FMCG players: Q2 FY24 rural demand recovery will be sluggish

Major FMCG players have expressed concern over slow rural demand recovery in India. Most FMCG players have forecasted low single digit sales volume growth in the September quarter of financial year 2023-24 due to sluggishness in rural demand recovery. FMCG majors like HUL, Dabur and Marico have attributed rainfall deficit behind sluggishness in rural demand recovery in Q2 FY24. According to IMD, the country received six per cent lower rainfall in the rainy season which had just gone by.

HUL CEO and MD, Rohit Jawa, said that as far as sale of FMCG products is concerned, rural India has still not fully recovered to volume levels it had had two years ago. Jawa said, “Sales volume continues to decline in rural India in last two years. HUL continues to face volume de-growth in the hinterland.”

HUL reported one per cent fall in sales volume of FMCG products (in case of entire industry) in Q2 FY24 in rural India from same quarter two years ago. Marico and Dabur are yet to come out with September quarter results.

Although, Jawa said, demand recovery has been gradual although slow in last two years. Nevertheless, the recovery was slower than anticipated.

Jawa has attributed the sluggish rural demand recovery to inflation. According to HUL, price of FMCG products in the country has gone up by 25 per cent in last three years. This has dented discretionary spending especially in the hinterland.

Another FMCG major, Marico, has attributed the slow rural India demand recovery to food inflation and rainfall deficit. Marico, stated, in Q2 FY24 update filing on BSE, “Instances of rising food prices and below-normal rainfall distribution in some regions seemed to impede the anticipated recovery in rural demand.”

But going forward, both HUL and Marico are hopeful of rural India demand recovery continuation. Marico also stated, “Consumption trends, particularly in rural, are expected to improve in H2 owing to retail inflation levels staying within RBI’s target range, hike in MSPs, healthy sowing season, easing liquidity pressures and government spending.”

Dabur has attributed the sluggishness to “mild summer” and “deficit monsoon.” The Kolkata based FMCG player also pointed out the fact that since festival season this time has fallen entirely in the December quarter, so FMCG players could not get any benefit from festive off-takes in the preceding quarter. FMCG players would reap benefits of festive off-takes in the third quarter only. This further played spoilsport in rural demand recovery in the second quarter.

While, HUL and Dabur hailed government’s impetus on capital expenditure augment in rural India behind one of the key factors that has aided rural demand recovery, hitherto.