Rural Demand Continues To Outpace Urban For Fifth Straight Quarter Despite Slowdown: NielsenIQ Report

Rural demand grew slower during the fourth quarter of the financial year ended March 2025 as opposed to the year-ago period, yet remained four times higher than urban markets, where consumption further decelerated, market research firm NielsenIQ said on Thursday.

Rural growth was 8.4% in the March quarter, down from 9.2% in the December quarter, while urban growth slowed to 2.6% from 4.2%.

Overall, the consumer goods sector grew 11% in terms of value between January and March as rural growth outpaced that in urban areas for the fifth straight quarter. This growth was driven by 5.6% increase in prices, while volume growth — or number of units sold — slowed to 5.1% down during the quarter compared to 6.1% in the year-ago quarter. The FMCG industry, meanwhile, saw a higher unit growth than volume growth, indicating a preference shift towards smaller packs amid price hikes.

So far, consumer goods companies have posted mixed volume growth trends. HUL posted a 2% volume growth, while Godrej Consumer Products' volume was higher at 4%. Tata Consumer posted a volume growth of about 6%, while Marico saw a 7% volume growth during the March quarter.

Rural, which accounts for a third of overall sales, remains a bright spot for an industry, which is struggling with higher costs of living and slow wage growth in cities.

"With a favourable monsoon forecast and revised tax slabs, consumption is likely to pick up in the upcoming quarters," said Roosevelt Dsouza, head of customer success of the FMCG division at NielsenIQ India.

While volume growth is slowing across categories, non-food segments are still outpacing food. "Inflation is easing overall, but high edible oil prices are keeping staples expensive," said D'Souza.

Category-wise, food consumption growth slowed to 4.9% in the March quarter from 6% in the previous three-month period, NielsenIQ data showed. This was primarily as consumers bought lower quantities of edible oil and palm oil amid price increases.

The home and personal care category saw a consumption growth of 5.7% compared to 7.3% in the December quarter, with higher demand in rural areas. The over-the-counter category, such as rubefacients and analgesics, saw a 14% sales growth in the March quarter, led by a 10.4% increase in prices.

Urban metros are experiencing a shift toward e-commerce, led by increasing shopper engagement, which is impacting offline channel shares. Both modern trade and general trade share declined to 22.8% and 62.5%, respectively.

The growth of e-commerce in metro cities, which is up 39.9%, is primarily volume-driven, outpacing traditional trade’s 2.2% dip and modern trade’s 7.7% decline. This is driven by higher online shopper penetration, more purchase occasions, and larger basket sizes, according to NielsenIQ.

Interestingly, small consumer goods players are gaining more ground, though their long-term momentum remains to be seen, according to DSouza.

In the March quarter, the small players with annual turnover below Rs 100 crore grew 17.8% in value terms, followed by mid-level players with a turnover between Rs 100 crore to Rs 1,000 crore (14.6%), large players with turnover between Rs 1,000 crore to Rs 5,000 crore (13.2%) and the giants with turnover of more than Rs 5,000 crore (6.4%). A low base, rural growth, and easing out inflation are helping small players to outpace FMCG growth.

Volume for small players grew 11.9%, followed by mid players at 6.4%. The larger players and the giants saw a volume growth of 5.3% and 1.6%, respectively.

"Commentary for unlisted players, including Indian subsidiaries of multinational corporations, D2C players, and regional brands indicates a slightly better performance, underscoring broader demand resilience," said Saugata Gupta, managing director at Marico, to analysts during a post-earnings call last week. "Data of some of the D2C and unlisted players does not get captured, and the growth could be a tad higher."

Softness in demand amid shrinking household budgets indicates a delayed turnaround for the fast-moving consumer goods sector. Yet, companies predicted a recovery in this fiscal year. GCPL managing director Sudhir Sitapati said he was bullish about demand over the next 12-18 months.