'Urban demand is under stress, would need an upward spiral'

'Spending by the middle class is limited with a focus on savings. However, there is buoyancy at the top-end.'

Subdued urban demand has been weighing on the fast-moving consumer goods (FMCG) sector and needs an upward spiral.

Sumant Bhargavan, ITC executive director, tells Ishita Ayan Dutt/Business Standard in a conversation at Virginia House in Kolkata that the company is focusing on multi dimensional levers to drive growth while staying the course on product launches.

Urban demand stress has been playing out, is it a temporary blip or a structural issue?

An above average monsoon benefits the agrarian economy. Good monsoons are driving positive sentiment and we expect a pick-up in rural demand going forward.

The acreage has also gone up. Timely interventions by the government, such as a hike in the minimum support prices for a number of agricultural products, are expected to drive rural demand.

The rural economy is expected to see a buoyancy of these effects in the quarters ahead when the crop is harvested and there is more money in the hands of people, which gets reflected in spends like wedding, buying of two wheelers, etc. and some of it is also likely to contribute to enhanced spending on FMCG products.

Urban demand is currently under stress and would need an upward spiral. Real wage increase is lower than inflation.

So, spending by the middle class is limited with a focus on savings. However, there is buoyancy at the top-end.

Can rural uptick compensate for the stress in urban demand?

No, for the FMCG industry, it can't. The rural-urban focus varies from product to product.

Overall, for the FMCG industry, demand is significantly concentrated towards urban.

How is ITC adjusting to the situation?

ITC has been focusing on multi-dimensional levers to drive growth.

The addressable market size for the FMCG segments we operate in is Rs 5 trillion and there is a lot of headroom for growth.

Several products like noodles, snacks, packaged atta, personal care, are still under-penetrated.

We have been consistently investing in distribution across channels.

We have increased the number of stockists last year and this year and have been adding markets every year.

In rural markets, we have increased the range of ITC's products held by stockists this year.

We have tied up with various wallet players to make retail finance available so that the stockists can sell more product lines.

We have seen many of the eB2B platforms, who were doing the last mile distribution, scale down operations.

A lot of it has gone to the wholesale channel and we have also focused on direct distribution.

We are leveraging the insight that higher availability of the right product leads to enhanced sales.

Is the stress in urban demand across product segments?

Our premium products are doing quite well. We have ramped up our range for the top-end of the market.

People in that segment are willing to pay more for items like healthy foods, premium skin care products and even premium agarbattis.

So we launched a new food brand focused on the 40+ age group called Right Shift and are also expanding the portfolio of Dermafique skin care range and high-value Mangaldeep agarbatti packs.

We have also crafted a range of premium gifting items across FMCG categories.

he real challenge is in selling the Rs 5-10 packs and that's where the industry is struggling.

At the lower end of the market, we have come up with low unit price packs for impulse products to capture even the low end of the consumer spectrum. We have to be present across all segments.

Growing competition from quick commerce is impacting kirana stores, will it survive the onslaught?

General trade has been impacted. As large FMCG companies, we need to rethink the role of every channel and make sure that it has a relevance to the consumer and can survive on its own.

So, we have developed an omnichannel strategy. We have a well thought-out strategy for each channel.

For example, we are digitally empowering retailers through initiatives like Unnati -- an app through which they can directly order our products.

Our core objective is not to push one channel over the other.

The consumer decides from where she wants to buy. And we have to make sure that our products are available wherever the consumer shops.

How many product launches have you had so far?

So far, we have had 65 product launches this year. We have been averaging about 100 launches a year for many years now. That pace of launches is likely to continue.

We have the institutional strength to track trends, gather insights, innovate, design products quickly, test and launch them, keeping consumer preferences in mind. That's our core strength.

The September quarter was marked by commodity inflation. Has it been passed on to the consumer?

We are witnessing inflationary trends in commodity prices, including that of wheat, palm oil, cocoa, maida, among others.

This weighs on consumption expenditure and the FMCG sector. Many commodities are imported, so Indian food price inflation is linked to global food prices.

With regard to prices, we follow the industry trend. In atta, prices are normally indexed to wheat prices.

Feature Presentation: Aslam Hunani/Rediff.com