How to Beat Bharat's Blues
Forbes India|September 27, 2019
With rural consumers tightening their purse strings even for daily-use products, FMCG companies are trying to tide over the slowdown with a slew of strategies.
Divya J Shekhar

Bhura Singh, 44, firmly believes that one cannot run a household by just being a grocer these days. He holds this view despite owning a large grocery store that caters to over 3,330 people in Khushhal Pur, Uttar Pradesh. The village has just one other store like his.

Among the fastest-moving products in his shop are single-use tea packs by Nice (manufactured in the neighbouring Harpur city) priced at ₹1, noodles by Rafan (manufactured in Kanpur) priced at ₹5 and chocolates called Dairy Rich manufactured by a company called Appeal, costing ₹5. All these products are placed alongside Tata and Brooke Bond Taaza tea pouches, Nestle’s Maggi noodles and Cadbury Dairy Milk respectively. “Dehat mein kisi cheez ki kami nahin hai [Villages have many options to choose from]. Of course people are aware of superior brands, but these days, they just come to me with ₹10 and ask for a product that will provide maximum quantity and value for the price,” says Singh.

Aaj kal gaon mein toh daily kamaana, aur daily khaana,” he explains, referring to how most people—especially daily wage-earners and marginal farmers— are buying small units on a day-to-day basis. So high-value tubes of face creams are being sidelined for smaller packs, while shampoos and hair oils are only being bought in one-time-use sachets priced at ₹1 or ₹2. Soaps are being sold as usual, he claims, but “that is a product with the lowest margins”.

Singh, who is married with three daughters and one son, complains that customers are also taking longer to repay credit. This means he may delay paying his sub-stockists, who in turn face pressure from super-stockists and FMCG companies. With credit channels drying up, customers become more cautious about their purchases.

“The margins are already low for small retailers like us, and when people reduce or stop buying, it becomes more difficult. This business virtually has no benefit,” says Singh, who refuses to divulge his revenue, but claims that it has fallen by almost 40 percent over the last year.

While demonetisation in 2016 and the Goods and Service Taxes (GST) in 2017 created a cash crunch that crippled rural India, other factors like stagnant rural wage growth, crop failures, monsoon irregularities and drop in area under cultivation have negatively impacted consumer spending. Macroeconomic conditions like limited beneficiaries to the PMKisan Scheme, lower government spending, lower procurement despite increase in minimum support prices (MSP) have also impacted FMCG consumption.

“The [FMCG] slowdown is more pronounced in rural markets, on the back of consumption—and this is directly linked to rural wages,” Sunil Khiani, retail measurement services lead, Nielsen South Asia tells Forbes India in an email. In July, the market researcher had lowered its 2019 growth outlook for the FMCG sector to 9-10 percent, down from its previous forecast of 11-12 percent.

Demonetisation and GST particularly hit the informal sector— leading to business failures, plant closures and job losses. According to the Centre for Monitoring Indian Economy (CIME), the unemployment rate in July 2017 (when the GST was introduced) was 3.4 percent and had reached over 9 percent at the end of August 2019. The liquidity crisis faced by Non-Banking Financial Companies (NBFCs) has also had a ripple effect on the FMCG sector, while Gross Domestic Product (GDP) growth rate in the April-June quarter was 5 percent, the lowest quarterly GDP growth rate in six years.

“At the beginning of the year, we saw softening driven by essential and impulse food categories; however, this quarter [ended June 30, 2019] has witnessed slowdown across all food as well as non-food categories, with salty snacks, biscuits, spices, toilet soaps and packaged teas leading the slowdown,” says the Nielsen report.

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