Leading FMCG companies are betting on a gradual recovery in rural demand this year on the back of improving macroeconomic conditions, continued government spending and price cuts. Many companies said the industry continued to witness sluggish rural demand in the December quarter with the urban consumption continuing to outpace rural demand.

On the Q3 earnings call, Saugata Gupta, MD & CEO, Marico Ltd, said that FMCG volume growth on a four-year CAGR basis remained at low single-digits, with rural and mass categories “tracking lower” than urban and premium categories.

“So far, while the pace of recovery in consumption has not been on anticipated lines, we remain optimistic of a gradual uptick in consumption trends over the course of the next calendar year, in light of improving macroeconomic indicators, continued government spending, lower inflation and substantial cuts in consumer pricing implemented by large organised players in response to an accommodative and stable input cost environment,” he added.

Hindustan Unilever also noted that rural incomes and agricultural yields were impacted due to the effect of uneven monsoon on the Kharif crop. The company in its Q3 earnings stated that urban growth continues to outpace rural across many industries including FMCG.

“Looking ahead, in the near term, we remain cautiously optimistic. We expect the gradual recovery in market demand to continue, aided by increased government spending, recovery in winter crop sowing and better crop realisations. At the same time, rural income growth and winter crop yields will be key factors that determine the pace of recovery,” said Ritesh Tiwari, CFO and Executive Director, Hindustan Unilever.

Recovery imminent

In a recent global earnings call, global management of Colgate-Palmolive expressed optimism about rural recovery in India. “We’ll see the continued return to the rural segment, the vitality of the rural segment, which will bode well for volume as we look forward,” the company’s Chairman and CEO Noel Wallace stated.

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Dabur India said it has already begun witnessing recovery in rural markets. It pointed that moderating inflation, rural distribution footprint expansion and curation of a rural portfolio helped demand from the hinterland to bounce back for the company. The FMCG major said that rural demand grew 200 bps ahead of urban in the December quarter.

Noting that the company’s performance in rural markets is contrarian to peers, Mohit Malhotra, CEO, Dabur India, said, “The gap between urban and rural growth at the FMCG industry level has been reducing, which is a positive sign. So, as the gap narrows between urban and rural growth with prices going up, I think rural recovery is imminent,” he added.