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Consumer goods firms expect rebound in rural demand

In rural areas, the increase in demand is expected to be in staple products rather than discretionary items such as biscuits, while the opposite is likely to be true for urban areas

Consumer goods firms expect rebound in rural demand

Consumer packaged goods firms expect a bounce-back in rural demand to boost overall sales during the October-December quarter, which also coincides with the festival season. “We are expecting demand to really perk up in the third quarter and the festivals will help. We’re expecting at least 10-15 percent increase in sales this quarter versus the same period last year,” said Mayank Shah, category head for biscuits and chocolate at Parle Products reportedly told Live Mint.

Shah expects rural demand, in particular, to witness a huge surge, given the favourable monsoon this year.

Both rural and urban consumer demand was affected over the past year following demonetisation and the introduction of the goods and service tax (GST).

While demonetisation proved to be a temporary blip in urban areas, it took much longer for cash to return to rural areas. And before rural consumption could recover, GST dented demand during the first and second quarters of 2017-18, both executives and analysts say.

But with good monsoon rains this year, consumer goods firms expect rural demand to rebound in sync with the upsurge in discretionary spending during the festival season in urban India. Together, that should prove beneficial for these companies, which, regardless of differences in growth rate estimates, expect a good October-December quarter.

In rural areas, the increase in demand is expected to be in staple products rather than discretionary items such as biscuits, while the opposite is likely to be true for urban areas. For instance, packaged consumer products giant Marico Ltd expects traditional products like hair oil to do better in tier II and rural markets, and demand for cooking oil brands like Saffola to increase in urban areas during the festival season, the website reported.

In order to maximise both the revival in rural demand and the yearly discretionary spending surge in urban India, firms are going all out by launching various gift packs, especially in their premium offerings, for the season.

R&M view

Although, the consumer goods companies are expecting good growth from the rural markets, an Assocham report has, earlier in this week, said, “the flood fury in Bihar, Assam, West Bengal, Gujarat, Rajasthan, Uttar Pradesh alongside shortfalls in rains in southern states would significantly dent the kharif output with three major foodgrains expected to give a lower harvest of 129.5 million tonnes this year against 138.5 million tonnes in the same season of 2016-17.
 
According to the study, it is more of a post sowing havoc which would result in the shortfall of around 7% in the total Kharif foodgrains output. Rice, pulses and coarse grains are all expected to witness drop in output in the current kharif season as compared to the last year.
 
If the kharif output declines, the consumer sentiments in rural India may not be favourable for the rural marketers. And therefore, the consumer goods and fast moving consumer goods (FMCG) companies will have to make their plans accordingly. 

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