SUNSHINE AFTER THE STORM?

Favourable policies, strong crop yields, and prospects of improved rains could help navigate the challenges in rural FMCG demand

India’s Fast Moving Consumer Goods (FMCG) sector has encountered a key challenge in recent quarters: weak demand from rural markets. During this period, urban market has remained stable. Currently, urban markets contribute to 60% of the total consumption in the FMCG sector, with the remaining 40% coming from rural markets.

According to a study by Bizom, a mobile platform for retail commerce, a substantial portion of FMCG industry revenue is derived from the top 75 cities in India, each with a population of 5,00,000 and above. These cities alone account for approximately 40% of the industry's earnings. Conversely, the remaining 60% is generated from rural India. This underscores the critical importance of revitalizing demand in rural markets for the growth of the FMCG sector in India.

With 2024 being an election year, there’s a heightened focus on rural markets. The crucial question occupying investors’ minds is: Will demand in India’s rural markets experience a resurgence? Let us understand this in greater detail:

THE PRESENT SITUATION

In the December ’23 quarter, early signs of demand revival emerged in India's FMCG sector. According to a recent study by market research firm NielsenIQ, the volume of the Indian FMCG industry grew by 6.4% year-on-year in the December ’23 quarter. An improvement in consumption was observed in both urban and rural areas, as highlighted in a report by the analytics firm. The report underscores that the consumption gap between urban and rural markets in India is narrowing for the first time in 2023. It further notes that higher volume and a recovery in rural markets contributed to the FMCG industry’s 6% growth in value terms.