Rural FMCG volume growth soars to 7.6% YoY, outpacing urban growth

Rural consumption in India’s FMCG sector has surged ahead of urban consumption for the first time in nearly five quarters. According to a report, rural volume growth spiked by 7.6% YoY in the March quarter of CY24, outpacing urban growth at 5.7%. This growth trajectory reflects evolving consumer behaviors and market dynamics, with rural areas emerging as key drivers of consumption.

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In a notable shift in consumption patterns, the Fast-Moving Consumer Goods (FMCG) sector in India has witnessed a significant uptick in rural consumption, outpacing urban consumption for the first time in nearly five quarters. According to estimates released by NielsenIQ (NIQ), the volume growth of the FMCG industry in rural markets surged by 7.6% year-on-year in the March quarter of CY24, while urban volume growth stood at 5.7%. This shift marks a departure from the trend seen in recent quarters, where urban centers had been driving consumption growth.

The data from NIQ highlights a nuanced picture of the FMCG sector’s performance in the first quarter of CY24. Overall, the industry experienced a value growth of 6.6% nationwide, propelled primarily by a 6.5% increase in volume and a marginal 0.1 per cent uptick in prices. This growth trajectory reflects evolving consumer behaviours and market dynamics, with rural areas emerging as key drivers of consumption.

Roosevelt Dsouza, Head of Customer Success – India at NIQ, underscores the significance of this shift, stating, “The FMCG industry’s growth continues to be driven by consumption trends in Q1 CY24, with rural areas surpassing urban growth for the first time in five quarters.” This trend is further accentuated by the performance of Home and Personal Care (HPC) categories, which have outperformed food categories during this period.

The report attributes the robust growth in HPC categories to the popularity of larger pack sizes, indicating a shift in consumer preferences towards value-for-money purchases. Non-Food categories have particularly stood out, witnessing a remarkable improvement in volume growth at 11.1%in the March quarter compared to the previous year. This growth is nearly double that of the Food category, signaling changing consumption patterns and preferences.

While the Food sector saw a modest volume growth of 4.8% in Q1 FY24, it experienced a sequential dip compared to the preceding quarter, primarily attributed to a slowdown in the staples food segment. Conversely, Non-Food categories exhibited resilience, with demand trends showing a notable uptick in both rural and urban areas.

The report underscores the pivotal role played by rural consumption in driving growth across Personal Care and Home Care categories. In rural regions, where volume growth reached 12.8% in Q1 CY24, consumers are increasingly opting for non-food products, contributing to the overall expansion of the FMCG sector.

Despite the surge in modern retail channels, traditional trade channels, such as kirana stores, have demonstrated resilience, maintaining stable growth rates. This highlights the enduring significance of traditional retail channels in the Indian market landscape. Additionally, while large players continue to dominate the market, smaller players have shown promising growth rates, particularly in non-food categories, signalling a competitive landscape ripe for innovation and expansion.

Looking ahead, the FMCG sector is poised for continued evolution, driven by shifting consumption patterns and evolving consumer preferences. The surge in rural consumption underscores the need for industry players to adopt targeted strategies tailored to diverse market segments. Moreover, with non-food categories emerging as key growth drivers, there exists ample opportunity for innovation and market expansion.

The FMCG industry’s performance in the March quarter of CY24 reflects a significant shift in consumption dynamics, with rural areas emerging as the new growth frontier. As the industry adapts to these evolving trends, it must navigate challenges while capitalizing on opportunities to foster sustainable growth and meet the evolving needs of consumers across diverse demographics.