Rethinking FMCG: Growth Beyond Cities

<h2 style="text-align: justify;">Q1. Could you start by giving us a brief overview of your professional background, particularly focusing on your expertise in the industry?</h2>I am a seasoned professional in the manufacturing industry, with a strong focus on polymer and resin-based adhesives. As the Manufacturing Operations Head at a leading company in India, I bring over two decades of experience in driving operational excellence, strategic planning, and people performance in manufacturing settings.  My expertise lies in optimizing production systems, ensuring process safety, and leading large-scale transformation initiatives across plants. I am particularly known for implementing structured methodologies like DMAIC to enhance team effectiveness and improve asset management systems. My leadership is characterized by a deep understanding of the technical, regulatory, and commercial aspects of various manufacturing industries, particularly FMCG and Chemicals.  Having worked with reputable organizations such as Dabur, Mondelez, McCain, PepsiCo, and HUL, among others, I have nurtured cross-functional teams, mentored young professionals, and championed innovation in supply chain and production efficiency.<h2 style="text-align: justify;"> </h2><h2 style="text-align: justify;"> Q2.  Are you seeing notable shifts in consumer demand across urban vs. rural segments in recent years? </h2>India's economy has undergone a dramatic and rather surprising shift in recent years, with rural consumption surpassing urban consumption in terms of volume and development rate. Urban areas have always shaped the narrative around India's consumer market, but the pendulum is currently shifting in favor of Bharat's countryside and semi-urban areas. This new development highlights a rebalancing of India's economic engines as well as a change in consumption habits, with significant ramifications for investors, entrepreneurs, and governments.  1.Rural India: The New Growth Driver  Faster Per Capita Spending Growth  The sharp rise in rural per capita spending is among the most convincing signs of this change. While urban expenditure expanded at a slower rate of 8.3% in 2023–2024, albeit from a higher base of ₹6,996 per month, rural spending increased by roughly 9.2–9.6% to reach ₹4,122 per month. Rural demand for fast-moving consumer goods (FMCG) has outpaced urban growth for the seventh straight quarter, indicating that this is not an unusual occurrence. Instead of being a cyclical oddity, this consistent outperformance indicates a fundamental change.  Rural FMCG Volume Growth Surging  India's rural areas are experiencing faster, more resilient, and inclusive growth in consumption. Rural FMCG volumes increased by 7.6% in Q1 2024, significantly surpassing the urban markets' 5.7% growth. In the following quarters, this trend accelerated, with rural growth in Q2 and Q3 2024 almost doubling urban levels. This momentum is further supported by Kantar's forecasts, which predict that rural FMCG volume growth would be 6.1% in FY25 as opposed to 4.2% in urban markets. These numbers indicate that consumers in India's hinterlands are becoming more confident and have more purchasing power.  2. Changing Consumption Structure: Beyond Subsistence  Rise of Non-Food Expenditure Both the rural Indian consumer and the makeup of their expenditures are changing. In rural areas, non-food spending has increased dramatically, rising from 47% in 2011–12 to 53% in 2023–24. The percentage of non-food spending is much higher in cities, at over 60%. This move from basic commodities to a more varied consumption basket is a sign of improved lifestyles made possible by increased incomes, aspirations, and exposure to a wider range of products.  Processed Food and Lifestyle Choices  The growing percentage of processed foods, drinks, and refreshments consumed in both urban and rural areas is a particularly telling trend. These subcategories demonstrate convergence in dietary preferences as they currently account for 9.8% of food expenditure in rural areas and 11% in urban areas. Thanks to aggressive distribution and customized product forms by FMCG companies, packaged foods, ready-to-cook meals, and convenience-driven products—trends that were long thought to be urban—are now widely accepted in rural India.  3. Urban Headwinds: Inflation and Demand Saturation  Sluggish Urban Consumption Urban India is facing challenges, whereas rural India is thriving. Cities have seen a reduction in discretionary spending due to stagnant salaries, increased living expenses, and inflationary pressures.  Urban demand is slowing down for luxury residences and high-end FMCG products. There is less momentum in lifestyle-oriented buying as urban consumers place more emphasis on investments, savings, and necessities.  Urban Premium Segment Hit  The luxury and premium markets, which heavily rely on the positive feelings of the urban middle class, are also showing signs of slowing down. Aspirational purchases have become less important when inflation reduces disposable incomes. Urban FMCG companies now have to balance keeping premium consumers while avoiding falling behind more affordable rural-focused goods.  