Major FMCG firms see weakening of rural demand

28 Oct 2022 , 03:33 PM

Dabur, Marico, Hindustan Unilever, Tata Consumer, and ITC all mentioned the slowdown in rural demand in their results calls during the second quarter.

"For us, demand in the hinterland is now lagging behind metropolitan markets for the first time in five quarters. We have so far defied the general trend. This is a blow for us because the rural demand has been impacted by liquidity concerns, inflation, and spotty monsoons " Dabur chief executive told ET on Wednesday.

Rural markets began to slow down in September of last year as a result of high food, fuel, and other daily necessity price increases as well as decreased incomes and depressed sentiment. About 35% of all sales in the fast-moving consumer goods sector in India come from the country's villages.

Following the release of HUL's quarterly results last week, chairman Sanjiv Mehta stated that sales by volume on a moving annual total (MAT) basis decreased by 3% in urban markets and by 9% in rural areas in the second quarter.

Despite increased capital investments and additional spending on government programs like the rural employment program, executives claimed that the impact of inflationary pressures was more pronounced in rural markets than in urban ones. They claimed that this was due to the fact that rising prices and stagnant incomes caused rural Indian consumers to either buy inferior goods or put off buying entirely.

Analysts noted that poor demand continues to have an impact on the volume growth of the majority of large fast moving consumer goods companies and that small grocery store stocking was also slower.

According to analyst firm Jefferies, HUL's gross margin hit a multi-year low as the company reduced marketing spending while maintaining its share of voice.

However, businesses expressed optimism about the recovery of rural demand in the upcoming quarters due to a successful harvest, lower raw material inflation, higher farm prices, and more government funding for capital projects.

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