Demand for consumer products in rural India is slowing down. But fast-moving consumer goods (FMCG) companies say it’s a short-term phenomenon, with many insisting that future growth-drivers continue to remain favourable for the industry.

Of late, one-third of rural India has been consuming biscuits for breakfast, and one in every six rural consumer has been using hair dyes, according to market research agency Nielsen. Though sales of consumer products such as biscuits, edible oils, snacks, hair oils and shampoo have slipped in the hinterland, companies are not overtly worried.

“Rural growth of FMCG products has moderated because of the economic difficulties. Once GDP growth picks up, I expect rural demand to accelerate considerably,” Godrej Group Chairman Adi Godrej told Business Line .

Godrej Consumer Products registered a marginal fall in rural sales growth, from 30 per cent in FY13, to 25 per cent in January-March this year. Though the company’s revenue grew 12 in the March quarter to ₹1,931.5 crore over the year-ago period, analysts have termed it the slowest growth in 2013-14.

However, Godrej continues to be confident about the growth potential. “The main reason why rural growth will be ahead of urban growth over the next decade is that consumption and penetration of FMCG products in rural India will improve considerably.”

Rural potential For some time, FMCG companies have been capitalising on the vast rural potential through a wider distribution network in villages, and have increased the launch of products in ‘low unit packs’. Even Dabur’s rural push, which involved expanding its distribution footprint, ensured that it was addressing 72 per cent of the rural FMCG potential. However, the company has seen rural growth coming off, which was growing well ahead of urban growth for the past many quarters.

Despite the fact that rural India offers attractive growth opportunities across a number of consumer product categories, distribution in rural India continues to be plagued by problems of limited reach and high costs.

Pravin Kulkarni of Parle Products added the company is seeing around 10 per cent drop in rural sales year-on-year across categories.

“Rural demand has lost pace despite a good monsoon. The lower wage hike and the likely dip in remittances from urban migratory workers have also played its part, with growth proving to be a stiff challenge in hair oils, skin care and discretionary foods,” said Abneesh Roy, at Edelweiss, a brokerage house.

Mixed bag Not every FMCG company is going through a churn, though. In the case of Marico, growth in rural areas continues to be well ahead of urban growth. “Though there is some measure of uncertainty, the worst seems to be behind us, as far as the economy is concerned. There is a little bit of softness in consumer demand, but the long-term consumer story is still intact,” said Saugata Gupta, CEO.

Marico bullish

For the company, urban growth was slower than growth in rural areas. Growth in rural areas was in the range of 16-18 per cent year-on-year, while that in urban areas was 6-7 per cent in Q3FY14.

Over the last three years, contribution of rural areas has moved to 31 per cent from 25 per cent, with the company hopeful of taking it to 35 per cent. However, in Parachute portfolio, the company’s volume grew by 2 per cent. It had taken three pricing actions in four months: two hikes and a drop, which led to multiple price units available in market.

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