Rural consumption drives FMCG growth

Mumbai: Noodles, macaronis and soft-drinks made rapid inroads into rural markets, driving growth in the fast moving consumer goods (FMCG) industry — 10% by volume and 12% by value — in the first ten months of 2011 (here volume growth is the increase in sales clocked over last year while value growth is volume growth plus price hikes). 

    The consumption story for most part of last year dispelled slowdown fears as Indian rural households pipped urban counterparts in growth sweepstakes, said market research agency IMRB. Rural India had clocked a negative volume growth during 2010. The urban FMCG market, on the other hand, grew 4% by volume and 7% in value and was led by categories such as ready-to-eat mixes, deodorants, breakfast cereals and soups. 
    Growth for personal care products like toilet soaps, shampoos and household products stagnated compared to last year, while the F&B space saw a healthy growth. The IMRB survey was conducted across 30 product categories. 
    Sector analysts said the F&B market witnessed hectic action in rural India with players like ITC and Hindustan Unilever (HUL) leveraging their distribution muscle to push products in this category. ITC's Sunfeast noodles and HUL's Knorr brand of soups have been able to penetrate the hinterland. 
    "In the F&B market, we are seeing the share of rural markets grow. Packaged fruit juices have traditionally been a very urban market product, but with growing health awareness among rural consumers, we are witnessing a marked growth in demand," said George Angelo, executive director-sales, Dabur India, maker of Vatika shampoo and Real fruit juice. The FMCG biggie saw its personal, oral care and health supplements report strong growth in the rural markets. 
    While the low-penetrated products in the F&B space witnessed good growth, detergents and washing soaps stagnated volume wise. "Due to lower rural reach, household care categories like floor cleaners, household insecticides show faster growth. But foods are driving the growth in volumes," said Manoj Menon, group business director, IMRB International. 
    In the urban market emerging categories, noodles, macaroni and vermicelli grew 20% in terms of volume, while readyto-cook mix products saw a whopping 64% growth rate and soups 20%. There have been some concerns over consumer spending with price hikes being effected across the board by FMCG companies to offset the impact of rising input costs. 
    "Because of healthy disposable income growth and lower absolute spends on FMCG products, it hasn't impacted consumption yet. However, if there is uncertainty around income growth, risks of downtrading exist," said Gautam Duggad, an analyst at domestic brokerage firm Prabhudas Lilladher. Most industry players said they haven't seen any palpable signs of downtrading yet. "But there could be some cut back in the next few quarters on discretionary items by consumers. The impact will be felt in the top-end product categories and non-essentials," said Saugata Gupta, CEO-consumer products at FMCG major Marico.