Leading FMCG companies are stepping up focus on direct distribution in rural markets at a time when rural consumption trends continues to lag behind urban consumption. The renewed focus on deepening rural reach also comes at a time when competition from small and regional players has intensified.

In an analyst note released on Monday, Abneesh Roy, Executive Director, Nuvama Institutional Equities noted, “The efforts to expand direct distribution in rural markets have been stepped up. FMCG companies hope this would help them tide over the challenges of slowing rural demand, which has been further aggravated by the stressed wholesale trade channel due to the liquidity crunch.”

Mayank Shah, Vice-President, Parle Products told businessline, that large FMCG companies have witnessed intensified competition from smaller players and regional players in recent times due to aggressive promotions.

Rural expansion

“With moderation of inflationary pressures, some price-corrections have been taken by large players. But there is still some impact being felt in terms of volume growth by large players because there is still a price difference in the offerings of small players. As a result, most FMCG companies are looking at getting back their volume share. At one end they are looking to strengthen their play in emerging channels, at the other end ramping up direct rural reach is a huge opportunity,” Shah explained. He added that Parle, which already has strong rural penetration, is also looking to further increase its direct reach in villages.

FMCG companies are expected to make significant investments in improving the quality of rural distribution this year.

Mohit Malhotra, CEO, Dabur India said, “ We have been investing ahead of the curve to enhance our distribution footprint in the hinterland. We are now reaching 107,000 villages directly up from 100,000 villages in March 2023.” The company has set a near-term target to expand its direct reach to 120,000 villages.