India Inc does it all: Distribution beef-up, rural-specific products, lower price points.
The myth about the great rural-urban divide in household consumption patterns has been busted. Bharat is indeed keeping pace with India when it comes to spending on most fast-moving consumer goods (FMCG), prompting companies to step on the gas with innovative marketing strategies.
According to data provided by market research agency IMRB, rural penetration of a wide range of products such as soaps, shampoos, washing powder, hair oil and biscuits is now almost the same as urban India (see chart). For example, toilet soap penetration is as high as 99 per cent in January-July, and 97 per cent for washing powder. For biscuits and hair oil, it’s a creditable 83 per cent.
Companies such as Godrej Consumer Products (GCPL), Marico, Parle Products, Dabur India and Hindustan Unilever (HUL) say the main challenge to increase sales further in rural areas is to beef the distribution reach as far as these products are concerned. Products where the penetration level is still low in rural India are convenience foods and beverages such as soft drinks, noodles and sauces. But that is changing fast as the purchase volumes of noodles, macaroni and vermicilli went up nine per cent in the same period compared to a year ago. As a result, penetration went up from 26 per cent to 30 per cent. The trend is no different with soft drinks, where purchase volumes were up 24 per cent between January and July versus the corresponding period last year. Consequently, penetration moved from eight per cent to 11 per cent.
Companies operating in this space — Coca-Cola, PepsiCo, Nestle and Capital Foods — say apart from distribution muscle, they are bringing in more innovative and affordable products specifically targeted at rural consumers. “We are rapidly increasing the distribution reach from the current 300,000 stores to 1.2 million stores in two years. Tier-2 and 3 towns were our distribution and media focus all of last year,” says Ajay Gupta, managing director, Capital Foods, the maker of Smith & Jones and Ching’s noodles.
In biscuits on the other hand, Parle Products, the country’s largest manufacturer, is trying to push rural consumers to trade up, or buy more premium products. In simple terms, it means moving up from merely glucose biscuits to the premium creamy or cookie biscuits. “There is only one option when penetration is high,” says Pravin Kulkarni, general manager, marketing, Parle Products, “and that is to move to value-added products”. That is why Parle is selling creams and cookies at Rs 5 — almost half the earlier price point. As a result, the glucose biscuits market, which used to be 50 per cent of the category a few years ago, has shrunk to about 45 per cent.
Pushing consumers to buy premium products by tapping into niche segments within the same category is one part of the strategy. The other is to nudge consumers to shift from unbranded to branded products. Marico and Emami are doing that with great effect in the well-penetrated hair oil market.
Sameer Satpathy, executive vice-president and marketing head, consumer products, Marico India, maker of the Parachute brand of hair oils, says while the penetration of hair oils is high, there is still room for growth.
According to market experts, unbranded hair oil accounts for 40 per cent of the category. Satpathy also says companies have to create new occasions for hair oil consumption, and that explains the launch of cooling oils or hot oils or body oils by many players. “Broadly, the strategy is to not only have a presence in the larger segments, but also look at developing emerging niches,” he says.
Emami is also following a similar strategy. Priti Surekha, director of the Kolkata-based company, says, “The way forward in hair oils is to help consumers, especially in the rural areas, to make the switch from loose to branded or aid new consumption habits either with novel products or new formats.”
For instance, Emami has the regular Navratna Cooling Oil, which is the leader in the Rs 600 crore cooling oil category, besides Navratna Extra Thanda Oil or the Navratna Coco Cooling Oil, launched recently. It is now test-marketing a unique five-in-one oil in West Bengal called Hair Life Five Oils, which is a mix of five oils including coconut, amla, almond, olive and jojoba. The product will be rolled out nationally in six-seven months, Surekha says.
In toilet soaps, GCPL, the second-largest player, says the company is focusing on the upgrade of products and improving per capita consumption. GCPL registered 17 per cent growth in soap sales in the first quarter of the current financial year on the back of this strategy.
