Budget 2018: Established consumer brands will be the biggest beneficiaries
Ajita Shashidhar February 1, 2018
The fact that Budget 2018 would be rural friendly was a given. In fact, most large consumer companies had already started to work towards increasing their presence in rural India by strengthening their presence in these markets. It is the larger FMCG and consumer durable companies which clearly stand to gain. This is not so much for the generous Budget sops doled out by the government but is more to do with the unorganised-sector completely getting wiped out thanks to demonetisation and GST.
A tour into some semi-urban and rural stores, which till about a year ago thrived on local food and personal care brands are today more than happy to display products of all the leading FMCG companies. The reason is that the bigger FMCG companies have not just become more efficient in replenishing stocks, but are also wooing them with better margin incentives. Earlier, it was the smaller unorganised brands which gave them better margins. Most of these brands sold through informal methods, and post GST and demonetisation they are finding it difficult to match the margins they earlier offered.
Similarly, consumer durable stores which earlier sold a host of local brands no longer sell a single local brand. It's not that the rural consumer prefers a big brand to a local brand (in fact, the rural consumers actually prefer local brands to national brands as they have a distinct price advantage) but because NBFCs have started offering interest free loans in rural markets and they offer loans only to the established consumer durable brands.
Budget 2018 promises to double the income of farmers by 2022. The finance minister has also announced a 150% increase in MSP for crops. These sops will surely spur consumption in rural India but it is the established brands that will grow at the expense of the small regional players. The market will see less of the local masala and namkeen brands. These brands surely understand the local nuances much better than the larger brands, but no longer have the might to compete with them.