Kiranas Struggle With Too Much Stock Due to Low Demand in Rural Areas—Explained for Investors

Now, your local kirana stores can have their online platform with this new app | Mint


The article discusses how small rural retail stores called kiranas are facing issues of excess inventory and slower sales of Fast Moving Consumer Goods (FMCG) products like packaged foods, home care, and personal care items. This is mainly attributed to weakening rural demand on the back of high inflation eating into rural incomes and impacting spending ability.

Analysis in Simple Terms

Kiranas in Rural and Semi-Urban Regions

Kiranas refer to small neighborhood retail outlets located across rural and semi-urban regions. They account for over 50% of the 12 million plus retail outlets mapped across India according to market researcher NielsenIQ.

Excess Inventory Build-up

These kirana shops are seeing pile up of excess inventory and stocks of FMCG products, almost 25-30% higher than normal optimal levels. This unsold stock build-up indicates slower and weaker sales.

Reasons for Slowdown

The key reasons are the demand slowdown in rural areas and cautious reduced spending from consumers during major festivals like Diwali due to inflationary pressures on disposable incomes and overall rural sentiment.

Slower Rural FMCG Sales

Rural FMCG sales have been under pressure over the last few quarters and are recovering at a slower pace compared to urban demand. This manifested in relatively lackluster rural sales performance even during peak festive seasons.

Impact on FMCG Companies

FMCG companies generate almost 80% of their overall sales volumes through the kirana retail channel given its extensive last-mile rural reach. Hence slower kirana offtake has also impacted the rural revenue growth and profitability of FMCG companies.

Original Analysis

The article provides critical insights into the tight nexus between the dynamics of rural demand, kirana stores as a key rural distribution network, and FMCG companies having high dependence on these small rural outlets.

Impact on FMCG Value Chain

With rural markets estimated to account for close to 36% of total FMCG sales, a sustained slowdown in rural spending can potentially have significant ripple effects across the entire FMCG value chain spanning companies, distributors as well as end retailers.

Challenges for Kirana Stores

Kirana stores, given their status as the crucial last-mile connect point to rural and lower income consumers, are bearing the maximum brunt of the demand pressures currently. Excess inventory build-up indicates production-sales mismatches, stock outs, and lost revenues for kiranas in a low margin high volume business.

Interlinked Factors

The instances highlight that FMCG business performance and rural incomes & affordability have become closely interlinked given the criticality of rural markets for revenue and sales growth. With the outlook on mass affordability still uncertain, it creates volatility for volume-sensitive stocks.

Monitoring Rural Consumption

Hence investors need to monitor rural consumption indicators closely as lead indicators for FMCG sector performance. Any sustained revival or deterioration in rural sentiment and demand trends will likely reflect on FMCG stock movement over medium-term horizons.

Impact on Retail Investors

For retail equity investors, the reported developments underscore the importance of monitoring some lead indicators regarding rural consumption patterns very closely while making investment decisions related to the FMCG sector – one of the largest sectoral components of the Indian stock markets.

Rural Contribution

With almost 2/3rd of India’s population and 50% of total FMCG volumes coming from rural areas, Indian FMCG companies derive a chunk of their revenues from rural India making their business models closely tied to rural affordability and sentiments.

Key Metrics to Track

Hence lead metrics related to rural income levels, farm output, NREGA wages, tractor/two-wheeler/CV sales, etc. need to be tracked to assess the impact on discretionary spending. As the article rightly indicated, even festive season demand trends in rural versus urban provide insights into divergence / convergence in sentiment.

Long-Term vs. Short-Term Orientation

While revenue growth orientation may require focusing on premium / high-margin segments in urban areas to drive profitability in the short term, volume growth eventually depends on mass segments (where rural is dominant). Investors should assess rural exposure levels of different FMCG companies before investing from a medium / long-term orientation.

Impact on Industries

The reported trends of subdued sales growth across food as well as non-food discretionary categories highlight the vulnerability of some consumer-facing industries like FMCG, retail, and automobiles towards potential demand swings in the mass segment consumption driven by rural India.

High Rural Dependence

Given that rural segments account for almost 50% volume contribution for autos, FMCG, durables and even telecom industries, intermittent shocks in rural cash flows can create volatility in volume growth estimates – leading to stock price corrections for companies with high rural exposure.

Evaluating Sensitivity

Thus investors across consumption-linked sectors require evaluating company-wise market segmentation – urban vs. rural, North vs. South, etc to determine sensitivity towards rural shocks. Sectors like tractors, fertilizers, agri-inputs which have direct rural exposure are most sensitive. Also, companies within sectors gaining rural salience like financial services need monitoring to ride the undercurrent of the India consumption story.

Long Term Benefits & Negatives

In the long run, FMCG companies can leverage the rural consumption opportunity by making investments in augmenting their distribution networks, including rural coverage, expanding stockist network in untapped geographies to drive width and depth of rural penetration.

Strategic Imperatives

Building direct-to-retail channel connecting smaller towns through digitization, working closely with regional distributors who have a strong grasp of market nuances, balancing national and regional brand preferences through tailored portfolios are amongst some of the strategic imperatives for enduring growth.

Risk for Companies

However, companies unable to make such investments in distribution and relying predominantly on third party distribution without direct rural presence could see losing market share over the long run. Urban-centric business models may provide superior profitability in the short run but not represent a sustainable source of competitive advantage for Indian FMCG players given the divergence in realizable margins between urban and rural ecosystems.

