El Nino won't have much of an impact on rural demand, according to FMCG companies

23 Jun 2023 , 12:29 PM

According to executives from consumer goods companies who talked to ET, factors including a slowing of inflation, more government funding in the agriculture sector, and broader direct distribution would continue to support rural recovery. The resurgence in rural demand is not dependent on the influence of El Nino on the monsoon.

El Nino has no immediate effects on rural demand, according to Mohit Malhotra, CEO of Dabur India who talked to ET. ‘Rural demand has already begun to show signs of recovery, and with inflation softening, we expect rural recovery to gain momentum in the coming quarters,’ an economist said.

El Nino is the name given to an irregular, every two to seven-year-long warming of the ocean’s surface waters. Rainfall during the monsoon, which is essential to India’s rural economy, is known to be suppressed by it.

Seven years have passed since the last occurrence of El Nino, and there are concerns that this one may result in a shortage of rainfall during the monsoon season.

According to Saugata Gupta, general director of Marico who talked to ET, a company that produces edible oils and personal care products, ‘there are many positive factors at play, such as lower food inflation, low base, higher agri spending, and minimum support prices…it is too early to conclude that El Nino will impact FMCG rural recovery.’

For packaged goods companies, an increase in rural demand is crucial because these businesses’ rural markets account for about half of their yearly revenues.

Businesses like Dabur, Parle Products, and Nestle India claimed that by increasing their rural presence, their sales would continue to rise.

‘Our direct distribution of outlets in rural markets has gone up by at least 10-15%; that is showing results and we expect the momentum to continue, despite the El Nino factor which is being talked about,’ said Mayank Shah, senior category head at biscuit manufacturer Parle Products who talked to ET.

Nestle India, the manufacturer of Maggi noodles and KitKat chocolate, has indicated in its most recent earnings conference following March quarter results that it is continuing to grow its rural coverage. Nestle India increased its direct distribution to 1.5 million outlets and overall distribution network to 5.1 million outlets last year.

Companies that move their goods directly to retail channels rather than through multiple middlemen are said to be using a direct distribution channel.

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