Rural comeback should be more enduring trend going forward: Dabur India CEO

Rural comeback should be more enduring trend going forward: Dabur India CEO

 

New Delhi: Dabur India Ltd, a prominent player in the consumer goods sector, is committed to further diversifying its product range across various price segments and reinforcing its strong brands, affirmed Mohit Malhotra, CEO of Dabur India. In the quarter ending in June, the company, known for products like Vatika shampoo and Hajmola candy, reported a noteworthy 8% surge in rural sales volumes, surpassing the market growth of 4%.

According to Malhotra, the company has witnessed escalating demand from rural areas, attributed to the introduction of bridge packs, expanded distribution coverage, and a general uptick in consumer demand. Below are key excerpts from the interview:

Question: How is the rural demand panning out?

Mohit Malhotra: Rural demand has exhibited a robust trajectory for us. During the June quarter, our rural volumes registered a growth of 8%, which is notably higher than the market’s growth of 4%. We attribute this positive trend to a combination of factors, including the launch of bridge packs, enhanced distribution outreach, and an overall increase in demand from rural consumers.

Question: Can you elaborate on the factors driving rural demand for Dabur?

Mohit Malhotra: Certainly. Our decision to introduce bridge packs, which cater to consumers looking for value-for-money options, has played a pivotal role in attracting more customers from rural areas. Moreover, our efforts to expand distribution coverage have been instrumental in reaching a wider rural audience. Additionally, the overall economic uptick has boosted consumer sentiment, contributing to the growth in demand.

Question: How do you plan to extend your portfolio across different price points?

Mohit Malhotra: Our strategy revolves around building on our power brands and expanding our product range across various price segments. This approach allows us to cater to the diverse preferences and purchasing capacities of our consumers. We are committed to providing products that align with different consumer needs while maintaining the quality and reliability associated with the Dabur brand.

In summary, Dabur India is capitalizing on the growing demand from rural markets by leveraging strategies such as the introduction of bridge packs and an extended distribution network. The company’s dedication to expanding its portfolio across different price points demonstrates its commitment to addressing a wide spectrum of consumer preferences and strengthening its presence in the consumer goods sector.

Certainly, the focus on the rebound of rural demand is driven by several factors, particularly the significant contribution of rural areas to Dabur’s business. This contribution stands out in comparison to our industry peers. While most consumer goods companies have a rural contribution ranging from 30% to 35% of their business, Dabur’s rural contribution is notably higher, falling within the range of 45% to 50%. This emphasis on rural demand is warranted due to the substantial impact it has on our overall business performance.

The higher rural contribution underscores the importance of rural markets as a key driver of our growth and revenue. As a result, we closely monitor and analyze rural consumption patterns, economic indicators, and consumer behavior in these areas. Our proactive approach in understanding the unique needs and preferences of rural consumers has enabled us to tailor our product offerings and marketing strategies effectively.

We are optimistic about the resurgence of rural demand for several reasons:

1. Bridge Packs: The introduction of bridge packs, catering to consumers seeking cost-effective options, has resonated well in rural markets. These value-for-money packs provide affordability without compromising on quality.
2. Distribution Expansion: Our efforts to extend our distribution network have enabled us to reach a wider rural audience, making our products more accessible to consumers in remote areas.
3. Economic Uptick: A general improvement in economic conditions, including agricultural output and rural incomes, has positively influenced consumer sentiment and spending.
4. Consumer Awareness: Increased awareness and exposure to brands and products have elevated rural consumers’ expectations and preferences, driving demand for diverse offerings.
5. Rural Resilience: Rural areas have shown resilience during challenging times, which has contributed to their continued economic activity and consumption patterns.
6. Rural areas have proven to be a favorable arena for our business operations. We have strategically established a robust infrastructure, including sub-stockists and rural yodhas, to effectively cater to rural markets. In the recent quarters, we have observed a promising resurgence in rural growth, marked by positive developments. Our assessment of rural business success centers around the volume metric, which has shown a significant improvement. The following points elaborate on our observations:
   1. Infrastructure Investment: Our commitment to building a strong presence in rural areas is evident through the infrastructure we have put in place. This includes establishing sub-stockists and rural yodhas, which have played a pivotal role in effectively reaching rural consumers.
   2. Positive Growth Trend: Over the last one or two quarters, we have witnessed a noticeable upturn in rural growth. This resurgence has been reflected in the positive trajectory of our sales volume.
   3. Volume as an Indicator: Sales volume serves as a reliable barometer for assessing our rural business performance. The shift from red to black in volume trends underscores the positive momentum we are experiencing.
   4. Favorable Inflation Trends: An important factor contributing to the improved rural performance is the moderation in inflation for our raw material basket. From double-digit inflation rates last year, we are now witnessing inflation within the range of 2% to 2.5%. This decline in raw material costs translates to a reduction in product costs for consumers.
   5. Increased Consumer Spending Power: The reduction in product costs coupled with improved economic conditions has led to greater disposable income in the hands of rural consumers. This increase in spending power has contributed to the heightened demand for our products.

