Rural growth story still intact: IMRB data

In the first half this year, overall FMCG sales growth in the hinterland has doubled

If you thought the rural consumption story for fast-moving consumer goods (FMCG) had taken a beating, thanks to the signs of stress in rural economy, you might like to think again. In January-June this year, the rate of overall household FMCG consumption growth in rural areas was more than twice as much as in urban areas.

In the first half of this calendar year, the volume of household consumption of FMCG products in rural areas grew 5.5 per cent over the same period a year ago. By comparison, the rate of growth in urban India was 2.6 per cent, show data sourced from market research agency IMRB, which tracks household consumption across 79,400 homes in both urban and rural India.

Interestingly, the sharp recovery seen in rural consumption is not only in comparison with urban areas but also against the year-ago period. The rate of growth in rural household consumption had declined 4.2 per cent in January-June 2014. Urban consumption growth in volume terms in the first half of that year, on the other hand, had been 6.1 per cent, implying there have been clear signs of a slowdown in urban areas this year.

"Urban consumption growth in the first half is less than half of what it was last year," says Vinay Khamkar, group business director, IMRB Kantar Worldpanel. "But there is a reason for this. Rural India has reacted faster to a deflationary trend seen in prices, so the pick-up in consumption this year has been sharp in those areas. Rural incomes typically are unstable, and react quickly to external stimuli. When inflationary trends persist, an effect is visible in rural consumption. Similarly, deflationary trends also have an equal impact on consumption in rural areas."

While a low base of last year has played a part in the sharp rural recovery this year, analysts say that still does not take away much from the uptick in consumption. Marico Managing Director & Chief executive Saugata Gupta says: "Rural consumption has not declined; it is urban consumption that has been affected. If there is any slowdown rural areas have felt, it is in discretionary categories like automobile and durables, and not items of daily consumption."

Gupta's point is becomes clearer when we take a deeper look at rural household consumption across categories. For instance, volume growth in personal-care category was 3.7 per cent, compared with 1.1 per cent in urban India. Similarly, rural volume growth in household care was 4.2 per cent, against 1.9 per cent in urban areas. And, the food & beverages category saw volume growth of 5.8 per cent in rural areas, versus 2.7 per cent in urban.

"Rural growth is ahead of urban. But our outlook is that urban growth will pick up in the second half," says Godrej Consumer Products MD Vivek Gambhir. This point is endorsed by his colleague Sunil Kataria, responsible for the India and Saarc regions as business head at GCPL. "A general pick-up in sentiment, backed by mid-term increments, bonuses and the onset of the festive season, should goad consumers to improve their purchase basket," Kataria says.

"Normally, FMCG reacts with a lag," says Dabur CEO Sunil Duggal. "I think urban India will now finally react to an easing in inflationary pressures and the likelihood of a rate cut. That will boost sentiment."

When it comes to investment in distribution, while most FMCG companies have not taken their eye off rural areas, their focus on urban areas is growing simultaneously. Duggal says his company's attention on its healthcare segment is particularly growing in urban areas. It recently stepped into the baby-care market. The aim is to grow presence in urban areas. Rival GCPL has a series of launches lined up, to take advantage of the uptick that urban areas are likely to see in terms of consumption. Marico will focus on long-term innovation in foods and premiumisation of hair oils, Gupta says.