Rural economy to grow further, leading to 12-14% ad spend growth this festive season

The FMCG industry in India grew at a rate of 6.5% between January and March 2024. FMCG has witnessed a 3.8% YoY volume growth in the June quarter, as reported by the latest data by NielsenIQ. The food category contributed to this decrease in growth, which includes lower growth for staple categories such as palm oil, packaged salt, and packaged atta, besides influence of other macroeconomic factors. In Q2 of CY2024, the FMCG sector witnessed a value growth of around 4%. Rural consumption growth outperformed urban markets in the first quarter of 2024 with a rise of 5.2% in volume, while urban consumption growth rate stood at 2.8%, witnessing a decrease of 5.7%. Both urban and rural markets saw a decrease in consumer demand, in comparison to the past quarter.

According to a report by Kantar, the rural market is estimated to outshine the urban markets in India in 2024 second quarter as well and is a favourable driving force propelling the growth in the FMCG sector in India in 2024. Several measures by the government are aiding this growth process in rural India. The report also suggests that rural markets which contribute to around 35-37% of the overall FMCG sales will continue to grow at the same pace, surpassing the growth in the urban markets shortly. It further suggests that rural consumption is likely to overtake urban consumption by the end of this financial year and is estimated to witness a growth of 6.1% within FY25 end in terms of volume. Numerous factors had an impact on the growth in urban markets such as inflation,the Covid-19 pandemic, etc. Brands are increasingly leveraging the opportunity provided by rural Indian markets and growing their reach and engagement there with rural consumers.

Agriculture forms one of the most important catalysts for growth in rural India and improvement in the state of monsoons is accelerating the rural market growth rate this year. In the Union Budget 2024-2025, a provision of around Rs 1.52 lakh crore has been made for agriculture and allied sectors, and within the upcoming two years, nearly 1 crore farmers spread across India will be instituted into natural farming. The budget also announces the release of around 109 new climate-resilient and high-yielding varieties of 32 horticulture and field crops for cultivation purposes by the farmers.

The drivers of growth in the manufacturing sector are transitioning from the urban to the rural areas, enabling the rural economy in the country to grow at a rapid pace at an annual average rate of 7.3% in the last decade, in comparison to nearly 5.4% in the urban economy. The growth rate in rural India is at 4.5 % at present and is predicted to increase to around 6% in the closing quarter.

Farming is not the sole source of income in rural India with other non-farm sources of income and with the rising usage of mobile phones and the internet, the rural consumer is now well versed with the brands, content, ads, campaigns, and messaging that are prevalent in the urban counterparts and have got access to the same products and services as the urban consumers. 

One of the strategies of rural marketing in India is small units and lower price packing and the factors contributing to the rise in rural demand are increase in population, digital penetration, and others. The FMCG growth in rural India in Q2 indicates rising disposable incomes with rural consumers and an increase in demand for FMCG products.

Adgully spoke to a cross-section of industry leaders, who shared valuable insights surrounding the recovery in the rural markets this fiscal, the factors driving the growth in rural markets in India in 2024, what the outlook for growth in consumption in rural markets looks like, the sectors which will witness better consumption increase, the reason behind it and more.

Ashish Bhasin, Founder, The Bhasin Consultancy Group, noted, “The rural market has underperformed over the past few years, but it is doing better now and green shoots can be seen. The monsoons are very important for rural recovery and the expectation is that the monsoon will be good. We are heading soon into the festival season. The Budget has put more money into the pockets of the rural consumers. All this bodes well for a good rural recovery. Though rural growth has been sluggish in the past, FMCG categories are witnessing better signs of growth, as are the two-wheelers and micro-finance categories. In the festive season starting from the Ganapati festival to New Year’s, which typically accounts for 40-45% of the annual advertising spending, the rural economy will grow further, leading to ad spending growth of 12-14% this year. FMCG is the first category to benefit from this growth. Good times are ahead for the rural sector and I expect and hope that the rural economy will start roaring soon.”

Ashish J Banka, Founder, Goosebumps, commented, “Agriculture is at the heart of rural markets. The better the agriculture industry does, the better the rural growth. In 2023, the El Nino event had a big effect on Indian farmers. The irregular and late monsoon led to widespread droughts, especially affecting rice, pulses, and stunted sugarcane crops. Some sectors like the two-wheeler automobiles were a silver lining, with a normal monsoon and low inflation will be pivotal. This year’s budget announcements bring a wave of optimism for the agriculture sector, aligning perfectly with the aspirations of our farming community. The Government this year is focussing big time on large-scale vegetable production. Education, Infrastructure Development, and Better Connectivity, other than Agriculture, should contribute to recovery in rural markets.”

