Like the larger economy, FMCG companies too were not insulated from pandemic’s effects, which resurfaced with greater ferocity during its second wave. While some industries, like hospitality and tourism, suffered a bigger jolt than others, this sector too was 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 suffered during the second wave. Of course, several additional reasons contributed to this too. All players, including bigger brands, had to recalibrate their supply chain network and go-to-market strategies. Strengthening their rural distribution network and firming up their rural supply chain management was one of those adaptations.
In addition to reworking their product portfolios with smaller SKUs and value packs, FMCG companies onboarded thousands of new distributors, dealers, stockists, sub-stockists and sales staff to exclusively target the rural market during COVID-19
CONSUMER CONFIDENCE AT ALL TIME LOW
When a consumer survey was conducted in November last year, about 40% people reported reduction in household spending with about 39%, believing that their finances would not return to normal. Strikingly, this was in a month when the first phase of COVID appeared to be waning. State governments had started easing lockdowns 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 first wave in terms of relative growth numbers, there was a definite and palpable squeeze on spending in the hinterland too. Not unlike their urban counterparts, rural India and semi-urban markets too drifted away from discretionary and indulgence products towards preventive healthcare and hygiene as well as personal and household care products.
According to the Rural COVID Barometer report released in December last year, every third adult in rural India had been impacted by COVID-19 in terms of job loss implying that financially speaking, a substantial number of rural families and populace would have been at the receiving end of the pandemic.
RECASTING RURAL REDISTRIBUTION NETWORK
Among the many measures that FMCG companies undertook, the key one was revisiting their rural and semi-urban operations. It played a pivotal initiative in boosting their last mile connectivity with end-consumers.
As urban India reported sluggish and uncertain demand in the wake of the pandemic, taking advantage of the relatively lesser and more lenient form of lockdowns and restrictions in rural India, packaged food companies, including FMCGs, went to great lengths to extend their footprints in semi-urban and rural. They wanted to tap any potential demand from the remotest and the most inaccessible terrain.
In addition to reworking and customising their product portfolios with smaller SKUs and value packs, thousands of new distributors, dealers, stockists, sub-stockists and sales staff have been brought onboard by the FMCG companies to exclusively target the rural market during COVID.
Deployment of ready-stock van units was another route to rural market that FMCG companies opted for while aiming for direct distribution. They had adopted this strategy even before COVID, when the FMCG sector was grappling with liquidity shortage in the wholesale channel. Furthermore, smaller and local players too fortified their existing close connect with neighbourhood markets during the pandemic.
DIGITISATION OF SUPPLY CHAIN
COVID acted as a trigger to accelerate uptake of digitisation by FMCG companies, although in a rather disruptive way. This digitisation was not remained limited to metro cities and urban enclaves. The pandemic propelled FMCG companies to explore digital initiatives in rural areas, across both B2B and B2C channels.
One way forward was adopting apps that brought the humble kirana stores and small shops onboard, location-wise. With digital payment services and platforms erected by both the government and private players already gaining significant traction in rural India, this market was brimming with opportunity.
Of nearly 550 million mobile users in rural India, a sizable 260 million are on the internet, enabling rural distribution for FMCG companies. In terms of foundational infrastructure, nearly 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.
RURAL MARKET: RIPE FOR THE TAKING
While FMCG companies have been proactive to nurture the rural market, certain actions of authorities can’t be discounted. While reverse migration – albeit occurred in unfortunate circumstances – did take a toll on urban economy and consumption, rural consumption received support from the government in the form of massive administrative spending, MGNREGA programmes and broader agricultural reforms. The favourable monsoons reinforced and helped this.    Â
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% of 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. Surely, bolstering of rural distribution network has paid dividends.
