Marico: Battling Rural Stress Marico's June quarter of FY24 witnessed an elusive rural demand
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Rural demand continues to be soft across most FMCG categories, reflecting a similar sentiment, Marico's June quarter of FY24 witnessed an elusive rural demand. Moderating headline inflation, hike in MSPs, easing liquidity pressures and forecast of a near-normal monsoon continue to fuel hopes of a gradual recovery in rural demand.
During the quarter, the performance of the domestic business was affected by significant trade destocking in Saffola Edible Oils in reaction to sharply falling vegetable oil prices and channel inventory adjustments in core portfolios triggered by the last leg of trade scheme rationalization for correction of the historical Q1 revenue skew. Domestic volumes grew in low-single digits, with a minor volume drop in Parachute Coconut Oil, low double digit volume growth in Saffola Edible Oils and flattish quarter for Value Added Hair Oils. Among the newer portfolios, foods continued its strong run, while premium personal care (including digital-first portfolio) remained steady.
Consolidated revenue in the quarter declined in low-single digits on a year-on-year basis, dragged by pricing interventions in key domestic portfolios last year and further pricing drops in Saffola Edible Oils (amounting to a pricing decline of ~30 per cent year-on-year) during the quarter. "While primary volume growth was marred by one-time internal and external factors, we expect a visible pickup from the coming quarter given the sustained healthy trends in offtakes, market share and penetration across our key franchises," the company said in a statement.
In an attempt to boost rural economy, in the Union Budget 2022-23, the government introduced schemes of rural women empowerment, enhanced agri-credit aim, fisheries scheme, agri startups, natural farming and other initiatives that could assist raise rural demand for the Indian FMCG sector. Technology can also boost penetration. The Internet has contributed in a big way, facilitating a cheaper and more convenient mode to increase a company's reach. The number of internet users in India is likely to reach 1 billion by 2025 and the e-commerce share of total FMCG sales is expected to increase by 11 per cent by 2030. "The high capex spend by the government on infrastructure, especially transportation and logistics, on agriculture and on driving digital connectivity (with the roll out of 5G) is likely to help revive rural consumption as we look at this and the next two quarters," said Rajat Wahi, partner, Deloitte India.
So, what can companies do to mitigate challenges? Most FMCG companies continue to focus on improving their rural coverage, expanding distribution into current and new markets and look at efficiencies around their cost to serve models for rural markets. "They are also seeing how they can leverage technology, new business models, pricing and packaging changes and logistics efficiencies, so as to be ready to take advantage of the rural revival as it comes. As much as 65-70 per cent of Indian consumers still live in rural/rurban India and while the current slowdown has been prolonged, the expectation is that digital connectivity, increasing aspirations, growing awareness of brands, etc will have a similar rebound as we have seen in urban markets post Covid," said Wahi.
"However, with the softening of global commodity prices, resolving of global supply chain bottlenecks, China re-opening, etc, there is a sense that inflationary pressures may start to come down, which could lead to the rural consumption decline bottoming out or even reviving," he added.
