Rural Demand Outpaces Urban For First Time In Five Quarters, Says NielsenIQ

Sales of fast-moving consumer goods rose in the January-March period, with rural growth outstripping that in urban markets for the first time in five quarters, NielsenIQ said on Tuesday.

While urban consumption growth slowed to 5.7% from 6.9% in the three months through December, demand in the crucial rural market grew 7.6% against 5.8% growth in the preceding quarter. Overall, the packaged goods sector grew 6.6%, driven by volume, while price growth remained flat at 0.1%, the market researcher said.

"Notably, the home and personal care categories have outperformed food categories," said Roosevelt Dsouza, head of customer success-India at NielsenIQ. At 11%, sales in the non-food segment rose at double the pace as compared with the food segment. Food categories witnessed higher unit purchases, while larger packs were preferred for non-food categories.

General trade channels, the report said, are maintaining stable growth of 5.6%, while modern trade growth has moderated to 14.7% amid sluggish demand for staples in urban areas, even as non-food continues to grow.

The consumer goods makers that have announced their March-quarter earnings so far attest to the trend.

Godrej Consumer Products Ltd., which is purely into the non-food segment, reported the highest volume growth in the fourth quarter at 7%, while Nestle India Ltd.—a complete food play—clocked 4-5% growth in volume as against its historical track record of 8–9%.

Others, like Hindustan Unilever Ltd., Britannia Industries Ltd., Dabur India Ltd. and Marico Ltd. said rural demand recovery is underway.

"Almost after three years, we are seeing rural growing ahead of urban," said Dabur India's Chief Executive Officer Mohit Malhotra. "We hope it's more structural in nature and not a one-off." For Dabur, rural markets grew 400 basis points ahead of urban markets in the quarter-ended March.

Some of these companies have implemented modest price hikes as key raw materials like wheat and sugar remain inflationary.

A few other companies are contemplating price hikes in the second half of the ongoing fiscal year as they foresee inflation after the general elections, which end in early June. These nominal hikes signify a return of pricing growth for the sector, following a period of negative pricing in FY24. The FMCG sector also expects a good monsoon to further aid rural income.

According to Nielsen IQ, the larger players are benefiting at the expense of their smaller peers, who are struggling to maintain stable prices as commodity costs fluctuate. Britannia, for instance, said it has recouped its lost market share, aided by price cuts and better distribution.