Kiranas Face Inventory Glut Amid Weak Rural Demand – Implications for Investors

FMCGs find themselves fighting post-pandemic rural demand woes


The article discusses how small rural retail stores (kiranas) are facing slowing sales and excess inventory of FMCG products, as rural demand remains weak. This has implications for FMCG companies, distributors, investors, and the overall rural economy.

Analysis for Layman

  • Kiranas – small rural mom-and-pop shops, important for FMCG distribution.
  • FMCG – fast-moving consumer goods like personal care, food, home care, etc.
  • AICPDF – Industry body of FMCG distributors.
  • Distributors say this Diwali, kirana sales fell 20-25% versus last year. Excess inventory built up. Consumers cutting expenditure.

Rural slowdown persisting, non-food FMCG weaker than essential foods. Companies expanding direct reach, rationalizing product variants.

Original Analysis

The article highlights the consumption slowdown in rural India persisting despite early signs of recovery. Essential product categories like food are less impacted versus discretionary non-food categories. Rural markets, which contribute around 36-40% of revenues for FMCG majors, are vital for volume-growth. Hence, a sustained slowdown can impact their growth trajectories.

Companies seem to be responding by expanding direct reach through tech, e-B2B platforms, hiring feet-on-street in rural, and rationalizing non-performing SKUs. Investors should assess company-specific initiatives on expanding rural, small town reach. Those focusing on right products, packs, prices for these markets can gain market share despite demand issues. Companies with relatively higher rural salience and a weaker direct reach run higher revenue risks.

Urban focused players like cosmetics majors may be partly insulated. Investors need to realign portfolio based on revenue contribution from rural.

Impact on Retail Investors

For retail investors, the implications are two-fold. One, weak rural demand has persisted after early recovery signs. This indicates structural rather than just cyclical issues in the rural economy – income uncertainty, high inflation on non-food items, etc which can sustain over a longer term.

Two, companies are responding by tweaking strategy – distribution reach enhancement via rural feet-on-street, direct access through e-B2B apps for kiranas, right pricing/product portfolio by market.

Retail investors should re-assess revenue exposure of companies in their portfolio to rural markets and check their initiatives to mitigate risks of prolonged weakness. For instance, ITC being more skewed towards non-food segments is higher risk than HUL or Dabur, although ITC has been expanding direct reach rapidly.

Also, investors should increase/maintain higher exposure to essentials sectors like Agri, FMCG majors with pricing power. Stocks with urban salience can provide resilience in a portfolio amid rural weakness. Auto, travel, entertainment which rely on discretionary spend are higher risk.

Impact on Industries

The FMCG/CPG industry will be impacted the most, given the high reliance on traditional trade like kiranas to drive distribution and avail last-mile access. Nearly 80% of FMCG volumes flow through these outlets as highlighted. Sustained rural weakness can impact volume growth and necessitate higher ad-spends to revive demand.

Consumer durables, auto sectors will also be hit as rural weakness impacts demand. However, as discretionary categories, some level of postponement of demand may happen leading to the accumulation of pent-up revenue potential. Categories like tractors, entry-level bikes may face volume pressure if weak sentiments persist.

However, companies selling essentials like Agri-inputs may see a healthy rural demand outlook. Also, companies addressing rural infrastructure like irrigation, renewable energy can benefit from government expenditure if pump-priming investments are made to revive the rural economy. Healthcare delivery companies can also see policy support.

Long Term Benefits & Negatives

The rural slowdown highlights India’s over-dependence on monsoons, low food processing levels leading to supply chain inefficiencies. Addressing these can eliminate rural distress linked to weather shocks and improve the stability of farmer incomes. In the long run, this will strengthen demand sustainability.

Government’s continued focus on irrigation investments, agriculture market reforms, digital agriculture infrastructure across the value chain can benefit companies in this space along with rural economy turnaround.