4. Narrowing the Urban-Rural Divide  Shrinking Per Capita Spending Gap  India's traditional rural-urban economic divide is closing. In 2011–12, the urban-to-rural per capita expenditure ratio was 1.84x; in 2023–24, it was almost 1.7x. This trend is supported by government surveys, which show that during the same time period, the urban-rural difference decreased from 84% to 70%. Perhaps the most distinctive aspect of the current economic environment is the compression of disparities, which indicates that India's growth model is becoming more inclusive.  5. Why This Shift?  Rural Income Gains and Infrastructure Development  A number of structural elements have made this change possible. First and foremost, increased agricultural output, better monsoon seasons, targeted government welfare programs (such as direct cash transfers and subsidies), and improved rural infrastructure have all contributed to an increase in rural earnings. Rural living has been significantly enhanced, and commerce has been made easier by roads, power, digital connectivity, and banking access.  Urban Saturation and Inflationary Curbs  Urban India, on the other hand, seems to be hitting a consumption ceiling, especially when it comes to non-essential categories. Consumption is changing from indulgence to caution as urban consumers are more severely impacted by inflation as a result of rising base living expenses. Furthermore, urban consumers are flattening consumption curves by placing a greater emphasis on long-term investments, mutual funds, insurance, and savings than on instant gratification.  Market Access and "Rurban" Strategy  FMCG businesses have adjusted their strategy after recognizing this change. Expanding rural distribution networks, funding rural advertising, and launching "sachet" or value-pack products aimed at lesser budgets are all receiving more attention. Businesses are also placing bets on Tier 2 and Tier 3 towns, or "rural" (rural + urban) clusters, as the next growth frontier. Goods are now more visible and accessible in these places, which has stimulated demand and established a positive cycle of consumption.  6. Implications for the Future  Business Strategy  This change is a clear demand to realign objectives for firms, particularly in the FMCG sector. Businesses that can successfully enter rural markets and strike a balance between affordability and ambition will probably succeed in the long run. Micro-distribution tactics, community-based marketing, and product localization will be essential.  Policy Focus  The movement offers policymakers both opportunities and challenges. Maintaining this momentum will need ongoing investments in rural employment, education, health, and digital infrastructure. A balanced development plan should include both promoting income growth in rural areas and ensuring inflation control in metropolitan areas. Socio-Economic Rebalancing  Lastly, this rebalancing of consumption portends a more equal economic trajectory for India as a whole. Rural India will have the same needs as urban India in terms of voice, representation, and services as well as products as its economy develops. This change is sociological and political in nature rather than just statistics.   <h2 style="text-align: justify;">Q3. In your experience, how important is the alignment of plant-level digitization (IoT, Industry 4.0) with ERP and analytics in driving long-term competitive advantage? </h2>In the evolving landscape of India's FMCG sector, the alignment of plant-level digitization with ERP and advanced analytics is no longer a luxury—it is a strategic imperative for long-term competitive advantage. The integration of IoT and Industry 4.0 technologies within manufacturing plants enables real-time data capture from equipment, materials, and processes, enhancing visibility, efficiency, and predictive maintenance capabilities. However, the true value of this data is unlocked only when seamlessly integrated with enterprise-level ERP systems and analytics platforms. Such alignment ensures that granular shop-floor data informs upstream supply chain decisions, inventory planning, and customer service strategies. For Indian FMCG companies operating in a highly competitive, margin-sensitive, and geographically diverse market, this interconnectedness allows for faster response to demand fluctuations, optimized resource allocation, and improved product quality and compliance. Moreover, analytics layered on top of integrated data can drive insights into SKU-level profitability, regional performance trends, and supplier reliability. As the sector sees increasing rural demand and shifting consumption patterns, real-time visibility from factory to consumer shelf becomes critical. Companies that succeed in creating a closed digital feedback loop—from sensor to decision—will be better positioned to scale agile operations, reduce waste, and deliver consistent value, gaining a sustainable edge in the marketplace. <h2 style="text-align: justify;"> </h2><h2 style="text-align: justify;"> Q4. How is the industry responding to increasing environmental regulations and expectations for sustainable packaging and waste reduction? </h2>Sustainability is increasingly being seen not just as a compliance issue but as a brand differentiator. FMCG companies aligning eco-conscious packaging with supply chain redesign and consumer awareness campaigns are better positioned to win future-ready, environmentally aware customers. However, the FMCG industry in India is responding proactively but unevenly to rising environmental regulations and growing consumer expectations around sustainable packaging and waste reduction.  