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The prospect of a quicker urban recovery in terms of consumer spending this year is pushing fast-moving consumer goods (FMCG) firms to devote more attention to these areas. This comes as sales growth in rural areas for most companies is slowing.
In the past two quarters, overall FMCG growth, according to market research firm Nielsen, moved up marginally from 8 to 10 per cent, led largely by improved sentiment and buying in urban areas.
Rural growth, on the other hand, slowed as moderate increases in the minimum support price of crops, as well as a drawing down of rural welfare schemes such as the NREGA left consumers in the countryside with less money to spend. This year’s patchy rainfall - some parts such as north and central India saw scanty rains, while some areas saw floods - has only exacerbated the situation in rural areas, with most companies not expecting a rural recovery anytime soon.
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“I am not hugely optimistic about any big revival of rural markets this year. There is nothing much on the horizon over the next couple of quarters in rural, so it is basically the overall growth in the economy which will fuel consumption. And that consumption will obviously be led by the urban sector,” Sunil Duggal, chief executive officer, Dabur India, said during a recent analysts call.
Dabur, among a host of other consumer goods companies, led the rural march in the last few years ploughing funds into villages and small towns in a bid to ramp up distribution, and hence, sales. Most of these companies are now turning to cities in their quest for growth. Recent product launches bear this out.
The consumer healthcare arm of GlaxoSmithKline, for instance, relaunched its flagship health food drink Horlicks last month besides bringing its focus back on health supplements with the relaunch of its calcium tablet Osto Calcium. Both products have a marked urban skew and a more upbeat sentiment in the cities is expected to bolster demand for these products, analysts say.
Similarly, companies such as Emami have stepped into areas such as male grooming and feminine hygiene in the last two months, while rival Godrej Consumer entered premium hair care recently as it sought to expand its portfolio. “Segments such as male grooming show enormous potential in urban areas given that penetration levels are low,” Harsh Agarwal, director, Emami said.
Nisaba Godrej, executive director, Godrej Consumer, said her company would continue to look at premiumising its portfolio, which analysts believe is timed just when urban consumers appear more receptive to these products after months of cutting back.
Varun Lohchab, managing director and co-head of research, Religare Capital Markets, said, “The slowdown in urban markets has bottomed out and they are expected to bounce back soon. The new government’s measures also appear to be aiding this process in contrast to the previous regime, whose measures helped people in the rural areas."
The government last week hiked the dearness allowance of its employees by seven per cent in a move that will benefit nearly three million workers. Two months before that, the government as part of its budget, announced a slew of measures aimed at boosting domestic consumption besides increasing the tax exemption of the salaried class. Both developments, say analysts, favour people residing in cities.
