Rural India hooked to packaged food; delivers 11x growth over metros

Not only has rural India beaten urban in terms of FMCG growth in the COVID-19 era by recording a surge of 10.6 per cent (according to Nielsen) vis-a-vis a 9.6 per cent degrowth in metros, what is even more interesting is the way the average rural consumer has embraced packaged products. If one were to walk into any kirana store in rural India or even a tier-III or IV town, one would notice consumer preference to buy loose. Be it rice, atta, sugar or even tea, consumers in small India have always preferred buying loose, as it enables them to buy smaller quantities as per their need and at affordable price-points. However, the pandemic and the need to be hygienic in order to stay safe has pushed these consumers to give up their preference for loose.

Nielsen's FMCG snapshot for July to September shows an 11 times higher growth in packaged staples consumption in rural markets over the metros. The consumption of home hygiene and personal hygiene products has gone up by seven to eight times, respectively in rural India compared to urban. The consumption of personal grooming products and convenience foods such as cheese, ketchup and sauces has also doubled. The lockdown has certainly made rural India more experimentative than ever before.

Not only are average rural consumers opting for packaged products, they are also no longer buying smaller packs. The preference is clearly for larger packs. "With rural incomes going up, affordability has also improved. Consumers are seeing better value in large packs," says Diptanshu Ray, Head, Retail Intelligence (South Asia), Nielsen Global Connect. Government stimulus during COVID as well as agricultural impetus has boosted the rural economy. Around 83 lakh new households have joined the MNREGA labour force. There has been an 11 per cent increase in average wages. The overall FMCG consumption during July to September as per the Nielsen report has increased by 1.6 per cent, vis-a-vis the earlier quarter (April-May-June 2020), where the industry de-grew by 19 per cent due to COVID challenges. "E-commerce has contributed significantly to this growth. If e-commerce is excluded, traditional and modern trades have grown by 1 per cent," points out Ray.

While on one hand, consumers have bought more branded and packaged products, they have also down-traded across the country. Prior to COVID-19, premiumisation was fueling FMCG growth, but in the new normal consumers have down-traded to mass brands. The pandemic has led large-scale job losses and pay cut and hence the preference for mass brands.      

While rural India has displayed significantly new consumption trends, these have been fueled not so much by the national brands as they are by the regional brands. The new normal has led to the return of regional brands.  "The smaller players have been more agile to capitalise on the needs of the rural consumers," says Nielsen's Ray.          

The market research firm which had earlier projected a flat growth for the FMCG industry in 2020, has now revised its projection to a degrowth of 1-3 per cent.

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