       

      Indeed, we are observing an upward trend in consumer spending, and several macroeconomic factors are contributing to the favorable performance of rural markets. There are several key factors that are influencing this positive rural performance:

      1. Good Crop Output: The recent rabi crop output has been favorable, providing a strong foundation for rural economic activity. Despite challenges such as unseasonal rains impacting the harvest, the overall crop performance has been positive.
      2. Satisfactory Rice Sowing: The successful sowing of rice, a crop that heavily relies on adequate rainfall, is a positive indicator for rural areas. Adequate rainfall has supported rice cultivation, contributing to rural economic vitality.
      3. Election-Year Influence: The increase in the minimum support price (MSP) for crops is in line with the election year. This has provided farmers with better remuneration for their produce, positively impacting their disposable income and spending.
      4. MNREGA Wage Rates: The wage rates under the Mahatma Gandhi National Rural Employment Guarantee Act (MNREGA) have risen, leading to higher incomes for rural laborers. This wage increase has the potential to stimulate overall rural consumption.
      5. MNREGA Enrollments: It’s worth noting that while MNREGA enrollments have increased, this could be a sign of economic distress, indicating that infrastructure development and job creation haven’t fully mitigated unemployment concerns.

      In summary, the positive rural performance is a reflection of a combination of factors, including favorable crop outcomes, increased minimum support prices, higher wage rates, and an improved economic outlook. While there are challenges such as increased MNREGA enrollments, the overall positive trend in rural demand, as seen in your company’s results, suggests a resilient and enduring growth trajectory for rural markets going forward.

   6. Expanding our presence in rural markets remains a strategic priority for us. Currently, we directly serve around 1,00,000 villages, which is a fraction of the total coverage universe that spans approximately 6,00,000 to 7,00,000 villages. We recognize that each village is undergoing a process of urbanization, leading to improved infrastructure and better accessibility. This urbanization trend presents a substantial opportunity for us, as it paves the way for increased consumption of branded products in these areas.

      As villages become more accessible and better connected to feeder markets, we anticipate a growing demand for branded consumer goods. This transformation offers significant headroom for growth and expansion, allowing us to tap into these evolving markets.

      In line with our growth strategy, we are focusing on making our products more affordable and accessible to a wider range of consumers. For instance, in categories where we hold a leadership position, such as chyawanprash, there is ample room for penetration improvement, with current penetration levels below 10% pan-India. By offering more affordable price points, such as reducing prices from ₹100 to ₹50, we aim to make our products accessible to a larger consumer base.

      

      Our approach extends to other categories as well. While categories like hair oils and toothpaste boast high category penetration rates of over 90%, our market share remains at around 16% to 17%. To address this, we are diversifying our product offerings with an entire pack price architecture that caters to rural, semi-urban, urban, and even e-commerce consumers. By catering to a broader spectrum of consumers, we are aiming to capture a larger market share and expand our footprint in these evolving markets.

      In conclusion, the ongoing urbanization of rural areas provides us with a compelling opportunity to enhance our reach and brand presence. Through affordability and a diversified product approach, we are poised to tap into the potential of these markets, offering value to consumers across various segments.