Will you spend more if monsoons are normal this year? Companies are betting on it
With drought in different parts of the country putting pressure on rural sales, FMCG firms including Marico, Dabur and Godrej Consumer Products Ltd (GCPL) are pinning hopes on 'pent up' demand to push growth after predictions of a normal monsoon this year.
They expect a pick up in sales during the second half of the current fiscal.
Godrej Consumer Products Ltd (GCPL)
"Rural sales have definitely come under stress due to the two successive droughts. We have extreme water scarcity in some states. These two successive droughts have lead to purchasing power of people to crash in the rural areas," GCPL Business Head India and SAARC Sunil Kataria told PTI.
Expressing similar sentiments, Marico Ltd MD and CEO Saugata Gupta said: "There is short-term pressure on rural consumption and the situation is slightly stressed, especially in the states that have been affected by drought for two consecutive years."
Dabur India Chief Financial Officer Lalit Malik said: "Poor monsoons last year did have an adverse impact on rural demand and we have seen growth slowdown in the hinterland towards the second half of the year."
Kataria said due to the combined effect of drought and lower price for crops, overall rural demand which was growing significantly between 2011 to 2014 has definitely come down.
Many parts of states like Maharashtra, Karnataka, Kerala, Gujarat, Uttar Pradesh, Orissa and West Bengal are facing drought. With companies garnering up to 30% of their overall sales from rural markets, they are keeping their fingers crossed for a good monsoon this year.
The companies are keeping fingers crossed for a good monsoon this year so that sales could be revived in the second half of this fiscal.
"The monsoon is going to be very critical for the rural demand to pick up, and with prospects of a good monsoon, we remain assured that the second half of the year will go well," said Gupta.
Expressing similar views, Kataria said: "I expect a significant swing in the second half because of monsoon is June to September and it would change the consumer sentiments." He said the measures announced by the government in the Budget to boost rural economy will also have an impact on FMCG sales during the course of the year.
"There has been a pent up demand. People have been postponing purchases because as they do not have money today but aspirations do not die in consumers' mind. They just hold back," Kataria said.
Agreeing with him, Malik said the government initiatives coupled with the forecast of a normal monsoon this year, should accelerate demand growth in the hinterland.
The Met office predicted last month that after two consecutive drought years, the country will receive "above normal" monsoon with a fair distribution of rainfall across major parts of country and it will be a "good year", easing fears of struggling farmers.
With the expectation of demand to pick up in the second half, Gupta said Marico lined up "an aggressive pricing strategy, prioritising long-term value and consumer delight over maximising short term margin."
Malik also said Dabur has already put in place distribution footprint to tap the demand growth. It is continuing to enhance distribution coverage in rural India from 14,000 villages to over 45,000 villages now.
"In addition, we are also working towards improving the portfolio coverage in rural outlets," he added.
Likewise, Kataria said GCPL has also continued its focus on rural markets, despite the challenging conditions through product innovations to drive sales growth from the hinterlands. "We have kept our rural journey intact and not taken shortcuts and taken back investments," Kataria said.