Rural demand is finally taking off. FMCG firms capitalize with strategic moves

According to market researcher NielsenIQ (NIQ), urban markets saw a 5.7% year-on-year rise in demand in the three months through March, lower than the December quarter’s 6.9% increase. In contrast, rural demand surged by 7.6%.

Aligning with NIQ's findings, several large packaged consumer goods makers have reported this uptick in rural demand, citing low inflation and enhanced distribution efforts as key factors.

The forecast of a good monsoon season, after below-normal rains in 2023, has also led to expectations of sustained demand renewal. The monsoon is crucial for India as it delivers nearly 70% of annual rainfall, making it essential for farming activities and, in turn, rural household incomes. The FMCG sector relies on rural demand for 30-50% of their sales.

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Makers of fast-moving consumer goods (FMCG) such as Nestle India, Marico, and Colgate-Palmolive India emphasized that their expanded distribution reach has been crucial in driving rural sales. Large companies have been investing in building direct distribution channels to bring a wider assortment of goods to stores and expand their presence in markets underserved by wholesalers.

Here's how some of the major players are navigating and benefiting from this rural demand surge.

Colgate-Palmolive’s strategic relaunch

In the March quarter, oral care firm Colgate-Palmolive (India) reported that rural markets grew 200 basis points ahead of urban markets for the company.

"The sentiment is certainly getting more positive. A normal to a good monsoon forecast then also aids that sentiment. The second thing is that inflation is really beginning to taper," said Prabha Narasimhan, managing director (MD) and chief executive officer (CEO) at Colgate-Palmolive (India) Ltd.

However, the company also reaped benefits from the relaunch of its Colgate Strong Teeth brand.

“The biggest brand in rural India in toothpaste—Colgate Strong Teeth was relaunched with a superior formulation and a superior flavour delivery last year, backed by a lot of investment that has gone into rural areas," said Narasimhan in an interview with Mint earlier this week.

“Then, of course, coupled with the Smile Store Program, we have an algorithm to ensure what combination of these stock-keeping units are appropriate for a given rural store, is something that we've spent a lot of effort on."

Marico’s distribution push

Marico, the maker of the Parachute brand of hair oil, also reported "green shoots" in its rural markets towards the end of the March quarter.

“We are seeing some green shoots. I think it's a combination of three or four factors. Inflation is largely under control. I think the government continues to support direct benefit transfers and monsoon predictions are pretty good. A combination of all these factors gives us hope," said Saugata Gupta, MD and CEO, Marico India.

Meanwhile, the company is also ramping up direct distribution, especially in rural areas. Marico has promised to spend ₹70 crore to ₹100 crore to expand direct reach over a three-year period.

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“Our dependence on indirect distribution was far more than a lot of other companies. We have an outlay of ₹70-100 crore over a three-year period, which is largely self-funded, to drive this. By the end of 2027, we will be reasonably top quartile in terms of our direct reach. This is largely for rural markets; in urban areas, there is scope for channels such as chemists, beauty stores, and food outlets," he said.

Nestle India's "rurban" push

Meanwhile, packaged foods company Nestle India attributed distribution expansion as a strong vector of growth last fiscal.

Speaking to the media last month, Suresh Narayanan, Nestle India’s chairman and managing director, said, “Tier two to tier six and villages are growing quite rapidly for us because of the penetration exercise that we're doing. So, it's really an account of that that we are getting growth. The number of touch points in the last quarter itself has gone up by 10% to 15%. We have crossed the 200,000 mark as far as the number of villages is concerned. Almost 40% of our growth last year came out of distribution expansion. So for us, it's a major vector of growth."

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