The government's Plastic Waste Management (Amendment) Rules, 2022, including the ban on single-use plastics and Extended Producer Responsibility (EPR) mandates, have significantly accelerated industry action. The FMCG sector is now legally required to recover and recycle a fixed percentage of its plastic waste, with staggered targets year-on-year.  Brands that fail to meet EPR targets are facing penalties, pushing even smaller players to formalize their waste management systems. Large FMCG players like HUL, Nestlé, and ITC are shifting toward recyclable, biodegradable, or compostable packaging and investing in closed-loop systems. Many companies are using lightweight packaging (reducing material use) and experimenting with mono-material designs that are easier to recycle. Digital tools and blockchain are being piloted for waste traceability and improved EPR reporting. There is growing interest in refill stations, reusable containers, and zero-waste retail pilots, especially in urban and premium markets. Partnerships with waste aggregators and recycling startups are rising, especially for post-consumer packaging collection. But there are challenges as well in getting to where the intent is. And those are multifaceted - Cost, scale, and infrastructure gaps hinder widespread adoption, especially for rural packaging logistics. Many SMEs lag in compliance due to limited resources and technical know-how.<h2 style="text-align: justify;"> </h2><h2 style="text-align: justify;"> Q5. Is there untapped potential in redesigning warehouse and logistics infrastructure to gain a market edge in terms of speed or cost efficiency? </h2>Unlocking Competitive Edge through Warehouse and Logistics Redesign in FMCG  The storage and logistics infrastructure in India has unrealized potential for transformation in the quickly changing, fast-moving consumer goods (FMCG) industry, where speed, cost, and customer happiness are critical differentiators. Logistics and warehouses, which were once thought of as backend operations, are now more widely acknowledged as strategic tools for gaining a competitive edge. FMCG companies can reduce costs, enhance delivery times, and adjust to changing demand dynamics by adopting redesigns driven by automation, digital integration, and network optimization—particularly in the post-pandemic, omnichannel world.  1.Smart Warehousing and Automation  Indian FMCG businesses have a lot of room to implement smart warehousing technologies. A significant percentage of warehousing processes are still done by hand, which leads to inefficiencies, increased error rates, and restricted scalability. Robotic palletizers, conveyor sorters, and automated storage and retrieval systems (AS/RS) have the potential to completely transform accuracy and throughput. Dynamic slotting, smooth coordination with ERP systems, and real-time inventory visibility are made possible by the integration of warehouse management systems (WMS).  Improved worker productivity and space utilization are further benefits of automation. Warehouses can operate more reliably even during busy times or labor shortages by lowering their reliance on manual labor. Additionally, sensor-enabled predictive maintenance helps lessen operating interruptions and downtime.  2.Hub-and-Spoke Network Optimization  Another unrealized opportunity is to redesign the distribution network using a multi-tier hub-and-spoke paradigm. The legacy models used by many FMCG companies still include moving items from centralized warehouses to different retail locations, which frequently leads to higher last-mile costs and slower response times.  Delivery lead times can be significantly shortened by locating Regional Distribution Centers (RDCs) near consumption areas and utilizing satellite fulfillment centers or urban micro-warehouses. Additionally, this strategy fits in nicely with the rising demand in Tier-2 and Tier-3 cities. Using data from past sales, transportation expenses, and customer demand trends, advanced analytics can assist in determining the best places for warehouses.3.IoT and Predictive Logistics  Predictive and condition-based logistics are made possible by the incorporation of Internet of Things (IoT) technology into warehouse and fleet infrastructure. For example, sensors have the ability to track temperature, humidity, and movement in real-time, which is crucial for goods that need to be kept cold.  Fleet cars with GPS and telematics installed can lower expenses and their impact on the environment by offering predictive maintenance alerts, fuel usage statistics, and route optimization. IoT systems' real-time data can also help with proactive decision-making, which can improve service quality and reduce stockouts or product deterioration.  