Indian Economy News

Rural consumption takes pole position in Q2 2022

  • IBEF
  • October 12, 2021

The recent quarter witnessed increased demand for consumer goods from small towns and villages, outpacing cities. Rural consumption of FMCG goods expanded 58% year on year, twice the urban consumption, during the quarter ended September 2021, according to the latest report by Bizom, a sales automation firm that transacts with 7.5 million retail stores. The overall market has recovered sharply with the quarter seeing a 46% growth in total sales by value. Rural markets have grown faster in the past two years, underpinned by higher farm income, minimal retail disruption during the 2020 lockdown and migrant workers returning home. Rural markets are also resilient on the back of a strong kharif crop, good rabi sowing and good monsoon. The growth in rural markets was also driven by rise in kirana outlets that more than doubled compared to a year ago.

Mr. Krishnarao Buddha, Senior Category Head at Parle Products, India's largest food company highlights that from a demand perspective, rural has been outperforming urban except for a short blip few months ago as they faced no supply chain issues. Also, the surge in infections in villages led the people to turn to  packaged foods. Mr. Akshay D'Souza, Chief of Growth & Insights at Mobisy Technologies, which owns Bizom highlights that disruptions in supply and closure of kiranas during the last wave, led to a stronger focus on essentials. However, this time the key enabler for growth has been the strong presence of kirana outlets and increased people mobility that is fuelling higher growth across categories.

Villages saw a surge in infections during the second COVID-19 wave earlier this year, which led to cities outpacing villages in June. Urban market was less impacted due to increased sales through ecommerce, improved performance of modern trade and chemist outlets, coupled with limited closure of general trade outlets then.

Strong consumption recovery wasn't just restricted to low-priced consumer goods. In July-August, small towns with a population between 1 and 5 lakh grew by over 8% in terms of value across all consumer electronics and appliances as compared to 5% growth at an all India level, market intelligence firm GfK India said. “As we move into the festive period and beyond, we expect these markets to either maintain or increase their salience across categories. Premiumisation is driving the growth with average selling prices (ASP) growing faster than all-India,” said Mr. Nikhil Mathur, Managing Director - India at GfK, adding that the pandemic-led reverse migration has aided the growing prominence of these small towns across categories. Sales growth of laptops in smaller towns has been 43% compared to 30% for overall category between July and August over same period last year. Also, the overall smartphone market declined 1% but grew 2% in smaller markets. Even in the washing machines segment, the overall market grew 3% but smaller towns grew at twice the rate at 7%. Haier India president Mr. Eric Braganza said the impact of Covid and the second wave lockdown in smaller towns was much lower helping in faster recovery. Even the good monsoon will boost agricultural income whereby consumer sentiments are very bullish in small towns, he said.

Disclaimer: This information has been collected through secondary research and IBEF is not responsible for any errors in the same.