He further added, “The outlook surely looks positive. Two-wheelers and FMCG are two big sectors driving consumption. The past trends and pre-COVID numbers for both these sectors were promising. Also, the focus of large MNCs on the needs of the Indian rural markets will lead to higher consumption. Positive budgetary measures for rural India can significantly spur growth by enhancing infrastructure, supporting agriculture, expanding financial inclusion, and improving education and healthcare. Investments in rural infrastructure, such as roads and electricity, will improve connectivity and reduce transportation costs, facilitating local business growth and attracting new investments.”

Agricultural subsidies and technological advancements can boost productivity and farmer incomes, leading to higher consumer spending in rural areas. Moreover, initiatives to expand financial services and improve access to credit can empower rural entrepreneurs and stimulate small business development. Investments in education and vocational training will enhance the rural workforce’s skills and employability, creating job opportunities and increasing economic activity. Improved healthcare infrastructure will lead to a healthier, more productive population, while enhanced social welfare programs will provide a safety net for the rural poor, promoting stability and prosperity. These measures collectively create a multiplier effect, driving sustainable growth in rural markets.

On the growth in the rural market in India currently, Krishnarao Buddha, Senior Category Head – Marketing, Parle Products, said, “I would say it is quite promising. The factors that are aiding are the waning effect of El Nino coupled with very good monsoon, along with the government’s greater focus on agriculture and the rural segment. I think all coupled and put together it reflects extremely well in terms of rural consumption, particularly for FMCG. We are looking at a very good uptick, in rural consumption. Suppose I were to give a comparison of last year rural had grown overall, FMCG per se grew at about 6%. So, this year there is a likelihood of this number going up to the level of almost about double digits, like not 10-11%, but 12%. And it will predominantly be led by the rural, which means rural growth could be in the early single digits to the tune of about 12-13 percent, probably. Urban might be somewhere around seven, 8- 9%.”

Speaking on how the several positive budgetary measures announced for rural India, would be inducing growth in the rural market, Buddha said, “It is going to aid a lot for the rural growth. More disposable income in the hands of particularly rural consumers would mean higher consumption-led growth for the rural market. So the best from the rural one can expect is the low ticket items like biscuits, soap, shampoo, etc. These are the product categories where we can see a lot more consumption-led growth.”

Elaborating on the kind of ad spend growth that can be expected in the rural markets in the remainder of FY2025, he stated, “I think because rural is shining, there could be a higher skew. There is no exclusive advertising for rural, but there is going to be a higher skew on FTA channels, which the rural segment or the ones who do not have cable will be addressed. Thus, we can see a larger emphasis or impetus on FTA channels to address or to lure the rural segment.”

Ratnesh Kumar Pathak, Senior Deputy General Manager, Dhanuka Agritech, pointed out, “Rural markets present significant growth opportunities for the FMCG sector in India. In 2024, the FMCG industry is expected to maintain a steady growth rate of 7-9%, driven by several key factors. Firstly, rural consumption has been on an upswing, narrowing the gap between urban and rural markets. Reports indicate a commendable 6.4% volume growth in the FMCG sector, with rural areas contributing significantly to this rise. The Union Budget 2024-25 has provided economic boosters specifically targeting rural development, which is likely to further stimulate consumption and enhance market penetration for FMCG products. Secondly, the resilience and adaptability of the FMCG sector are noteworthy. Post-pandemic recovery has seen rural markets bounce back, driven by habit-forming categories such as food and essential home products. These segments have shown robust demand despite price stagnation, highlighting the sector’s potential for sustained growth. Moreover, digital transformation is playing a pivotal role in rural FMCG growth. Increased internet penetration and smartphone usage have opened up new avenues for digital sales, enhancing the reach of FMCG products in rural areas. This shift towards online channels is not only making products more accessible but also catering to evolving consumer behaviors and preferences. Overall, the FMCG sector’s outlook in rural markets is positive, supported by government initiatives, digital integration, and an increasing consumption trend. This makes rural India a critical focus area for FMCG companies aiming for growth and market expansion in 2024.”

In a release issued to announce the financial results for Q1 FY2025, Mohit Malhotra, CEO, Dabur India, said, “It’s been a good start to the new financial year as we drove sequential recovery in volume growth, driven by rural markets, to report industry-leading performance across our key verticals. This allowed us to plough higher investments behind our brands to drive market expansion and sustain our growth momentum. Our focussed approach towards expanding our rural footprint to over 1.22 lakh villages reaped rich dividend as rural demand outpaced urban demand by 350 bps during the quarter. To cater to this wider network, we have expanded our product basket with the launch of newer affordable and rural-specific pack bundles across categories, besides investing in consumer activations in the hinterland to establish a better connect with our consumers.”

Rohit Jawa, CEO and Managing Director, HUL, too, stated that HUL’s first quarter performance reflected the conglomerate’s decisive actions of transforming its portfolio in high growth spaces, aided by gradual recovery of rural markets.

During the quarter, overall FMCG volume trends in India continued to exhibit gradual improvement on a two-year CAGR basis, with the trajectory in rural bearing more promise, while urban was stable, said Marico.