Good monsoon, promising budget = Increase in FMCG's rural ad spend ahead of festive season

Rural market growth saw continued weakness for most of fiscal 2024. However, it is now showing signs of recovery.

“There are green shoots which we see in the rural areas. Products from our rural portfolio and low unit price packs have clocked positive volume growth. We feel the traction in rural areas is coming back,” said Rohit Jawa, MD and CEO of HUL, while announcing the company’s Q1 results.

Earlier this month, Sudhir Sitapati, MD and CEO of Godrej Consumer Products (GCPL), expressed a similar sentiment. Speaking on the sidelines of an event, he said the company expects a recovery in rural markets in the second half of the year on the back of a good monsoon and government measures.

“…for the last two to three years, I have not been sure, but I think by Diwali we will see some good rural recovery,” he said.

According to the Indian Meteorological Department (IMD), the southwest monsoon covered the entire country on July 2, six days ahead of schedule. Southwest monsoon winds, which provide 75% of India’s annual rainfall, are vital for the country's agriculture-dependent economy. This year, the state-run weather forecaster predicts an "above-normal" monsoon. Normal or slightly above-average rainfall typically leads to higher farmer incomes, increased employment for farm labourers, controlled food inflation, and increased rural consumption.

The Budget, announced on July 23, had a strong emphasis on boosting rural consumption. It outlined several initiatives, including an allocation of Rs 2.66 lakh crore for rural development and Rs 1.52 lakh crore for agriculture and allied sectors.

Aditya Jhaver, director at CRISIL Ratings, says expectations of a better monsoon this fiscal year are expected to support increased farm output. This, along with a higher minimum support price announced for key crops and ongoing infrastructure development activity in rural areas, will support rural incomes, leading to continued improvement in rural demand for FMCG products.

“There was a mild recovery in rural demand in the last quarter of fiscal 2024, led by moderating inflationary pressures and increasing average non-agri rural wages, among other factors,” he adds.

In anticipation of the rising rural consumption, FMCG players are preparing to increase their ad spends for the rural areas. The festive season, which will begin with Raksha Bandhan next month, is expected to further boost consumption.

According to a dentsu report, the FMCG category contributed Rs 31,428 crore to the total AdEx in 2023. Rural India contributes 35% to the FMCG industry sales.

Due to uneven rains and high food inflation, rural market growth saw continued weakness for most of fiscal 2024. However, it showed signs of recovery in Q4 2024, with rural demand for FMCG products outpacing urban demand.

“We expect volume growth of 6-7% in fiscal 2025 from rural consumers, supported by expectations of a better monsoon benefiting agricultural production, and a hike in the minimum support price supporting farm incomes. Higher government spending on rural infrastructure, primarily through the Pradhan Mantri Awaas Yojana-Grameen (PMAY-G) for affordable houses, will aid higher savings in rural India, supporting their ability to spend more,” adds Jhaver.

Krishnarao Buddha, senior category head at Parle Products, says the company expects FMCG demand to improve in the July-September quarter.

"We anticipate increasing our ad spend by about 10-15% for the July-September period compared to the previous period. From late March to the end of June, our ad presence was heavily focused on major sporting events like IPL and the T20 World Cup. With these events concluded, we're shifting our focus to regular media channels,” he says.

The monsoon is a peak season for the advertising of edible oil, spices, and other ingredients. Edible oil consumption increases during the monsoon as people stay indoors more, leading to increased cooking at home. Also, doctors often advise against eating out during the monsoon.

Kiran Giradkar, group CMO of BN Group, says its brand ‘Healthy Value’, which targets rural areas, has witnessed growth as the monsoon began. “Monsoon is crucial because it meets the needs of rural households, especially in the kitchen,” he adds.

Giradkar says the monsoon is a hopeful season for agricultural households making it an ideal time to advertise.

“The rural households expect a good year, leading to increased consumption during this time, unlike in summer. The positive outlook from a good monsoon encourages higher spending,” he explains.

Shaileen Patel, general manager of business development & marketing communication at NK Proteins (Tirupati Edible Oils), says as the monsoon progresses, it is expected to further drive demand in the rural sector.

"Overall consumption has been subdued, and rural growth hasn't met expectations, but we anticipate a revival starting next month. We plan to increase our ad spends marginally in Q2, but there will be a significant increase in Q3 and Q4,” he says.

Aasif Malbari, chief financial officer at Godrej Consumer Products, says anticipated favourable rainfall promises to bolster rural demand.

"As the FMCG industry continues to adapt to shifting market dynamics, the prospect of a normal monsoon instils a sense of optimism. Improving macro-indicators and robust agricultural output growth would uplift consumer sentiments. Sectors like personal wash and home care would be potential beneficiaries,” he says.

Media Mix

Parle will be primarily focusing on television and print, followed by digital media.

"Our campaigns typically focus on rural areas and will continue to emphasise free-to-air (FTA) channels, especially on Free Dish, to reach these markets. We'll maintain a balanced mix of urban and rural coverage, including HD, SD, and FTA channels, to effectively access both rural and urban consumers,” Buddha says.

However, digital is increasingly becoming vital for reaching rural markets as internet penetration grows.

“With lower data costs, rural consumers are engaging more with digital content, including live streaming, short videos, social media, and OTT platforms. Thus, a strong digital presence is now a critical part of our strategy for reaching rural audiences,” he says.

BN Group’s Giradkar also stresses that rural areas are consuming more data than urban counterparts.

“We're not spending on television; instead, we're focusing on activations, digital, and content marketing. Television viewership in rural areas has declined as people increasingly use personal devices and consume personal content,” he adds.

Patel agrees that increased internet penetration and mobile connectivity in tier 2 and 3 towns allow brands to reach these areas. However, he says the edible oil sector still allocates only about 10-15% of its ad spend to digital.

"While the FMCG sector is increasing digital spending, the edible oil sector still focuses on traditional media, especially linear TV,” he says.

Impact of food inflation

Despite the optimism around the monsoon, there remain two major concerns: high food inflation and shrinking wages. Food inflation, which makes up nearly 40% of the overall consumer price index (CPI), increased to 9.55% in June from 8.69% in May and 4.55% in June 2023. The CPI is a measure of the average change overtime in the prices paid by urban consumers for a market basket of consumer goods and services. The Centre for Monitoring Indian Economy (CMIE) data says that real rural wages contracted in as many as 25 of the 27 months up to February 2024.

During the post-earnings briefing, HUL’s Jawa also pointed to it, saying that potential risks of food inflation and a decline in real wages if the monsoon does not progress well can impede the growth momentum.

Patel says the food inflation needs to be controlled. “Vegetable and pulse prices have skyrocketed, limiting consumer spending. With expected good monsoons and harvest and effective government policies, we anticipate increased disposable income for rural consumers,” he adds.

Jhaver says while FMCG companies are seeing gradual recovery in rural demand, sustained improvement in rural demand is still to be seen. The impact of inflationary pressure resulting in higher prices along with low growth in real wages for the rural economy were key concerns for slowish rural demand for FMCG in the recent past.

“However, over the last couple of quarters, inflation appears to be under control, while wages are also expected to show some increase. FMCG companies are therefore cautiously optimistic that with better coverage of the monsoon from July 2024 onwards, rural incomes will benefit and support demand for FMCG,” he says.