4.Data-Driven Transport Management Systems (TMS)  In India's FMCG logistics, Transport Management Systems (TMS) are another underutilized sector. TMS platforms optimize routing, combine loads, and handle reverse logistics through the application of AI and machine learning. Adoption is still low despite the obvious cost-saving potential, which is estimated to be between 8 and 15% of logistics costs.  TMS products offer end-to-end visibility when coupled with ERP and warehouse systems, assisting businesses in making quick decisions regarding order prioritizing, fleet deployment, and delivery timing. Simulating different logistics situations also makes it possible to plan for contingencies and make continual improvements.  5.Green Logistics and Sustainable Warehousing One of the most important requirements for long-term competitiveness is sustainability. Energy-efficient and ecologically friendly warehouse redesigns have advantages for regulations and brand equity. Rainwater collection, energy-efficient HVAC systems, solar-powered buildings, and natural lighting can all lower operating expenses and the carbon impact. As government incentives and urban pollution restrictions change, the usage of electric vehicles (EVs) for intra-city delivery is becoming more popular. FMCG companies will be in a better position to satisfy future regulatory requirements and customer expectations if they make proactive investments in green logistics infrastructure.  6.Shared Warehousing and Collaborative Logistics  The fragmented FMCG market in India offers a chance for cooperative models. Cowarehousing can maximize asset utilization and lower fixed infrastructure costs by allowing several non-competing businesses to share storage space and logistics resources. Digital freight platforms and third-party logistics providers (3PLs) are rapidly providing small and mid-sized businesses with adaptable, scalable solutions.  In addition to cutting costs, collaborative logistics helps smaller brands provide services on par with those of bigger competitors. These models provide flexibility in the face of rising demand volatility brought on by promotions, seasonal trends, or channel changes without requiring a significant initial expenditure.  7.Aligning Infrastructure with Digital Demand Planning  Businesses must combine these advancements with sophisticated demand forecasting and digital sales planning in order to fully benefit from modernized warehouses and logistics. Businesses may match inventory movements with projected demand across e-commerce, modern trade, and general trade channels by utilizing AI-driven forecasting solutions.  Faster replenishment cycles, lower safety stock, and higher service levels are made possible by a networked infrastructure, particularly in fiercely competitive metropolitan markets. Logistics performance aligns with business results when real-time dashboards are used to track KPIs, including inventory turnover, delivery accuracy, and OTIF (On-Time In-Full).<h2 style="text-align: justify;"> </h2><h2 style="text-align: justify;"> Q6. Are newer entrants or D2C players challenging traditional FMCG manufacturers in terms of operational innovation or project agility?</h2>Newer entrants and Direct-to-Consumer (D2C) players are reshaping India's FMCG operations by prioritizing speed, agility, and digital integration from the ground up. Unlike traditional manufacturers burdened with legacy systems, D2C brands leverage cloud-native platforms, nimble supply chains, and real-time customer data to iterate quickly and personalize offerings. Operationally, they adopt asset-light models with outsourced manufacturing and third-party logistics, allowing them to scale faster and respond to niche demands with precision.  These companies also deploy rapid prototyping, test-and-learn models, and influencer-driven campaigns to shorten go-to-market timelines. While large FMCG players may take months to roll out a new SKU nationally, D2C brands can launch and pivot in weeks. They are not tied to traditional retail structures and are redefining service levels through hyperlocal fulfillment, subscription models, and direct feedback loops from social commerce platforms. As a result, they not only challenge pricing but also redefine consumer expectations around experience, transparency, and brand interaction.  Traditional FMCG players are responding by incubating D2C sub-brands, investing in digital-first capabilities, and adopting agile project management practices. However, the operational DNA of newer entrants offers a valuable blueprint for speed, customer-centricity, and innovation in a highly dynamic market. <h2 style="text-align: justify;"> </h2><h2 style="text-align: justify;"> Q7. If you were an investor looking at companies within the space, what critical question would you pose to their senior management? </h2>As an investor looking at companies within the space, the most critical question would be, "How are you aligning your supply chain, digital infrastructure, and innovation pipeline to stay competitive in a market where consumer expectations, channel dynamics, and new entrants are evolving faster than traditional cycles?"

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