Steady monsoon lifts rural demand and brings festive optimism in FMCG

The Indian Meteorological Department (IMD)’s prediction for above-normal rainfall across India during the monsoon season, i.e. June to September 2024 came as a silver lining for the fast-moving consumer goods (FMCG) category. The previous year, the sector saw muted topline growth, with an uneven spread of the monsoon impacting demand. The rising food prices and below-normal rainfall distribution in some regions had delayed the expectation of rural demand recovery. 

FMCG, as a category, heavily relies on the monsoon for its revenue in the second half of the year. Deepak Sonpar, AoR Lead + Wellbeing Ally, EssenceMediacom India notes that around 46% of the country still depends on agriculture as an income source and therefore, on the monsoon, which makes a healthy monsoon essential. 

“We have seen several years where the monsoon was either inadequate or extreme. This impacts the next six months of their purchasing cycle, including the festive season, and then they often have to rely on subsidies to survive.” 

Sonpar continues that during COVID, there was a huge stockpiling of products, however, people shifted their spending to experiences like travel. He adds that the market is now beginning to stabilise and return to more typical patterns.

With this, the FMCG sector will see revenue grow 7-9% this fiscal, riding on higher volume growth, supported by an expected revival in rural demand and steady urban demand. This follows an estimated 5-7% growth in fiscal 2024, as per CRISIL Ratings.

“We expect volume growth of 6-7% in fiscal 2025 from the rural consumers (~40% of overall revenue), supported by expectation of better monsoon benefitting agricultural production, and hike in minimum support price supporting farm incomes. Higher government spending on rural infrastructure, primarily through Pradhan Mantri Awaas Yojana-Grameen (PMAY-G) for affordable houses, will aid higher savings in rural India, supporting their ability to spend more,” Aditya Jhaver, Director, CRISIL Ratings, said in a press release. 

In contrast, volume growth from urban consumers is expected to remain steady at ~7-8% during fiscal 2025 driven by rising disposable incomes and continued focus on premium offerings by the players in the personal care and home care segments.

Parle Products Pvt. Ltd’s Senior Category Head - Marketing, Krishnarao Buddha notes that the monsoon is shaping up well for the category so far.

Buddha comments, “While June was initially concerning with some deficit, the latter half of the month has shown that the monsoon is panning out well. In most geographies, the monsoon seems to be normal, which gives us a positive sentiment as FMCG marketers.”  

A good monsoon means that consumers are more likely to spend on items like biscuits, confectionery, salty snacks, and bakery products, which is good news for Parle.

Parle Industries Limited's earnings results for the first quarter ended June 30, 2024, reported a revenue of INR 3.53 million. The net income was INR 1.37 million compared to a net loss of INR 0.686 million a year ago.

Good monsoon augurs well for festive spends

Considering the rainfall till July has been above normal, it can be expected to enhance rural incomes, in turn, boosting festive spending in Rural India, as per Raja Chakraborty, CMO of Continental Coffee Limited (CCL Products). 

Notably, Chakraborty notes that shifting weather conditions significantly impact consumption and spending patterns across various FMCG categories, including food, hot beverages, cosmetics, and personal care categories such as shampoo, facial creams, fragrances, and other indulgence products.

“In such categories, the investment on ad spends, consumer outreach, and promotions are seen to be skewed towards the monsoon and post-monsoon season.” 

The sector has been marked by top-line growth, driven primarily by a sustained recovery in rural demand, according to Axis securities report. The rural markets have not only matched but exceeded urban growth, reflecting the sector's penetration in less urbanised areas. The report notes that companies have been spending more on advertising to regain market share, which has slowed down their profit margin growth for now. However, these investments are expected to pay off in the long run, helping the companies grow steadily in the future.

CCL Products’s net sales for June 2024 was at INR 773.29 crore, up 18.07% from INR 654.93 crore in June 2023. The quarterly net profit was at INR 71.47 crore in June 2024 up 17.72% from Rs. 60.71 crore in June 2023. The company’s Managing Director, Challa Srishant told CNBC-TV18 that the company allocated around INR 14-15 crore to advertising spending in 2023 and plans to increase that to roughly INR 20-25 crore in 2024. The quarter, followed by the festive season, is likely to affect its ad spending.

Similarly, Kiran Giradkar, CMO, BN Group comments that this year looks like a relief for farmers, brands, and rural consumers alike. He continues that the company expects consumption to pick up in the coming festive season, which is followed up by good monsoons. 

