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FMCG companies are strengthening rural distribution network to combat the low consumer sentiments
While reverse migration – albeit in unfortunate circumstances – did take a toll on urban economy and consumption, rural consumption saw support and reinforcement helped by favourable monsoons, massive government spending, the MGNREGA programmes and broader agricultural reforms.
Like most sectors and the larger economy, the FMCG companies, too, have not remained insulated from the effects of the pandemic. This outbreak only seems to have resurfaced with greater ferocity and vehemence in recent days in the form of the so-called second wave. While some product categories within the sector undoubtedly suffered a bigger jolt than others, the sector as a whole has been subject to the whims of the virus.
Already struggling with inflation and over-the-top offers before the onslaught of the pandemic, sales volumes for brands have suffered during this second wave; there have been different reasons for it. As such, that each one of them, including the more prominent brands, has had to recalibrate their supply chain network, and go-to-market strategies can’t be overstated. And strengthening the rural distribution network and firming up their rural supply chain management has been one of those adaptations.
Consumer confidence levels at a low receding tide
Until November last year, when a consumer survey was conducted, about 40% of people reported a reduction in household spending with about 39%, believing their finances would not return to normal. Strikingly, this was in a month when the first phase of Covid seemed to be on the wane, lockdowns had eased, and the economy seemed to be limping back to a semblance of normalcy.
Although rural India had fared much better than urban areas during the onset of the first wave in terms of relative growth numbers, there was a definite and palpable squeeze on spending in the hinterland. Unlike their urban counterparts, rural India and semi-urban markets also had drifted away from discretionary and indulgence products towards preventive healthcare and hygiene and personal and household care products.
According to the Rural Covid Barometer report released in December last year, every third adult in rural India has been impacted by Covid-19 job loss, thus implying a substantial number of rural families and populace would have been at the receiving end of the pandemic.
Ramping up and recasting rural redistribution network
So, among many measures FMCG companies undertook, revisiting their rural and semi-urban operations has been one pivotal initiative to boost their last-mile connectivity with end-consumers. As urban India began to report sluggish and uncertain demand in the wake of the pandemic, companies went to great lengths to extend their footprints into the semi-urban and rural areas. Thus, taking advantage of the relatively lesser and more lenient form of lockdowns and restrictions in rural India, the focus has been fully tapping into any potential demand from the remotest and the most inaccessible terrain.
In addition to reworking and customization of product portfolios with smaller SKUs and value packs, thousands of new distributors, dealers, stockists, sub stockists and sales staff have been brought on board by the FMCG companies exclusively targeting the rural market in the Covid period.
Notably enough, many packaged food companies, or FMCG firms with significant food-based products as part of their product portfolio, have been reported to be prominently involved in ramping up their rural distribution network. The deployment of ready-stock van units has been another way for FMCG companies to distribute to the rural market directly. Remember, a direct distribution strategy had been adopted even before Covid came when the FMCG sector was grappling with liquidity shortage in the wholesale channel. Furthermore, smaller and local players have also fortified their close connection with the neighbourhood markets during Covid times.
Employment of digitization of supply chain strategies in rural areas
Although in a somewhat disruptive way, the Covid onslaught has been an excellent trigger for the accelerated uptake of digitization by FMCG companies. And this digitization has not remained limited to metro cities and urban enclaves.
The pandemic has propelled the FMCG companies to explore digital initiatives across B2B and B2C channels in rural areas. Adoption of apps bringing onboard the humble Kirana stores and small shops location-wise has been one way forward. With digital payment services and platforms set up by the government and private players already gaining significant traction in rural India, the rural market has been brimming with opportunity. Of nearly 550 million mobile users in rural India, 260 million are on the internet enabling rural distribution for FMCG companies. In foundational infrastructure, almost 4.9 lakh km of optical fibre cable has been laid to cover 1.6 lakh Gram Panchayats with nearly 1.51 lakh Panchayats having become service-ready.
The rural market has been ripe for the taking
While FMCG companies have been proactive, that the authorities have nurtured the rural market in specific ways can’t be discounted. While reverse migration – albeit in unfortunate circumstances – did take a toll on urban economy and consumption, rural consumption saw support and reinforcement helped by favourable monsoons, massive government spending, the MGNREGA programmes and broader agricultural reforms.
Like they say, in every adversity lies an opportunity. If urban markets were faltering, it made eminent sense for FMCG companies to train their focus and energies on rural India. And rural India did not disappoint. A segment that contributes around 37 per cent of the total FMCG sales, a large part of which comes from food items, reported an impressive growth of 14.2% year-on-year in the third quarter 2020-21 against top metros’ 0.8% y-o-y figure for the same period. Indeed, bolstering of rural distribution networks has paid dividends.