<div>A lot is being said about the slowdown of economy in Rural India. Over the past decade, rural consumption was growing 1.5 times of urban growth rate and was a significant driver of the India story. This economy is believed to be in a flux given the uncertain monsoons and the slowdown of government inputs like MNREGA. This is expected to significantly hurt the growth rates across durables and FMCG categories.</div><div> </div><div>While there is a lot of truth to these views, there have been many fundamental shifts in the rural consumption economy that will mitigate the doomsday drivers especially for the non durables categories. </div><div> </div><div><table align="right" border="0" cellpadding="2" cellspacing="2" style="width: 200px"><tbody><tr><td><img alt="" src="http://bw-image.s3.amazonaws.com/Hemant-Rupani-of-Britannia-1_BB-mdm.jpg" style="width: 200px; height: 259px; margin: 1px; float: right;"></td></tr><tr><td><strong>Hemant Rupani</strong></td></tr></tbody></table>For starters the rural consumer has changed forever. Rural India today seeks more choices than it has ever done before. Mobile data usage and the inroads by ecommerce companies in hinterlands are a testimony to that. FMCGs too find Rural India taking to a wider range of products. A fair degree of upgradation to larger (albeit not large) packs has been evident across the length & breadth of the country. Most visible example of this is in the soft drinks industry where one finds larger PET bottles rubbing shoulders with the traditional glass bottles. The erstwhile slow growing and more rural states of Bihar, MP, Chhattisgarh and Jharkhand are reporting an accelerated growth trajectory. </div><div> </div><div>Relative premiumization is another wave being sensed by the FMCG industry in rural India. This may not fuel volume growths but it certainly enables a favourable product mix. In the biscuits category the rural consumer is moving from age old Glucose to Cookies & Creams categories. While the play remains limited to the mid & value range of these categories, it offers a large opportunity for improving realizations and driving revenue & margin growths. This would also set the stage for the consumer to experiment with newer formats & tastes in the coming years. Likewise in the soaps and detergents categories the movement from low end bathing bars to toilet soaps (higher fat content) is here to stay. These are here and now opportunities and will become very significant over the next 2-3 years. </div><div> </div><div>Rural India warrants the additional burden of ensuring accessibility of products for organizations that desire scale play. Distribution is the key and will remain the treasure trove for a long time. Traditionally these markets have been serviced through the wholesale route which limits the ability to engage and influence the consumers. Low scale and high costs of direct distribution limit investments in what is the most critical driver of growths. Organizations that manage to break this mould will reap significant benefits. They will be required to tide over the high costs of transition and risk the alienation of the wholesale community. Organized Cash & Carry formats help build a bridge, by allowing visibility to buying behaviour of their members. But this channel has to be carefully ridden to avoid channel conflicts on mass brands & SKUs.</div><div> </div><div>In a downturn there is always the temptation to fuel demand (questionably) through accelerated discounts to trade (especially wholesale) & freebies to consumers. This buying of business, in the current cycle, is also supported by a favourable commodity price regime. This does help generate some new trials but may not lead to much stickiness over time. A lot of the wholesale discounting never reaches the consumer. Competitive pressures lead to mimicking of this behaviour across players thereby resetting the margin tables for the industry. The reversals never happen in better times. The beverage industry is a great example of this phenomenon. The discount levels and the ensuing leakages make a very appealing case of tightening the belt there and offering greater value to the consumer. Yet given how eyeballs remain locked with the competitor, there is the morbid fear of who blinks first. </div><div> </div><div>The soft commodity prices today favour a profligate behaviour. In a few quarters when input costs rise again, it would become necessary to withdraw the value adds. The retail demand would then see the dual shock of overall inflation & category specific reduced value and will sustain the cycle of muted growths. The worrisome aspect of the rural economy is not as much the slowdown today, but more the impact of the actions taken to battle this slowdown. <br><br><strong>The author, Hemant Rupani, is VP Sales, Britannia Industries Limited</strong></div><div> </div>
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