Well-stocked rural kiranas see fewer footfalls amid slowdown

Raebareli/Malihabad: In Jagatpur, a large village in Raebareli district of Uttar Pradesh, Diwali was a bit subdued, as consumer purchases were lower than last year.

Deepu Singh, who runs a kirana shop in the village of about 8,000 people, said sales have slumped nearly 40% this year, given that incomes of consumers have not kept pace with cost increases. Another retailer nearby — whose shop was well-stocked with products, including a prominently displayed regional brand of corn flakes gathering dust — said he has clocked merely 60% of what he made last year.

Other retailers in the vicinity echoed similar views. “Costs have risen. But income levels have remained the same or are lower. How can one expect any growth?” Singh said.

The sentiment was no different in other UP villages TOI visited. About 40km from Lucknow, nestled amid mango orchards of UP’s Malihabad district is village Ghusauli with a population of about 1,500. A 31-year-old entrepreneur, Lalta Prasad, who runs a small retail shop, managed to sell only one quintal of sugar this Diwali. Last year, he had sold at least double the quantity. Given that his other business of selling saplings did not yield any sales this year, it is this shop Prasad relied on to feed his family of five children, his wife and mother. It’s a double whammy for Prasad with FMCG offtake slowing down. “Mango production has been 40% lower this season and households are curtailing spends. If earlier people used to buy one entire strip of shampoo sachets (one strip has 16 sachets of Rs 2 each), they now purchase only five units,” said Prasad, adding that the situation was better during Holi festival.

A few kilometres away, adjoining the mud-tracked quiet village of Badaura, is Katauli with a population of around 3,300. Vipin Pandey, who runs a grocery store which sells everything from jaggery to detergent bars, said with prices of daily food items like dal shooting up, consumers have reduced the volumes of purchases. “Urad dal, which was priced at Rs 55-60 a few months ago, is around Rs 130 per kg. If the consumer bought a kilo of dal earlier, he now purchases only half a kg,” said Pandey. At a nearby wholesale shop, a youth asks for 10-12 detergent bars of “small size” only, which he would eventually sell to consumers at his shop.

Snapshot of rural decline: Merely five years ago, rural customers were said to be consuming cream biscuits and using fabric conditioners. A slump in rural FMCG sales — due to weakening macro-economic factors, unseasonal rains and low wages — has pulled down the overall industry growth. According to Nielsen’s third quarter (Q3) numbers for the current calendar year, rural growth had dipped to 5% from 20% in the corresponding quarter. For the first time in seven years, rural growth had fallen below urban. The northern belt, which has been a significant component of rural economy, and a hotbed for small makers of FMCG products, has been impacted the most.

According to Nielsen’s FMCG snapshot, small and medium enterprises (SMEs), which form a significant 44% of rural India, witnessed a steep 20% dip in growth in Q3 (July-September) of calendar 2019 as compared to the previous corresponding quarter.

In October-December 2017, small manufacturers in rural India were growing at 17%. The relative price index between large players and small makers was 57 (if a product is priced at Rs 100 by large players, small players had the ability to sustain at Rs 57).

In subsequent quarters of Q1, Q2 and Q3 of 2018, rural small FMCG players grew at 21%, 23% and 30%, respectively. In Q4 of 2018 (October-December), growth — at 25% — began to decline. It continued to dwindle to 20% in Q1 of 2019 (January-March) and further slumped to 12% in the June quarter. In Q3 (July-September), the growth was in single digits — 7%. Sunil Khiani, head (retail measurement service), Nielsen South Asia, said, “This was the quarter when the relative price index between large players and smaller ones had risen to 61. Slightly over 4,000 small entrepreneurs entered rural India, but there were a greater number — more than 4,300 — of exits.” The relative price index had risen due to cost increases. “With the price advantage reducing, small players began to feel the pinch and that’s the reason why they started exiting the market,” said Sunil Khiani, head (retail measurement service), Nielsen South Asia.

An industry official said small players are also facing liquidity challenges due to the ongoing NBFC issues. This would have impacted the funding of some of these players. In addition, Khiani said, GST brought in sophistication in paper work and other formalities which smaller players found cumbersome to deal with. As overhead costs shot up and investments made in enhancing distribution shrank their margins, rural FMCG SMEs were hit by the slowdown biting consumer wallets.

Shift to unbranded? At a store near Jagatpur, a consumer who comes looking for loose ‘garam’ masala, returns empty-handed (he didn’t buy the branded pack either). Village stores are mostly stocked with packaged and branded products. Parle Products category head Mayank Shah said, “It is possible that consumers have moved to unbranded products in rural, which could have further impacted small manufacturers.” Khiani of Nielsen, who said rural economy is largely cash-driven, didn’t rule out this possibility.

In December last year, when Parle Products reduced the grammage of its Rs-2 biscuit pack (only for rural markets) to factor in GST-related changes, it witnessed a decline in sales. “Two months ago, when I visited rural villages in Malihabad, I found that retailers had stocked up on loose namkeens which they said consumers saw better value in buying instead of packaged biscuits,” said Shah. “It’s a difficult market for new players, especially small, to enter, given the slowdown,” said Shah.

Although Dabur India CFO Lalit Malik said rural consumer preference is shifting from unbranded or local products to national established brands, with companies now offering products at affordable price points, in Katauli, national tea brands were missing from certain retail stores. Pandey said local brands like ‘Modern’ are more palatable to consumer tastes in the region. In Laxmanpur, a small hamlet in Raebareli, 60-year-old Chhote Lal’s shop displays a rather stripped-down assortment of products, including some local food products like Goldiee One One noodles, Katori and Crunch snacks. Some FMCG products are close to their expiry date. What bothers Lal more is the fall in demand for certain food brands priced as low as Rs 2 per pack. “If I can sell even 2-3 strips in 10 days, it would be good,” said Lal.

Source:- https://retail.economictimes.indiatimes.com/news/food-entertainment/grocery/well-stocked-rural-kiranas-see-fewer-footfalls-amid-slowdown/72341591