However, over the long term, a weak rural economy can trigger multiple headwinds like:

  • Dampening mass consumption from a large base of the population, hitting volume growth. Mid, small-sized brands unable to absorb high costs will face more consolidation.
  • Rural-urban migration rising leading to increased chaos in urban centers. Social inequalities worsening.
  • Rise in non-performing assets for lending institutions, bad loan issues for banks if rural weak.
  • Government finances – both center and states – coming under more pressure with lower tax collections even as expenditure needs may remain high to contain unrest.

Short Term Benefits & Negatives

The inventory glut faced by kiranas highlights the structural demand issues rather than just temporary festival sluggishness. This indicates that rural weakness will persist in the near term leading to more revenue headwinds for many sectors.

FMCG firms can derive benefits like passing on high food, fuel, packaging input costs more easily due to weak rural affordability outlook. Brands can also drop slower-selling SKUs, reducing complexity and inventory risks.

However, disadvantages outweigh in the near term. Rural shortfall will hit volume growth, necessitating higher ad spends. Battling cost inflation will also require calibrated price hikes while avoiding damages to price-elastic demand. Gross margins could face pressure with negative operating leverage. Working capital needs would remain high due to channel financing for distributors, higher inventory.

Overall, a prolonged slowdown in rural India has negative ripple effects across lending, jobs, consumption. It can worsen inequality, fuel migration and severely limit the $5 trillion economy dream which banks on unlocking mass consumption.

Companies to Gain

FMCG majors deriving a major chunk of domestic revenues from essentials categories can benefit like:

  • HUL – over 50% revenues from soaps, detergents which are daily essentials. Expanding rural distribution reach.
  • Dabur – Over 65% domestic revenues from Healthcare, Foods, etc which see demand stability. Ayurveda positioning suits rural markets.
  • Nestle – Maggi, milk products are FMCG Essentials. Innovation in affordable price points for rural India.
  • ITC – Cigarettes offer a stable outlook as an addictive category though high illegal trade is a risk. Scaling up FMCG essentials portfolio faster now.
  • Marico – 56% of its domestic sales comprise of Parachute coconut Oil which is a non-discretionary purchase. Expanding Saaf & Sundar home care for small towns with sachets.

Agri input majors like PI Industries, UPL etc due to robust agri outlook over the long term with food inflation sustaining.

Companies at Risk

FMCG categories serving predominantly discretionary, indulgence needs being major part of portfolio face higher revenue risks if rural struggle persists like:

  • Varun Beverages – Pepsi soft drinks facing rural consumption downgrades, price hikes shrinking affordability. No low unit packs unlike Cola majors.
  • Jubilant Foodworks – Dominos pizzas discretionary, involving high costs for consumers who downgrade to more affordable options during inflation, income uncertainties.
  • Emami – Fairness creams, deodorant, cosmetics portfolio has over 50% exposure to discretionary, small town skewed play with premium pricing limiting affordability upside when downtrading happens.
  • Maruti Suzuki, Hero Motocorp – Entry-level bikes, small cars purchase postponement happening in rural owing to uneven farm incomes, jobs scene. Pose high risks.
  • PVR, Inox Leisure – Multiplex consumption involves high share of wallet spend. Rural audiences downgrading to TV/OTT/cheaper options for entertainment. Negatively hit.

Additional Insights

Private label growth in small towns/rural India as quality improves but lag branded products still. Scope for uptake exists.

Government policy response on tackling high food inflation, reducing import dependence through logistics infrastructure investments needs monitoring to judge rural economy improvement.

Pricing power of firms to offset costs versus downtrading by consumers needs assessment.


In summary, the article provides important signals that the consumption slowdown in rural India persists and continues to impact inventory-heavy channels like kiranas. Investors need to realign their portfolio towards essentials and evaluate company initiatives on expanding direct distribution via rural feet-on-street. However, concerns on rural economy weakness sustaining beyond the cyclical phase continue which needs close tracking.


Pinto, Viveat Susan. “Kiranas Grapple with Poor FMCG Sales Amid Weak Demand.” Financial Express

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