Urban Markets Drive Q3 Growth for FMCG Inc as Rural Demand Lags

FMCG Sales Trends in Q3: Urban Outpaces Rural

Source and Citation: Originally reported in Economic Times by ET Bureau on January 6, 2024.

Analysis for Layman

In the third quarter of the financial year 2023-24 (October-December), the Fast Moving Consumer Goods (FMCG) sector in India experienced stronger sales growth in urban areas compared to rural villages. Companies such as Marico, Dabur, and Godrej Consumer Products reported faster expansion in cities but highlighted that demand in rural areas is still recovering at a slower pace. Challenges persist around consumer pricing power and liquidity.

The growth in Q3 for FMCG volumes was primarily driven by steady urban sales across various categories such as groceries, home, and personal care items like food, soaps, and hair oil. However, rural areas witnessed a lag in growth due to lower farm incomes and increased inflation over the past year.

While there is optimism for a broader pickup in FMCG demand in the future, it is contingent on positive developments in farmer economics, post-election government spending, and avoiding significant episodes of cost inflation that could impact purchasing power.

Companies are responding to the situation by reducing product prices and increasing targeted advertising to boost sales volumes and revive the rural market. However, this strategy may negatively impact their pricing power and earnings margins.

Urban Markets Drive Q3 Growth for FMCG Inc as Rural Demand Lags

Impact on Retail Investors

For retail investors, the contrasting performance between urban and rural FMCG demand has mixed implications for major listed firms such as HUL, ITC, Dabur, Marico, and Britannia.

While higher sales in urban areas can contribute to the overall performance of the consumer sector, over half of India’s population depends on rural incomes. Prolonged sluggish demand in villages may weigh down the long-term potential of the FMCG sector. Investors should be cautious and conduct a thorough assessment of the medium-term revenue, profit, and cash flow generation capability across staples.

Defensive investing may involve selecting FMCG stocks with higher exposure to urban areas, premium products, and export channels, as they may be better positioned compared to mass-market brands targeting cost-conscious rural consumers.

Impact on Industries

FMCG & Retail

Slower rural demand is affecting the overall sector performance for daily-use suppliers across various categories. Urban-focused premium brands are outperforming budget players that rely more on village incomes to drive volumes.

Media & Advertising

Softer rural consumption has led FMCG majors to reduce advertising and promotion expenses to protect margins amid price cuts. This impacts major advertising agencies, such as WPP, Publicis, and Ogilvy, in terms of billing from key clients, especially in rural multimedia promotions.


Lower farm profits and crop prices are weakening purchasing appetite in rural areas, indicating the need for more agricultural reforms, better Minimum Support Price (MSP) enforcement, export incentives, and supply chain support.

Logistics & Transport

Distribution challenges in the supply chain connecting warehouses to last-mile outlets in rural areas impact logistics and transport. Smarter village connectivity through better roads and digital networks can aid market linkage.

Banking & Finance

Weaker rural incomes are impacting microfinance activity focused on serving agricultural households with loans for farm equipment, small businesses, or self-help groups. This may lead to an increase in defaults.

Long Term Benefits & Positives

Despite the current divergence between recovering urban and struggling rural FMCG markets, there are long-term structural opportunities:

  1. Premiumisation
    • The expansion of cities and India’s upwardly mobile consumer base provides opportunities for product premiumisation across FMCG categories to target a wealthier demographic.
  2. Export Focus
    • Companies can shift their focus from depressed rural markets towards expanding exports of Indian grocery, food, and self-care products globally.
  3. Digital Integration
    • Internet retail gaining traction allows FMCG brands to deepen distribution irrespective of physical rural reach gaps, tapping into Bharat customers through online platforms.
  4. Distribution Innovation
    • Gaps in rural markets may drive FMCG firms to explore next-gen distribution solutions through startups, direct-to-consumer reach, and electric mobility-based supply chains to enhance last-mile efficiency.
  5. Agricultural Reforms
    • Initiatives focused on crop MSP support, agri-export policy execution, and infrastructure strengthening contribute to the revival of farm economics, ultimately reviving rural purchasing power.

Short Term Positives & Negatives


  1. Volume Momentum
    • Steady demand from urban areas cushions the slowdown in rural sales, with overall FMCG growth remaining healthy across staples like packaged foods, soaps, and detergents.
  2. Pricing Power
    • Rising contributions from premium products aid better pricing levels and margins for city sales, despite the impact of necessary price cuts to attract small-town buyers.


  1. Margin Pressure
    • The rise of smaller regional players sparks price competition, forcing major FMCG companies to cut product prices amid lower rural growth. This puts earnings expansion at risk due to negative operating leverage.
  2. Volume Risks
    • Adverse monsoons or slow farm reforms could intensify rural distress, further shrinking a key growth driver of national FMCG consumption volumes. This may lead to growth forecast downgrades.

Companies Impacted by Lagging Rural Demand in Indian FMCG Sector

Indian Companies Likely to Gain:

  • Hindustan Unilever Limited (HUL): As a leader in urban markets with strong brands like Dove and Lipton, HUL stands to benefit from continued urban growth even with lagging rural demand. Their focus on premiumization and value-added products could further increase market share in higher-income segments.
  • Nestlé India: Similar to HUL, Nestlé derives a significant portion of its revenue from urban areas. Continued growth in demand for packaged food and beverages in cities could boost their performance, potentially attracting investor interest.
  • Britannia Industries Ltd: With a strong presence in biscuits and bakery products, Britannia benefits from urban consumer spending. Improved consumer sentiment and potential festive season uplift in cities could lead to positive sales growth.
  • Dabur India Ltd: While Dabur faces challenges in rural markets, their focus on Ayurvedic products and personal care categories popular in urban areas could provide support. Improving rural demand in the longer term could further boost their growth.
  • ITC Ltd: ITC’s diverse portfolio encompasses FMCG, hotels, and agri-businesses. Higher disposable income in urban areas could benefit their FMCG products like Aashirvaad spices and Sunfeast biscuits, while potential uptick in travel could improve hotel occupancy rates.

Indian Companies Potentially Impacted:

  • Marico Ltd: Marico’s heavy reliance on rural markets for brands like Parachute coconut oil and Saffola edible oils makes them vulnerable to lagging rural demand. Increased rural spending is crucial for sustained growth, although urban initiatives could provide some cushion.
  • Godrej Consumer Products Ltd: Similar to Marico, Godrej’s dependence on rural markets for brands like Good Knight mosquito repellents and Cinthol soap exposes them to slower rural growth. Improved rural liquidity and government spending are necessary for a significant upswing.
  • Rural-focused regional FMCG players: Smaller regional companies primarily catering to rural areas might face increased competition from larger national players as they seek alternative markets due to sluggish rural demand.

Global Companies:

  • Global FMCG giants: The news is unlikely to directly impact major global FMCG companies like Procter & Gamble or Nestle SA, as their primary focus is on international markets. However, a sustained recovery in Indian consumer spending could eventually benefit their Indian subsidiaries.

Overall Market Sentiment:

The news of lagging rural demand is likely to be reflected in the short-term performance of companies heavily reliant on rural markets. However, optimism towards improving macro-economic indicators, government spending, and positive consumer sentiment could outweigh the concerns and potentially lead to a positive outlook for the broader FMCG sector in the long run.

Disclaimer: This analysis is based on the provided information and is subject to change based on further developments. Market sentiment can be volatile and influenced by various factors beyond the scope of this analysis.

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