are coming out of the difficult period that the national lockdown
had induced in the first part of the April-June period (Q1). The recovery in demand seen in June implies that Q1 will not be a complete washout as anticipated earlier,” said Kaustubh Pawaskar, associate vice-president, research, Sharekhan.
On the outlook, he added, “We expect a gradual recovery from here onwards in terms of sales for most players. And, if capacity utilisation by companies is taken into account, there is a vast improvement in production, which points to underlying demand in the marketplace.”
The Nielsen data, sourced from the industry, shows that consumption growth in rural areas reached 85-90 per cent of pre-Covid levels in June against 50-60 per cent in urban areas. This has been led by fewer infections and lockdowns in rural areas, greater focus by the government on rural welfare, and the reverse migration of people from cities to villages, which is pushing up the consumption of staple products, said experts.
One-third of sales by FMCG companies is in rural areas. Companies such as Dabur and Hindustan Unilever (HUL) have a higher exposure to them, at over 40 per cent of the total, sector experts said.
“We were ramping up production in the June quarter after manufacturing virtually came to a standstill at the end of March. Capacity utilisation is now at 90-100 per cent of pre-Covid levels,” Sanjiv Mehta, chairman and managing director (MD), HUL, said during the company’s recent annual general meeting (AGM).
“Seventy-five per cent of our portfolio focuses on essential products and is therefore robust. Twenty per cent is discretionary in nature and is under stress due to disruptions in the marketplace, while 5 per cent of the business, which has to do with out-of-home consumption such as ice-creams, has been severely impacted,” Mehta added.
N Chandrasekaran, chairman, Tata Consumer Products, the maker of Tata Salt and Tata Tea, said demand was bouncing back.
“In certain markets, demand has been a little higher than usual because people have been stocking up when it comes to packaged foods,” he said in response to shareholder queries during the firm’s AGM last week.
Brokerage Motilal Oswal Securities said in a recent report the month of July would be critical on account of the progress of the monsoon and its impact on sowing and cultivation. At the same time, the government’s incremental spending in rural areas, including increasing allocation to rural welfare schemes such as the one under the Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA), augured well for the FMCG market.
The data by the Centre of Monitoring Indian Economy (CMIE) said the rural job loss rate fell to 6.34 per cent in the week ended July 12 against 7.78 per cent in the previous week, which was a four-month low. The overall unemployment rate, as a result, stood at 7.44 per cent for the week ended July 12 versus 8.87 per cent in the previous week, the CMIE said, because joblessness was falling sharply in rural areas. The urban job loss rate, on the other hand, remained elevated at nearly 10 per cent in the week ended July 12, though it had moderated in comparison to the previous week (11.22 per cent).
The uptick in rural areas is prompting companies to take note. Dabur India Chief Executive Officer Mohit Malhotra said the offtake of value packs, especially in rural areas, had increased in oral care and health care, pushing the company to put up additional manufacturing lines.
Biscuit majors, on the other hand, were introducing packs at Rs 5 and Rs 10 for all their brands in a bid to capitalise on demand in rural areas.