer goods companies, GCPL Managing Director Vivek Gambhir says he sees growth in rural regions exceeding that in urban areas.

Many such as Dabur Chief Executive Sunil Duggal, Marico Chairman Harsh Mariwala and Emami Director Harsh Agarwal believe now, growth will come from urban pockets, as rural areas are showing signs of stress, amid predictions of below-normal rainfall by the Met department.

"While urban sales in the past three quarters have grown faster than rural in the home and personal care category at an industry level, rural sales growth has been ahead of urban sales growth by 600-800 basis points in this period. My sense is it will stay like this for some time. If that is the case, why should I take my attention off the rural map?" he asks.

Gambhir's statements are backed by numbers. According to Nielsen data sourced from the sector, urban sales growth in the home and personal care category was 2.5 per cent in the September 2014 quarter, while rural sales growth was 8.2 per cent. By the December quarter, urban growth had doubled to 5.2 per cent, while rural growth was still ahead at 11.4 per cent. In the March 2015 quarter, urban growth had increased to 9.4 per cent, while rural growth stood at 17.4 per cent.

"Barring quarter one, when the gap between urban and rural had narrowed to 200 basis points (rural growth was eight per cent, urban six per cent), in the past three quarters, rural growth grew consistently in double digits, from 14 to 16 to 17 per cent. Urban, while jumping in the third quarter to 13 per cent from five per cent in second, slowed to about nine per cent in the fourth quarter," Gambhir says.

"If you go by the announcements in the Union Budget this year, the government has emphasised on rural welfare and development and increased allocation on schemes such as the MGNREGS (Mahatma Gandhi National Rural Employment Guarantee Scheme). This thrust on the rural segment is expected to continue, as the government fights the perception of being anti-farmer. While climatic changes have afflicted parts of India in the past few months, our assessment, based on international weather forecasts, is rainfall will be normal this year."

Recently, Delhi-based private forecaster Skymet said this year, rains would be normal, at 102 per cent of the long-period average. In a recent update, leading international forecaster World Weather said this year, rains would be better than expected. "Some forecasters have suggested the impact of El Niño-induced dryness in India, which often occurs during the monsoon, might be more severe than usual. World Weather doesn't believe that will be the case," said Drew Lerner, the forecasting agency's president and senior agricultural meteorologist.

For GCPL, 25-30 per cent of its overall revenue comes from rural areas. As part of its recently-launched OneRural programme, the company will enhance its coverage of the top 20,000 villages within its 57,000-hamlet universe. These villages will see a greater field force, besides more stock targeted at these consumers. The company would also increase promotional and marketing activities in these villages, Gambhir said. The move, he says, is aimed at increasing sales from these villages and raise revenues from rural areas to 35 per cent in the next few years.