“We have seen this happening for our brands “Simply Fresh” and “Healthy Value,” which have better traction in rural India. The sale of FMCG products through online shopping platforms is on the rise and we expect a significant increase in sales during the festive season, driven by discounts, offers, and convenience.”

With the hiked sales of its ‘Simply Fresh’ range of oils including sunflower, Soyabean and groundnut oils, the edible oil manufacturing company will deploy its marketing budgets towards market activations to influence better purchases.

Marketing strategies buoyed by monsoon and festive demand

EssenceMediacom India’s Deepak Sonpar points out that the monsoon is likely not to see any major impact on ad spends apart from seasonal products. This year, Sonpar anticipates the festive period to be vibrant, expressing optimism that a successful festive season could set a positive tone for the industry over the next two years.

“With healthy budgets in place and sufficient funds allocated for employment and various spending initiatives, we expect to see increased demand and a rise in discretionary spending, extending beyond the major cities. This, in turn, is likely to shape the overall sentiment for the year ahead."

For companies like Parle Products, the July to September quarter is a ‘fantastic period’, and Krishnarao Buddha with the marketing team is leveraging it effectively. 

“In terms of media spending, we plan to increase our investments during the monsoon. For instance, in the previous quarter, we had a significant presence on big-ticket events like the IPL and T20 World Cup. Now, we are focusing on being present during various festive activities across different channels to maximise the benefits of this monsoon season.”

The company’s marketing strategies include expanding its go-to-market approach, increasing footprint, and supporting it with media activity across TV, print, and digital platforms. Additionally, the company is preparing to introduce its gifting range to cater to the festive demand around September and October, Buddha continues.

Additionally, Buddha says, “We are focused on reaching more rural outlets as part of our go-to-market strategy, aiming to improve our service in these areas. For Parle, the rural market is extremely critical, and we have a higher skew towards rural areas compared to urban markets. This strategy pans out well, especially during a good monsoon season.”

Raja Chakraborty outlined Continental Coffee's strategy to capitalise on improving consumer sentiment in rural areas over the coming quarters. He emphasised the importance of focusing on new television campaigns and driving deeper distribution growth through small-pack offerings in rural markets. 

"We plan to engage in consumer activities during the festive season, especially in towns and districts which are religious centres and consumer footfalls in such towns increases," Chakraborty noted. As a growing food brand, the brand invests in wet sampling to allow consumers to experience the product firsthand, which Chakraborty believes leads to eventual purchase.

In addition to these efforts, Chakraborty highlighted the company's aim of a wholesale outreach program aimed at strengthening distribution in rural India. He summarised the brand’s rural marketing strategy also includes below-the-line media like wall paintings, shutter branding, dealer boards and using localised cable TV. 

“TV plays a major role in creating Rural brand awareness,” Chakraborty summarises. 

BN Group’s Kiran Giradkar points out the necessity of localised strategies to effectively capture and retain the rural consumer base, and how tailored approaches can drive recall in the key markets.

The company has introduced Nutrica Pro-Immunity blended oil with Vitamin C, which is essential for monsoon care. 

“Our content strategy is pivoted around creating monsoon-themed recipes and cooking challenges, water-resistant packaging, and comfort food. We are also partnering with health and wellness experts for monsoon-focused awareness content.”

Giradkar mentions that when it comes to engaging with rural communities, melas, and exhibitions have been instrumental in shaping a sound rural marketing strategy. 

“This is possible only when we communicate in local languages to resonate with rural audiences. We also focus incremental resources on establishing a strong distribution network to ensure product availability in rural areas by collaborating with local influencers, retailers, and organisations to build trust and credibility.”

As of now, the FMCG sector experienced a 4% value growth in the April-June quarter, down from the 6.6% growth seen in the previous quarter, according to data from NielsenIQ (NIQ). The report indicated that rural areas recorded a 5.2% volume growth, a decline from 7.6% in the previous quarter, but still managed to outpace urban growth for the second consecutive quarter. Urban growth was 2.8%. 

As the FMCG sector navigates through a period of recovery and growth, the favourable monsoon and strategic investments in rural markets are expected to play a pivotal role, setting the stage for a vibrant festive season, with a focus on consumer engagement, regional marketing strategies, and enhanced distribution networks.