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Sindhu J. Bhattacharya
Neha Kaushik

Fears of the monsoon failing have companies focusing on the urban market to make up for the likely shortfall in sales from rural areas.

YEAR after year, a good monsoon is on the wish list of every fast moving consumer goods (FMCG) and consumer durable company in the country. After all, normal rains translate into a robust rural economy, thus accounting for a surge in consumer demand. In fact, companies dealing in two-wheelers, household appliances and even toiletries have begun shopping for weather data in a bid to anticipate demand and manage inventory levels accordingly.

But if indications till the middle of June are anything to go by, India Inc is keeping its fingers crossed. The monsoon is already delayed by a week but the Met Department has forecast normal rains. So, while there is little reason to worry just yet, companies are nevertheless gearing up for the eventuality of inadequate rainfall.

Last year, an erratic monsoon and a dampened sentiment overall had hurt FMCG sales, particularly in the rural markets. In the past, years seeing delayed monsoons have also witnessed a dampening of growth in the two-wheeler sector with consumers in rural areas postponing purchases.

"Quite simply put, a bad monsoon means poor income for the farmer and consequently less demand for manufactured goods," point outs a market analyst. Upon a rough calculation, almost half of FMCG sales take place in the rural hinterland. The 4 per cent growth in the FMCG segment last year was almost entirely generated through sales in the urban markets, with rural demand remaining flat throughout.

With the monsoon already delayed and rural demand failing to pick up in the first five months of 2005, FMCG companies are working out ways to achieve their growth targets largely through the urban markets.

Dabur India Ltd (DIL) appears resigned to the fact that rural demand may not pick up this year too. The Vice-President (Sales), S. Raghunandan, said "If indications available in the first five months of this year are anything to go by, rural demand is still stagnant. We have done whatever we could to attract the rural consumer, such as introduction of sachets and price corrections last year. This year, our focus is the urban consumer."

He said DIL has, in fact, formed a special sales force to deal with `modern trade' (retail formats such as discount stores and hypermarkets), which is showing a healthy growth in the urban markets.

"Our research shows that urban growth is concentrated in large towns where modern trade is mushrooming. The consumer here wants large pack sizes, is more literate and aware of product features and demands promotions," said Mr Raghunandan. He said that at present, 3 per cent or about Rs 1,500 crore of FMCG sales come from modern trade.

Disagreeing with him on the importance of the rural consumer for FMCG companies, the President of Wipro Consumer Care and Lighting (WCCL), Vineet Agrawal said, "For us, generating good rural demand is not an `either-or' issue. Rural markets are very important for us. A bad or delayed monsoon will certainly affect demand, with margins getting under pressure, but we are not abandoning the rural markets."

He said many of WCCL's products were focused on the rural market. For example, almost 55 per cent of the flagship soap brand Santoor's sales come from the rural areas.

And even as the possibility of inadequate rains have begun to worry FMCG companies, delayed rains paint a mixed picture for the consumer durables industry. Analysts say that while a prolonged summer spells a bonanza for sales of air-conditioners and to some extent refrigerators, it could negatively affect sales of washing machines and colour televisions.

"A longer summer would be a blessing in disguise for refrigerators and air-conditioners. We are not very concerned about the growth rate of washing machines being affected by the delay, as the rural market does not account for much of the sales. Growth rates, however, could be affected by water scarcity caused by delayed monsoons," says Kamal Nandi, Head of Sales at Godrej Appliances.

Meanwhile, analysts say that growth of products such as low-end colour televisions (CTVs) and other electronics for which much of the demand comes from rural areas could be affected.

"In fact, there has been a slowdown in the month of June, as a delay in rainfall has impacted growth. As per estimates, there could even be a 10 per cent dip in sales of consumer electronics in June. The impact could be seen a little more in rural and semi-urban areas," says Kishan Kalani, Chief Operating Officer, Oscar.

Beltek, which produces televisions and audio products, however said a slowdown caused by delayed monsoons will be seen in only a few States. "The delay is likely to impact sales in only a few central Indian States. There is not much cause for worry as the monsoon has already reached the Southern states," said R. S. Kandhari, CEO, Beltek India.

Paul Thachil, the CEO of Mother Dairy India (the marketing arm of the National Dairy Development Board), said that while there is no immediate cause for worry, things will get tough if there is a shortfall of 15-20 per cent in total rainfall. "As of now, raw material prices for milk have gone up by about 15-20 per cent, which is normal at this time of the year, but there is no real shortfall. However, in case the monsoon is deficit, prices may rise further."

The Chennai-based CavinKare Pvt Ltd is in a similar situation, with a strong rural focus. For Chik, the company's flagship shampoo brand, 65-70 per cent demand is from the rural consumers.

The Executive Director and CEO, K. S. Ramesh, said his company has created an exclusive field force to focus on modern trade but was not in any way de-focusing from the rural markets. "In fact, we still believe that the monsoon will be normal this year and our 25 per cent volume growth target across base brands will be met," he said.

But while consumer durable and FMCG companies appear worried, market analysts point out that the influence of the monsoon over the fortunes of India Inc has been dipping over the years and that a sub-normal monsoon would not spell doom for growth rates of consumer goods.

"New drivers for growth and revenue have emerged in different sectors. In sectors such as consumer durables and two-wheelers, for instance, a more important factor may be consumer financing options," says an analyst.

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