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Rural Distress: Consumer goods companies to shift focus to urban

Vjmedia Works | April 29, 2015

Weak rainfall may push these and consumer durable firms to turn their attention to cities

The prospect of a prolonged dry spell this year could compel consumer-facing businesses to turn their attention to cities.

The reason for this is the stress that rural markets are expected to witness following weak rainfall. Typically, monsoons impact harvests, which, in turn, impact farm incomes. If rural incomes are low, the purchasing power of consumers residing in villages comes down, hitting sales of products from appliances to electronics to essential goods.

Anirudh Dhoot, director, Videocon Industries, among the top consumer durables firms in the country that sells a sizeable proportion of its products in semi-urban and rural areas, says he is waiting for a revised update from the meteorological department as well as private forecasters to firm up his plans for the coming months.

"At this stage, our cooling products such as air conditioners and refrigerators are doing reasonably well in regions such as Rajasthan, Delhi and some parts of the north and west. This, despite unseasonal rain, which delayed the onset of summer. While the danger of a prolonged dry spell looms, I will wait for a revised forecast from the met department, since private forecasters are at variance with it,” he says.

The Delhi-based Skymet had said earlier this month that rains would be normal this year, pegging it at 102 per cent of the long period average for June to September. Skymet had also said there was a four per cent margin of error, with a 16 per cent chance of below-normal rain this year.

The India Meteorological Department, on the other hand, had said rain would be below normal, pegging it at 93 per cent of the long period average between June and September. It also said  the probability of a below-normal monsoon was the highest at 35 per cent, while it was 33 per cent for a deficient monsoon, 28 per cent for a normal monsoon and negligible for an above-normal monsoon.

Most executives of consumer durables and fast-moving consumer goods (FMCG) companies are in agreement with Dhoot, saying this confusion has to be sorted for them to chart a way forward.

"Climatic changes have been a worrying factor this year, with unseasonal rain, hail and snow hitting crop output in the North, West and East. Now comes this monsoon update of likely weak rains. I am certainly not pleased because the monsoon is critical to the rural economy and to our business. However, I will wait for a clearer picture to emerge,” the chief executive officer of a top FMCG firm said, requesting anonymity.

Almost a third of FMCG sales in India occurs in rural areas. In the case of consumer durables and electronics, there are no clear estimates, though companies such as LG, Videocon, Voltas and Godrej Appliances have been pushing their products into semi-urban and rural areas in their quest for growth.

Estimates put Videocon's sales, for instance, from small towns and village at 45-50 per cent, owing to its strong presence in categories such as small flat panel TVs, single-door refrigerators, and semi-automatic washing machines, products that do well in rural areas. Industry sources say at least a fourth of LG's, Voltas and Godrej Appliances' sales come from rural areas.

Despite the odds, some consumer goods CEOs are putting their heads together to crack the code in the event of weak rainfall. Sunil Duggal, CEO, Dabur India, says, "The attention will have to shift to urban areas. Investments in rural markets, notably in distribution and product portfolio expansion, will have to slow down. No point going to a market where growth is likely to be weak. Instead, we are likely to look at more urban-centric products in categories such as health care and beverages and push them aggressively there.”

Harsh Mariwala, chairman, Marico, says, "The strategy will have to be mixed. Not all areas will witness weak rainfall. There could be states such as in the South which could be better than, say, the North and parts of the West. The strategy in states where the monsoon is likely to be normal will be different from that where the monsoon is weak. Yes, in states where the monsoon is weak, the focus will have to shift to urban areas. The strategy will not change in those areas where the monsoon is normal.”

B Sumant, divisional chief executive in charge of FMCG trade marketing and distribution, ITC, says, "We do not foresee any immediate impact on demand on account of the weak monsoon forecast. Having said that, the key differentiator for ITC when it comes to its rural business strategy is its extensive distribution reach, focus on innovation, technological intervention and a basket of consumer products that meet the aspirations and needs of rural India. We will continue to keep our focus on improving these.”

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