September quarter sees revival in rural grocery demand

Demand for daily household products and groceries in rural markets recovered sharply in the September quarter, according to data from a consumer research firm, even as economic growth is likely to have slipped further in the quarter.

Rural market by volume grew 4.4% in the July-September period from a year earlier when it had declined 2.4%, according to data from Kantar Worldpanel, a global consumer research firm owned by communications and advertising giant WPP.

The overall market expanded 3.1% in the quarter compared with a contraction of 1.7% in the year-ago period.

India’s GDP growth is forecast by independent experts to have slowed further in the period from the six-year low of 5% in the June quarter.

Experts said, offering a possible explanation for the divergence between slower growth and higher rural sales of household products and groceries.

“All categories that had a penetration of over 95% or those that are almost universally present have shown a decline in volume in Q3 of 2018,” said K Ramakrishnan, MD, South Asia, Worldpanel Division, Kantar. “We now see most of these categories barring salt reviving and posting strong growth numbers.”

This growth may also have come at the cost of listed companies that witnessed subdued primary sales in villages, indicating consumers may be downtrading to unbranded products in a few large categories.

Kantar’s numbers contrast with data from market researcher Nielsen, which showed rural growth at 5%, compared with 20% a year ago.

That’s likely because Nielsen mainly covers retail sales of packaged goods while Kantar tracks household consumption of about 96 categories of both branded and unorganised products, including those that are sold loose.

Kantar’s data is also heavily skewed toward the food and beverages segment, which accounts for nearly 70% of overall volume of products covered and has a higher proliferation of items from the unorganised end of the business.

‘DEMAND RECOVERY AT CONSUMER LEVEL’
“Since Kantar’s numbers are tertiary or actual consumption data from households, it signals a trend of demand recovery at consumer level which will reflect in companies’ primary sales by the January-March quarter,” said B Krishna Rao, senior category head at Parle Products, the country’s largest biscuit company by volume.

Branded products account for less than 10% of the overall consumption of staples such as dairy, rice and wheat. In segments such as tea, smaller players and loose tea operators control 40% of the market, some operating in just one region or district.

For years, local and unbranded products, with lower price tags, have been nibbling away at the share of leading consumer product companies, especially in segments such as detergents, hair oil, tea, snacks and biscuits.

“There is a clear indication of consumers shifting to lower-priced products or unorganised ones, especially in… voluminous segments such as oil, biscuits, snacks and detergents,” said Abhijit Kundu, vice president, research, consumer and retail, Antique Stock Broking.

Rural consumption, which accounts for about a third of the market and has been outpacing urban sales, has come under stress due to lower farm incomes and liquidity constraints that have squeezed the wholesale channel.

RURAL DEMAND KEY

In the past decade, sales of branded daily needs in the nation of 1.3 billion people have increasingly relied on growth in the rural hinterland, home to more than 800 million people, whose purchase behaviour is largely linked to farm output.

ITC Ltd executive director B Sumant, who is in charge of the fast-moving consumer goods (FMCG) business, said rural areas are seeing growth due to distribution expansion, although there is no improvement in per capita spending.

“Large companies are adding distribution infrastructure aggressively such as appointing more stockists and direct distribution delivery vans to compensate for gaps in wholesale, which is facing a liquidity crisis,” he said. “Hence, they are now able to reach more markets than earlier, helping rural grow higher than last year. This increased base needs to be factored in while calculating overall growth in consumption.”

Dabur said it expanded its rural network to 51,000 villages in September from 44,000 in March.

“This would be further increased to around 55,000 villages by the end of FY20,” said Lalit Malik, chief financial officer, Dabur India. “This is helping us drive our rural business ahead of urban.”

Hindustan Unilever, a proxy for consumer sentiment in India, recently said it would be investing in restructuring the supply chain to meet higher demand. Government measures such as corporate tax cuts, capital infusion for banks and nonbanking financial companies and a renewed focus on minimum support prices and farmers should help revive the economy, it said.

Source:- https://retail.economictimes.indiatimes.com/news/food-entertainment/grocery/september-quarter-sees-revival-in-rural-grocery-demand/72286418