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    Rural growth alone won’t be able to sustain demand in the long term: Dabur Ex-CEO

    Synopsis

    ‘Rural growth alone won’t be able to sustain demand in the long term’

    Sunil Duggal Dabur
    Companies will go where the demand is and at the moment, the demand is rural.
    The revival we are seeing may teper out if the festive season is not good, says Sunil Duggal.

    Some look at tractor sales, some use biscuit sales and some look at management commentary which is coming from FMCG companies like Dabur and HUL to understand which way the rural demand is moving. Based on your experience, what is your sense? We have had a good monsoon this year, the MSP prices have been strong and FCI has really lifted a lot of food and grains this year. Do you think we are on the cusp of a big rural comeback?
    Yes, the rural demand has been extraordinarily good. We were off to a soft start in April but the rural demand has picked up in May and June. It has really unfolded big time. This is going to sustain for maybe a quarter or two. The long-term sustainability of this demand is still a little suspect because the MNREGA has already been 50% of the full year quota. So that means that unless there is a further enhancement of MNREGA, the whole stimulus on account of which we saw this huge increase in demand may just peter out.

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    Also, the rabi harvesting has been great and kharif sowing has been outstanding. So this will also lead to some uptick in demand; at least for a while. But in the long term, all consumers and consumer staples particularly can only see secular growth across urban and rural and at this point in time, we are not seeing urban growth. So urban growth has to pick up. Hopefully, with the revival in the economy post lockdown, maybe in the second half of the year, urban demand will pick up and then we will see a more secular growth. If that does not happen, I do not think rural growth will be enough by itself to sustain demand over a long period of time.

    The second issue when you talk about rural demand is: while it is very good and honourable, the SKUs are typically of lower value and lower margins. So if the whole product portfolio shifts radically in favour of rural-focussed products, you are going to see margin shrinkage. You are going to see pain on some other fronts also. The cost of reaching the rural consumer is obviously higher. So these are the pros and cons. I am very happy that rural demand has at least come at the right time when the companies were really on the backfoot. This has come as a lifeline but the sustainability of the demand still has to be backed up.

    Are you looking at strategically focussing more on rural markets and segments particularly for those markets going forward?
    Companies will go where the demand is and at the moment, the demand is rural. So companies are re-engineering the supply chains to have a far higher reach out towards rural areas and crafting the product portfolio in sync with rural requirements. But again, I agree that the promotional intensity which was very low because of the supply chain disruption and demand being much higher than supply will slowly recede and promotions will come back. I see promotion intensity coming back big time; if not in this quarter, then definitely in the third.

    So especially if the urban demand remains compressed and people become more and more dependent upon rural demand, another factor which we have to consider is how will the festive season pan out. I think that is very important because festive season is so critical to consumption and many categories and there was some mention yesterday that the festive season would be a good one. We really hope it is but if it is not, then the revival which we are seeing may just peter out or at least plateau and we would not get into a V-shaped recovery as all of us hope. So the third quarter is critical. Second quarter is normally the soft one for most consumer companies. So I think it will be a decent quarter but the third quarter is really where it will make or break.




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    Download The Economic Times News App to get Daily Market Updates & Live Business News.

    Subscribe to The Economic Times Prime and read the Economic Times ePaper Online.and Sensex Today.

    Top Trending Stocks: SBI Share Price, Axis Bank Share Price, HDFC Bank Share Price, Infosys Share Price, Wipro Share Price, NTPC Share Price

    ...more
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