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Consumer goods firms expect rebound in rural demand to buoy Q3 sales

LiveMint logoLiveMint 21-09-2017 Deepti Govind

Bengaluru: Consumer packaged goods firms expect a bounce-back in rural demand to boost overall sales during the October-December quarter, which also coincides with the festival season. “We are expecting demand to really perk up in the third quarter and the festivals will help. We’re expecting at least 10-15% increase in sales this quarter versus the same period last year,” said Mayank Shah, category head for biscuits and chocolate at Parle Products Pvt. Ltd.

Shah expects rural demand, in particular, to witness a huge surge, given the favourable monsoon this year.

Both rural and urban consumer demand was affected over the past year following demonetisation and the introduction of the goods and service tax (GST).

While demonetisation proved to be a temporary blip in urban areas, it took much longer for cash to return to rural areas. And before rural consumption could recover, GST dented demand during the first and second quarters of 2017-18, both executives and analysts say.

But with good monsoon rains this year, consumer goods firms expect rural demand to rebound in sync with the upsurge in discretionary spending during the festival season in urban India. Together, that should prove beneficial for these companies, which, regardless of differences in growth rate estimates, expect a good October-December quarter. 

In rural areas, the increase in demand is expected to be in staple products rather than discretionary items such as biscuits, while the opposite is likely to be true for urban areas. For instance, packaged consumer products giant Marico Ltd expects traditional products like hair oil to do better in tier II and rural markets, and demand for cooking oil brands like Saffola to increase in urban areas during the festival season.

“We usually clock 3-4% incremental sales around the festive season in India,” said Sanjay Mishra, chief operating officer for India Sales and Bangladesh at Marico. 

In order to maximize both the revival in rural demand and the yearly discretionary spending surge in urban India, firms are going all out by launching various gift packs, especially in their premium offerings, for the season. 

“Our customary Diwali gift packs comprising Del Monte canned fruit juices are a huge hit among the consumers, and fetch us close to 15% of our overall juices sales. With consumer sentiments getting back on track post demonetisation and GST, we are expecting a 35% rise in our Diwali gift pack sales over last year,” Yogesh Bellani, chief executive of FieldFresh Foods Pvt. Ltd, said in an emailed statement.

The firm also expects its gift baskets, which include Del Monte’s premium range of mayonnaise, pasta, olive oil and packaged fruits, to do well.

Parle is launching a range of gifting options under the name Parle Occasions.

The firm is also expected to launch festive offerings from Parle Platina, a separate division created this year for premium products.

This is the right time for firms to capitalize on a rebound in demand, especially in tier II cities and rural markets, said Sreedhar Prasad, partner at KPMG in India. Consumer goods firms need to ensure they have sufficient stocks and schemes for retailers to grab this short-term opportunity, Prasad added.

But some analysts are not convinced that sales rebound in the quarter will be strong. “This year there could be some benefit for the organized segment because of the shift from the unorganized market. But incomes need to rise and jobs need to be created for a significant boost in demand,” said a Mumbai-based analyst who did not want to be named.

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