The Rise And Rise of FMCG Firms : Rural Sales Push, Budget Outlays Help Create Upwards Spiral

This is really the story of ‘The Rise and Rise of FMCG Firms’, for that is the real story to be consumed by those who feed on corporate or economic news. While benchmark Indian indices face intense selling pressure, FMCG stocks are surging.

Re-opening on Monday to profit-taking after 12 surging sessions since the Budget, Nifty FMCG still managed a flat line to close at 62,513.89 points. On Friday, the index rose by 2 per cent in three sessions, reaching 62,139 points.

Budget day on July 23 was when the index crossed the 62,000-mark for the first time, ever, subsequently hitting a record of 62,731 points. Overall the FMCG Nifty index outshone the Nifty 50 by many points. 

FMCG stocks leading this bull-run to highs in three post-Budget days were Britannia Industries, ITC, Tata Consumer Products, Dabur India, United Spirits, Colgate-Palmolive (India) and Godrej Consumer Products.

Ask pundits what is happening and they point their all-knowing finger at the Government’s revised priorities to jack up consumption through windfall allocations for rural schemes.

“I am announcing schemes for employment and to skill the youth, which will rejuvenate rural and urban consumption,” Finance Minister Nirmala Sitharaman said in her Budget speech.

India’s sinking rural demand stone transformed into a new phoenix as the budget spoke of an outlay of Rs 2.65 lakh crore for agriculture and Rs 1.52 lakh crore for rural initiatives.

Did FMCG big gun ITC see this incentivization and the sales surge coming?

It would appear so going by what its Chairman Sanjiv Puri said in January itself: “An aspirational society and young demographics are growing the market, making FMCG an area of immense potential.”

Puri a few days ago also announced his cigarettes to packaged food and hotel somehwere in between giant would invest some Rs 20,000 crore over the next five years in the Indian market, with the FMCG investment accounting for 35-40 per cent of the outlay. 

Rural Turnaround

In its Brand Footprint Report 2024, research firm Kantar projected that rural markets would provide an impetus to FMCG resurgence, especially as they account for 65 per cent of India’s households and make up 52 per cent of volumes (for FMCG firms).

The report added that rural volumes would grow from 4.4 per cent in fiscal 24 to 6.1 per cent in fiscal 2025, while predicting sober flat-line growth projections of 4.2-per cent for the urban marketplace.

That projection seems to be coming good, with two-wheeler sales in rural India suggesting a resurgence, pushing overall FMCG volumes further into positive territory. Lending appetite to this re-found sales resurgence are packaged foods like biscuits, namkeens, sweets and savoury items, and juices and beverage concentrates.

This turnaround is remarkable. Three quarters ago, FMCG majors Hindustan Unilever, Dabur, ITC, Marico and Tata Consumer said in their earnings calls that rural demand lagged behind urban for the first time in a year-and-a-half. Financial heads at large corporates admitted then that despite best efforts, they hadn’t been able to stop the slide, losing out to “liquidity pressures, rising inflation and patchy monsoons”.

At that time, rainfall, critical to India’s farmlands, was below par, threatening harvests and exacerbating financial stress. Money turbulence in rural areas was evident and inflation in food, daily essentials and fuel were having a crippling impact, further stoked by lower wages and a weak demand sentiment.

This is where FM Sitharaman’s Budget 2024 announcement on fatter rural allocations finds favour with the pundits. It also helps that rainfall has been good across many parts of the country, so good in fact that some historically flood-prone areas are again battling raging waters and chaos.

It has to be understood that the new-found FMCG swagger comes in a segment where these firms face peculiar challenges – smaller market size compared to urban India, remoteness of areas and higher transportation costs, geographically-scattered nature of the market, poor Internet and road connectivity, and deep-rooted people- and preference-diversity.

This, then, is a welcome respite for an industry that had to resort to never-before freebies and plus-one offers till recently to maintain sales, worried silly that the ‘metropolitan blip’ hanging over their heads would extend to rural markets as well.

Digital Villages

As always, no story on rural sales or product adoption can be complete without speaking of the offtake in mobile shipments, and there’s good news on this front.

Sales, which had slumped last year in Q3 – the all-important festive quarter – are limping back to previous levels of minor single-digit growth.

India emerging as a fledgling manufacturing hub also helps forecasts, with IDC predicting a 4-per cent growth in worldwide Smartphone shipments in Calendar 2024.

The tear-jerker here is that big-brand sales continue to take a beating, with little-known and cheaper brands assembled in India are coming to the rescue and saving the blushes.

What is quite clear, however, is that India’s FMCG space is breathing easy again, be it on the back of budgetary stimulus, pent-up demand, or just plain buyers’ itch. The happy outcome is that rural India is scratching again.