The subdued demand for consumption in rural markets notwithstanding, ITC Ltd has enhanced its direct reach and expanded stockists’ network in these markets.
The network has grown 1.2x over the previous year indicating that the diversified conglomerate is well poised to take advantage of the rural growth story as and when it happens. It is also increasingly collaborating with rural focused e-B2B players.
‘Worst is behind’
Sanjiv Puri, Chairman and Managing Director, ITC, had recently said the commodity price inflation has been cooling off and rural demand should start picking up with an improvement in farmers’ incomes on the back of better realisations. Urban demand, which has been strong across categories, is expected to sustain, he added.
According to him, the “worst is behind” in terms of commodity price inflation. The overall crop (situation) is better and is likely to be higher than last year, so realisation in rural areas should be better.
“With steep inflation eating into household budgets, consumption demand remained subdued particularly in rural markets and for discretionary categories in urban markets,” the company said in a statement on Thursday.
In line with the company’s multi-channel go-to-market strategy, market coverage was stepped up to approximately 2.1x of pre-Covid levels. In rural markets, direct reach enhancement was supported through a hub-and-spoke distribution model. Further, sales through the e-commerce channel stood at 4.7x over FY20 levels, taking the channel salience to over 10 per cent, ITC said.
Rural demand recovery
Rural demand, particularly for the FMCG sector, had remained stressed during the September-December 2022 quarter due to general inflationary pressures and rainfall deficit in some States.
According to Preeyam Tolia, Senior Research Analyst — FMCG & Retail, Axis Securities, the overall sector in the rural market is seeing some recovery, though in volume growth terms it is still not in the positive trajectory. The rural recovery is expected to come on the back of government spending and also as urban remittances start inching up.
“In case of ITC in particular, its FMCG business gained 19 per cent but the surprising part is that the EBIT margins stood at 10 per cent for the first time, supported by their expansion into rural markets, premiumisation of portfolio and also because on the raw material front it does not have much of an impact due to backward linkages,” Tolia told businessline.
ITC’s FMCG businesses is expected to reach the inflexion point and EBIT margins are likely to inch further led by the ramp up in the outlet coverage, effective implementation of the localisation strategy, driving premiumisation, leveraging technology on demand and supply side, and moderation of raw material input cost, he added.