Budget 2017: Rural Consumption may revive but CPG companies have a task in hand
The Union Budget 2017 will finally give the consumer goods companies a reason to smile. Just when they thought that consumption was looking up, thanks to normal monsoons last year (after three consecutive years of drought), the demonetisation paralysed their growth further, with sales dipping anywhere between 15-25 per cent.
The Union Budget 2017 will finally give the consumer goods companies a reason to smile. Just when they thought that consumption was looking up, thanks to normal monsoons last year (after three consecutive years of drought), the demonetisation paralysed their growth further, with sales dipping anywhere between 15-25 per cent. However, the Budget's rural sops such as MNREGA allocation being increased from Rs 38,500 crore to 48,000 crore, the coverage of 'Fasal Bima Yojna' being increased from 30 per cent to 40 per cent etc, will definitely be an incentive for the rural consumers to spend.
"The focus, this year has clearly been the farmers and people in the hinterland. I am quite happy with the government continuing the rural focus and enhancing allocation to MNREGA to Rs 48,000 crore. These, coupled with the skill development initiative, would not just strengthen the hands of the rural poor, but also help put more disposable income in the pockets of the rural consumer and ensure continued rural demand for branded consumer goods," says Sunil Duggal, CEO, Dabur.
With rural consumption hitting an all-time low, a lot of focus of the large CPG companies had moved towards the urban markets with a bulk of them targeting the top of the pyramid of with premium products. "The CPG companies now need to re-strategise, their product portfolio has to have a fair share of products targeted at the rural and middle class population, as the consumption multiplier lies with the middle class," points out Debashish Mukherjee, Partner (Consumer Practice), AT Kearney.
The large CPG companies indeed need to look at their rural strategy more seriously. For, when they shifted their focus to the urban areas when consumption dipped in the rural markets, they lost ground to regional companies. So, in a market like rural Gujarat or Maharashtra for instance, one could see a flurry of local brands (especially in the food and personal care categories) occupying shop shelves. These brands not only understood local mindsets better and came up with products that suited the needs of local consumers, they also offered more quantity at the same price.
Therefore, while incomes in rural areas are all set to increase, the big task for CPG companies would be to substantially increase their focus on the rural markets. Not only do they need to come up with products suited to the consumption needs of the rural consumers, but also increase their distribution muscle in these markets. After all, close to 60 per cent of India resides in rural India.