The company’s rural driver is the Godrej No 1 soap brand, which is now being offered in rural markets at a price point of Rs 5, according to distributors, compared to the regular pricing of Rs 11-12.
The story is slightly different for companies which operate in product categories where rural penetration is relatively low. Nestle India does not divulge details, but analysts say its decision to launch Rs 5 Maggi noodles last year with a focus on rural markets has worked wonders.
| RISING RURAL PENETRATION, VOLUMES | ||||||||
| Urban | Rural | |||||||
| Jan-Jul ‘10 | Jan-Jul ‘11 | Jan-Jul ‘10 | Jan-Jul ‘11 | Jan-Jul ‘10 | Jan-Jul ‘11 | Jan-Jul ‘10 | Jan-Jul ‘11 | |
| Universe in 000s | 72,461.90 | 72,461.90 | 153,126 | 153,126 | ||||
| (% penetration) | Purchase volumes (kg/litre) | (% penetration) | Purchase volumes (kg/litre) | |||||
| Any toilet soap | 100 | 100 | 235,151 | 231,800 | 98 | 99 | 255,389 | 260,780 |
| Any shampoo | 88 | 89 | 31,716 | 32,926 | 82 | 84 | 37,314 | 39,921 |
| Any noodle/macaroni/vermicelli | 73 | 79 | 103,001 | 120,834 | 26 | 30 | 30,185 | 32,841 |
| Any washing powder/liquid | 99 | 99 | 533,666 | 549,587 | 97 | 97 | 868,406 | 937,750 |
| Any sauce/ketchup | 14 | 15 | 10,727 | 11,492 | 0 | 0 | 39 | 27 |
| Any bottled soft drink | 36 | 39 | 196,699 | 230,619 | 8 | 11 | 44,966 | 55,899 |
| Any hair oil/dressing | 89 | 89 | 77,016 | 74,966 | 83 | 83 | 124,886 | 122,126 |
| Biscuits/cookies | 93 | 94 | 315,694 | 326,377 | 82 | 83 | 269,422 | 269,989 |
| Urban household universe includes towns/cities with a population up to four million, and above Rural household universe includes villages with a population up to 5,000, and above Source: IMRB | ||||||||
Manoj Menon, senior analyst at Kotak Institutional Equities, says Nestle has done two things: reduce price points and go for massive expansion of retail outlets in rural India to push sales.
Nestle has been adding 300,000 outlets every year, mostly in rural markets, to make Maggi availability easier. PepsiCo is looking at a different strategy: it is planning to come up with products below Rs 5. But, it is equally clear the price points of its existing portfolio of carbonated drinks in PET bottles or returnable ones cannot be brought down. So, it has to come out with new delivery models and new low-cost products.
One answer is to go in for dispersed production across the country, so that there is a factory within 250 kms from the retailer.
It is also experimenting with a new distribution model, which can carry cheaper products (for example, retailers with no fridge but only cold boxes).
Manu Anand, chairman & CEO of PepsiCo India, says, “We are in 1.5 million retail touch points now; but that has to increase as the bottom of the pyramid market provides us with a huge opportunity.”
PepsiCo India and its JV partner, Tata Global Beverages, are already test-marketing ‘Glucoplus’ in Maharashtra at Rs 5 to see if it works. “Glucoplus provides the right hydration salts because it is for people who work hard and sweat a lot,” Anand says.
Coca-Cola India president Atul Singh agrees. “More than 700 million people still live in rural India and an individual needs two litres of fluid per day. We see a lot of opportunity as the consumers there also have a right to have access to products we consume in cities” he says.
Coke’s answer to cost reduction is to take the powdered sachet route. It has piloted ‘Fanta Fun Taste’ for Rs 5 in certain markets; it can be mixed with water and consumed. The company is also looking at lightweight packaging to reduce costs in some beverages.
