India's consumer goods companies are seeing a worrisome sign in rural markets due to the coronavirus outbreak. Conservative spending due to uncertainty has meant that it's back to essentials buying.
"Demand has slumped and consumers who had started moving up the value chain have now returned to buying small packs," said a top official from the FMCG industry.
Industry veterans say that about eight months ago, consumers in rural markets had started buying larger packs and even premium products like cookies, cream biscuits, etc. As consumers turn cautious about spending, the trend has now moved back to small packs. Small packs or value packs are essentially packets priced Rs 5 and Rs 10. These are also referred to as 'popular price point' packs.
For several FMCG companies, rural India makes up 30-40 percent of overall revenues. Therefore, looking at how the demand dynamics are shaping up, FMCG companies are gearing up to push more small packs and SKUs (stock-keeping units) into the market. Small packs in categories like biscuits, chips, snacks, chocolates and noodles have been doing very well.
"We have been seeing basic biscuits in the affordable category of less than Rs 100 per kg doing well in rural markets. Value cream biscuits and Parle-G has also been doing well," said Parle Products in a query to CNBC-TV18.
Nestle India believes that price point packs could be volume drivers in smaller towns and rural markets.
"We believe that it is possible that in semi-urban and probably in some rural markets, smaller packs may do better. People who have gone back to their states and therefore to these markets, have consumed these brands in urban areas and might seek the same brands in rural areas as well,” said Nestle India in a statement to CNBC-TV18.
On the personal care front, companies like Dabur have been launching small packs for hair oil, toothpaste, etc as a strategy to boost demand in rural markets. Sachet packs and small packs in these personal care categories have been doing well, said, industry officials.
Small packs contribute about 25-30 percent of overall sales for FMCG companies and companies are expecting this share to go up owing the cautious consumer sentiment.
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