Short Term Benefits & Negatives

In the short term though, FMCG companies are faced with uncertainty around the prospects of a quick turnaround or sustained slowdown in mass rural demand amidst global macroeconomic vulnerabilities like rising interest rates, recessionary pressures in export destinations impacting remittances, erratic monsoons, etc – which influence farm-level incomes and hence discretionary spending propensity.

Short-Term Challenges

Until visibility on rural recovery shapes up, FMCG companies are likely to face pressure on volume growth rates which have already tapered down substantially over the last few quarters. Even festive season spikes have been more muted compared to past trends. This volume growth slackness weighs on operating leverage, creating temporary pressure on profitability ratios – like EBITDA or PAT margins.

Market Reactions

Stock prices for most FMCG majors have also witnessed intermittent bouts of high volatility reacting to Earnings downgrades on rural weakness. Valuations also tend to contract due to peak revenue multiples getting reassessed if growth momentum slows. However, any positive triggers or anticipatory spike in rural-linked stocks are also a possibility if green shoots start emerging in rural wages, farm outputs, etc. suggesting bottoming out of weakness.

Companies that could Gain

Some of the FMCG companies that can be potentially positively impacted due to their strong rural orientation or efforts towards augmenting rural reach are:


ITC has made deep inroads into rural distribution helped by its strong presence in agri-business value chain coupled with product portfolio attuned to rural consumer preferences. Expanding direct reach through Choupal Sagar rural retail channels distinguishes its model. Its stock can see re-rating if rural recovery strengthens.


HUL has embarked on a rural coverage expansion drive by augmenting its Shakti distribution network to 75,000 villages. It is also rolling out smaller-sized mass segment packs across categories like detergents, soaps, etc., to improve affordability that would help tap rural demand uptick.


Dabur has 60% rural exposure by sales value and is focused on expanding wholesale and retail footprints in rural areas where it’s low penetration of Ayurvedic healthcare products like Chyawanprash, honey, etc can help it gain market share. Its rural-oriented product portfolio build-up positions it well to tap growth upside when spends revive.


Emami derives over 50% of its domestic sales from rural areas and has brand resonance across mass segment price points. It has tailwinds from underpenetration in rural markets where distribution strengthening efforts can help it outpace industry growth rates.

Companies that could Lose

Some FMCG companies facing growth challenges or losing market share if rural consumption weakness persists include:


Marico has high exposure to discretionary categories like hair oils, premium edible oils portfolio where rising inflation is impacting affordability. It is facing market share losses to loose oil players. Its stock saw a huge correction reflecting revenue growth pressures. Recovery depends on premiumization trends outweighing rural weakness.

Tata Consumers

With Salt, Pulses, Spices portfolio tilt towards mass segments, nearly 50% revenues linked to rural areas, Tata Consumer’s financial performance mirrors rural sentiments closely. Its stock price movement has remained subdued amidst growth struggles. However, distribution expansion can uplift long-term prospects.


Britannia’s stock has also remained lackluster due to premium biscuits portfolio facing near-term consumption challenges, mainly in rural belts. Urgency to rebalance its skew towards urban salience through mass products revival like Tiger glucose biscuits targeting rural buyers can rekindle its volume growth trajectory.

Jubilant FoodWorks

Dominos Pizza parent JFL has high exposure to discretionary spend linked food services segment which is witnessing demand moderation from smaller towns. Its unit economics is getting impacted by input cost pressures with the ability to take full pricing action limited. Same store sales growth has tapered but focus on adding stores can protect growth rates.

Additional Insights

Some of the key implications from the reported FMCG sector’s struggles with balancing rural versus urban growth dynamics can be summarized as:

Sales Mix Modelling

The divergence in rural and urban growth trends highlights the need for sound sales mix modeling aligning with category affordability curve rather than skewed presence only at premium price points or mass price points.

Rationalization of Products

Companies would need to rationalize their stock keeping units and product variants to ensure optimum coverage of price-benefit segments across urban and rural bifurcation to eliminate redundancy and drive profitability through higher unit economics.

Focus on Stable Categories

Focus on categories that have intrinsic volume resilience or low cyclicality with essential / non-discretionary demand characteristics can lend stability to offset weaknesses in high value discretionary categories. Examples include dairy products, staples like Atta, Rice, Soaps, etc targeting mass user groups.

Expanding In-Store Assortment

Drive higher salience in chemist, cosmetics and Kirana food outlets through expanding in-store assortment and influencer network to improve national brands’ representation at dealers vis-a-vis market leaders and benefit from the inelastic nature of indigenous food-linked buyer behavior.


To conclude, while near term rural demand volatility poses temporary headwinds, India’s positive structural consumption story anchored around rising rural incomes and affordability remains intact in the long run. Once transient cyclical challenges get mitigated, revival likely to reflect in earnings upgrade cycle for rural-weighted stocks.

Some calibrated measures like expanding direct distribution reach beyond urban confines through rural feet-on-street models, focusing on categories with recession resilience to balance profitable portfolio mixes aligned to the income pyramid, streamlining product assortment by eliminating non-performing lower salience SKUs and integrating backend and front end retail for agility – will help companies overcome intermittent consumption shocks.

Proper Citation: Pinto, Viveat Susan. “Kiranas grapple with poor FMCG sales amid weak demand.” Financial Express

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