Macro Economy

FMCG companies pin hopes on rural demand; to ramp up direct distribution

Meenakshi Verma Ambwani New Delhi | Updated on June 05, 2020

Consumer product companies are looking to ramp up their direct distribution in rural regions. Representative image   -  Getty Images

Hopes of a normal monsoon and fiscal incentives among factors seen pushing demand

FMCG companies are looking to ramp up their direct distribution pinning hopes on stronger rural demand to tide over the Covid-19 crisis.

Lalit Malik, CFO, Dabur India, said, “Given the expectations of a normal monsoon this year, coupled with migrant workers shifting back to their hometowns and the government announcing higher investment in infrastructure development, supported by fiscal incentives like additional spend on MNREGA and higher MSPs, rural consumption would surely see an uptick.”

With the lifting of lockdown, Dabur India expects to ramp up direct rural distribution to about 60,000 villages by the end of FY21, from the current over 52,000 villages. “We had invested ahead of the curve in building our rural footprint with our sub-stockist network going up significantly. This investment paid off as rural demand continued to grow for Dabur even during the lockdown period,” Malik added.

According to Crisil estimates,while FMCG sector revenues are expected to see a de-growth of 2-3 per cent in the current fiscal, rural India is expected to fare better than urban areas. The rating agency said factors such as higher proportion of essential products consumed, government doles, eased restrictions on agriculture activities, and likelihood of a normal monsoon will contribute to this trend.

Early signs

Mayank Shah, Senior Category Head at Parle Products, said companies and categories with strong rural penetration are expected to benefit from the anticipated demand recovery. “We are already seeing early signs of uptick in rural demand and we believe it will be seen even more prominently from July. With reverse migration of labour to villages, we expect them to continue seeking brands and products that they were consuming while living in cities,” he added.

Shah said rural consumers will also seek to maximise value from each rupee spent and higher-penetrated categories such as biscuits fit well in this consumption trend. The brand will leverage its deep penetration in rural regions, he said.

In an earnings call last month, officials at Marico Ltd said the company will continue to aggressively drive direct rural distribution to tackle disruptions in wholesale channels. In the past one year the company has been expanding its retail reach both directly and indirectly and putting a huge thrust on direct rural distribution.

Published on June 05, 2020

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