Good Monsoon, Promising Budget = Rural FMCG Ad Spending Increases Ahead of Festive Season

Growth in rural markets has been consistently weak for most of fiscal 2024. However, there are now signs of recovery.

“We are seeing green shoots in rural areas. Products from our rural portfolio and low unit price packs have seen positive volume growth. We feel that traction is coming back in rural areas,” Rohit Jawa, Managing Director and CEO, HUL, said while announcing the company’s Q1 results.

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

“…for the last two, three years I was not sure, but I think by Diwali we will see some positive revival in rural areas,” he said.

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

The Budget, announced on July 23, laid a strong emphasis on increasing rural consumption. It unveiled 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, CRISIL Ratings, says that expectations of a better monsoon this fiscal are expected to support growth in agricultural production. This, along with higher minimum support price announced for key crops and ongoing rural infrastructure development activities, will support rural incomes, leading to further improvement in rural demand for FMCG products.

“The last quarter of fiscal year 2024 saw a mild recovery in rural demand, driven by, among other things, easing inflationary pressures and an increase in average non-farm wages in rural areas,” he added.

In anticipation of a rise in rural consumption, FMCG companies are gearing up to increase their rural advertising spend. The festive season, which begins next month with Raksha Bandhan, is expected to boost consumption further.

According to a dentsu report, the fast-moving consumer goods (FMCG) category contributed Rs 31,428 crore to the total AdEx in 2023. Rural India accounts for 35% of FMCG sales.

Due to erratic rainfall and high food inflation, growth in rural markets continued to show weakness for most of fiscal 2024. However, Q4FY24 saw signs of recovery with rural FMCG demand outpacing urban demand.

“We expect a 6-7% volume growth in fiscal 2025 from rural consumers, supported by expectations of a better monsoon favourable to agricultural production and an increase in the Minimum Guaranteed Price supporting farm incomes. Higher government spending on rural infrastructure, mainly through the Pradhan Mantri Awaas Yojana-Grameen (PMAY-G) for affordable housing, will help increase savings in rural India, supporting their ability to spend more,” Jhaver adds.

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

“We expect to see an increase in ad spend of around 10-15% during July-September compared to the previous period. From end-March to end-June, our ad presence was heavily focused on major sporting events like the IPL and T20 World Cup. Once these events are over, we will shift our focus to regular media channels,” he says.

Monsoon is the peak season for advertising edible oils, spices, and other ingredients. Consumption of edible oils increases during the monsoon as people spend more time indoors, leading to more cooking at home. Doctors also often advise against eating out during the monsoon.

Kiran Giradkar, group marketing director, BN Group, says its ‘Healthy Value’ brand, which targets rural areas, has seen a boost with the arrival of monsoon. “Monsoon is crucial as it caters to the needs of rural households, especially in cooking,” he adds.

Giradkar says monsoon is a time of year that brings hope to farms, making it an ideal time for advertising.

“Rural households are expecting a good year, which leads to higher consumption during this time, unlike in summer. The positive outlook of a good monsoon encourages higher spending,” he explains.

Shaileen Patel, general manager, business development and marketing communications, NK Proteins (Tirupati Edible Oils), says demand from the rural sector is expected to increase further as the monsoon progresses.

“Overall consumption was subdued and rural growth fell short of expectations, but we expect a revival from next month. We plan to increase ad spend marginally in the second quarter, but there will be a significant increase in the third and fourth quarters,” he said.

Aasif Malbari, chief financial officer, Godrej Consumer Products, says expected favourable rainfall is expected to boost rural demand.

“As the consumer goods industry continues to adjust to changing market dynamics, the prospect of a normal monsoon is encouraging. Improving macroeconomic indicators and solid growth in agricultural production would lift consumer sentiment. Sectors like personal care and home care would be potential beneficiaries,” he says.

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

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

However, reaching rural markets is becoming increasingly important as internet penetration increases.

“With lower data costs, rural consumers are increasingly consuming digital content, including live streaming, short videos, social media and OTT platforms. Therefore, a strong digital presence is now a key part of our strategy to reach rural audiences,” he says.

BN Group’s Giradkar also highlights that rural areas consume more data than their urban counterparts.

“We don’t spend money on TV; instead, we focus on activations, digital marketing and content. TV 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 tier-3 cities are allowing brands to reach these areas. However, he says the edible oil sector still spends only about 10-15% of its ad spend on digital.

“While the consumer goods sector is increasing its spending on digital solutions, the edible oils sector remains focused on traditional media, particularly linear TV,” he says.

Despite the optimism about the monsoon, two major concerns remain: high food inflation and shrinking wages. Food inflation, which accounts for almost 40% of the total basket of consumer prices, rose to 9.55% in June from 8.69% in May and 4.55% in June 2023. Data from the Centre for Monitoring Indian Economy (CMIE) shows that real rural wages fell in 25 of the 27 months to February 2024.

During a press conference after the financial results were announced, HUL’s Jawa also made this point, saying that the potential risk of food price inflation and a fall in real wages in the event of an unfavourable monsoon could hamper growth.

Patel says food inflation needs to be kept in check. “Vegetable and pulse prices have risen sharply, putting a squeeze on consumer spending. With good monsoons and harvests expected and effective government policies in place, we expect disposable income for rural consumers to rise,” he adds.

Jhaver says that while FMCG companies are witnessing a gradual revival in rural demand, a sustained improvement in rural demand is yet to be seen. The impact of inflationary pressure resulting in higher prices along with low real wage growth in the rural economy have been key issues for the sluggish rural demand for FMCG in the recent past.

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