Need to strengthen Rural Supply Chain grows as demand soars for FMCG brands

Rural supply

Early in 2020, the outbreak of the pandemic taught companies the importance of being prepared for the unexpected and why it is necessary to develop alternate supply chains and distribution networks across markets. It brought a shift in consumer habits, preferences and buying patterns with a clear focus on essentials and this worked as a driving force for the nation’s fourth-largest sector- the Fast-moving Consumer Goods (FMCG) segment.

While the pandemic brought massive disruptions to the industry’s supply chain, it also worked as a catalyst for the industry by focusing on innovation and strategies to maintain the supply of essentials. 

As we now step into 2021, the FMCG industry, which has been battling with the uncertainties of the pandemic, is now eyeing a double-digit growth trajectory, with strong rural demand and improved urban consumption trends.  

With household and personal care accounting for 50% of its sales in India, the FMCG segment derives a revenue share of around 55% from the urban sector. However, over the last few years, the FMCG market has grown at a faster pace in rural India as compared to urban India, according to data from the India Bank Equity Foundation (IBEF). 

Further, the data states that the semi-urban and rural segments are growing at a rapid pace and FMCG products now account for 50% of the total rural spending.

The Rural segment, which has been a growth engine for the last 2-3 years, has emerged as a catalyst for the industry in the past 12 months. 

During the pandemic, the urban sector was severely hit as many stores shut down, while on the other hand, the rural markets showed stronger growths. 

This fierce growth from the rural sector can be attributed to reverse migration, favourable government schemes and a normal monsoon.  

In addition to that, the combination of increasing income, higher aspiration levels and increased demand for branded products in rural India has also been a contributing factor to the growth of the FMCG sector. 

As per data from Statista, the rural FMCG market in India is expected to grow to US$ 220 billion by 2025 from US$ 23.6 billion in FY18. 

Looking at these changing Market dynamics while holding on to the lessons from the pandemic, many FMCG companies are now expanding their supply chains and distribution networks in the rural markets as they hope to emerge as a stronger player in the coming months. 

FMCG Giants like Britannia, Marico Limited, Capital foods, Dabur, etc witnessed the rural sector as an active engine of growth and are now looking to add more distributors and stockists on the ground in smaller cities and villages. 

As per reports, after the lockdown-led disruptions, Britannia significantly worked on expanding its access in the rural area. Between March 2020 and December 2020, the number of rural preferred dealers (as the company calls them) was up from 19,000 to 23,000.

Similarly, Marico also added stockists to its network and expects its rural distribution to go up by 20% over the next few years. 

Keeping in mind the growing demand from the rural segment, it has become imperative for the FMCG sector to enhance its penetration and strengthen its last-mile distribution network in the segment through collaboration, setting up new manufacturing units, and leveraging technology. 

The improved reach in the rural pockets of the country will work as a key driver of the segment to bag a double-digit growth and act as a cushion against the shortfalls from the Urban Markets.  

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