FMCG players bet on direct distribution in rural areas as wholesale channel faces liquidity crunch

Meenakshi Verma Ambwani New Delhi | Updated on October 22, 2019

Consumer product companies also believe ramping up their direct distribution in rural regions will help them strengthen their market share in the long term. Representative image   -  Getty Images

As the FMCG industry is battling the ongoing consumption slowdown, efforts to expand direct distribution in rural markets have been stepped up. Companies hope this will 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.

Last week, market research and insights firm Nielsen said that rural household consumption for packaged consumer goods has hit a seven-year low in the July-September period.

Ajay Motwani, Head-Marketing at Adani Wilmar said, “ We are seeing a slowdown in the wholesale channel as they are reducing stocking of inventory due to the liquidity crunch. While we have been driving our direct distribution in the past few years, this year we have further ramped up our efforts to grow direct distribution in the rural regions.”

“We are focusing on key states such as Uttar Pradesh, Bihar, West Bengal and Maharashtra to significantly grow our direct rural distribution,” he added.

Known for its brands such as Santoor and Chandrika, Wipro Consumer Care and Lighting has been strengthening direct rural distribution in its core markets - Andhra Pradesh, Telangana, Maharashtra, Gujarat and Karnataka.

Vineet Agrawal, CEO, Wipro Consumer Care and Lighting said that stock levels in the wholesale trade have reduced. “If the wholesale trade was keeping three weeks worth of stock earlier...they have reduced it down to two weeks worth of stock. I don't think consumer demand has dropped dramatically in the categories of products we sell. I think it's more due to the ripple effect of the stressed wholesale channel,” he told reporters last week.

Also read: Wipro Consumer Care bets big on global markets

Senior executives also pointed out that rumours of a possible reduction in prices due to changes in GST rates or due to fall in prices of raw material in the past few months, have also created uncertainty in the wholesale channel. Dabur India’s senior executives told analysts last month that the company aims to increase direct distribution to 60,000 villages by FY20 from 44,000 villages In FY19.

FMCG players say that the liquidity crunch at the non-banking financial institutions have adversely impacted the wholesale traders especially in the rural regions. In the recent past, companies have taken several measures such as extending credit for longer period and collaborating with banking institutions to provide credit solutions to the wholesale channel.

Consumer product companies also believe ramping up their direct distribution in rural regions will help them strengthen their market share in the long term as rural consumers are increasingly shifting from non-branded products to branded products.

This has led urban-focused companies like Nestle India to look at strengthening their direct distribution in rural regions. The company which has direct distribution in over 52,000 villages plans to double this in the next 2-3 years.

Published on October 22, 2019

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