Encouraged by growth in sales from rural India in the second quarter, fast moving consumer goods (FMCG) companies are devising ways to tap this segment over the next few quarters.
They plan new marketing strategies and extending their distribution reach, by increasing the number of stockists and even participating in rural markets and melas.
The FMCG sector in India is the fourth largest in the economy, with a market size of over Rs 110,000 crore (around $22 billion) and is estimated to grow to over Rs 185,000 crore (around $37 billion) by 2014. A recent study by the Rural Marketing Association of India (RMAI) confirms that rural income levels are on the rise, driven largely by continuous growth in agriculture for four continuous years.
“Though rural markets are growing from a smaller base, the numbers can be stark in some categories. Mass products like soaps, hair oil and biscuits have good sales, and almost all companies are now relooking their strategy,” explains Anand Shah, analyst with Angel Broking.
For Marico, 25 per cent of its sales come from rural India. Milind Sarwate, head of human resources and strategy, says: “We have been making products primarily for urban India. But rural India has given the industry much to cheer about. So, going forward, we would focus on increasing our reach in rural areas. The fixed cost of reach in rural India is higher. To justify that, we have to have a larger reach.”
Emami, on the other hand, prefers to promote products through channel-level incentives in smaller towns, including wall paintings, door-to-door activities, in-shop promotions, activities in rural markets, fairs and festivals, kheti mela, mobile traders or shops on wheels, and video vans.
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Aditya Agarwal, director, Emami Group, says: “While FMCG companies are seeing a volume growth of just 6-7 per cent in metros, the growth in rural markets is over 20 per cent. So, we have also initiated a new level of distribution to increase penetration in the rural areas. We have introduced new super-stockist networks for rural coverage, with a special focus on West Bengal, Andhra Pradesh, Uttar Pradesh and Maharashtra. The van operations model has also been introduced to make the products reach remote villages.”
Godrej Consumer Products (GCPL) has seen rural sales grow by 40 per cent in the past six months, double of that in urban areas. H K Press, vice-chairman, said: “Currently, rural sales make up around 38 per cent of its turnover. We intend increasing it to 50 per cent within a year. We have project ‘Dharti’ for rural India and we cover close to 17,000 villages. We intend covering 50,000 villages soon. This also means that the 4,000 sub-stockists we have in rural areas in India would be more than doubled, creating more employment opportunities.”
Dabur India’s vice chairman Amit Burman said, “Sales in rural India continue to grow at a fast pace. Rural and semi-urban India account for almost 50 per cent of our domestic sales. New product introductions have always been key to Dabur’s growth strategy. In fact, in the previous year when a majority of consumer products companies were slowing down on new product introductions, Dabur was on an innovation overdrive. In 2008-09, new product introductions accounted for nearly 20 per cent of our sales growth, and we expect this contribution to grow to 30 per cent in the current fiscal.”
Hindustan Unilever (HUL) and ITC, too, have robust rural initiatives such as Project Shakti and e-choupals, respectively. “HUL has the highest sales mix coming from rural India. Its key category, soaps and detergents, is facing intense competitive pressure in rural markets,” states a Reliance Equities report.The report, however, cautions: “While the large potential is true, the reality is that rural people are more likely to spend on items that give them status. Spending on a mobile or motorbike, which helps one in improving communication and conveyance, is more sought after than upgrading to a higher quality soap. Having said that, we do believe that sales in rural India will expand, as more and more people begin using recognised brands, shift from toothpowder to toothpaste or from loose to packaged hair oil (be it from local or national players).”