It’s not possible to ignore a market that houses one of every eight people living on this planet. Especially when, as data reveal, rural income levels are on the rise and rural consumers outpace urban shoppers in spending on fast-moving consumer goods (FMCG).
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.
The government’s continued focus on rural development initiatives should further empower rural consumers, fuelling fresh demand for FMCG firms. Indian FMCG majors Hindustan Unilever (HUL) and ITC have robust rural initiatives such as Project Shakti and e-choupals, respectively. Others are fast joining the fray to increase their footprint and marketshare.
Homegrown FMCG company Dabur, for instance, has decided to push fast-growing categories such as personal care products, toiletries, soaps and soft drinks in rural markets. “Rural markets continue to surge ahead of urban markets. We will have to suit rural needs more and invest in understanding the spending patterns there. Rural demand is intrinsic to our growth story,” affirms Sunil Duggal, CEO, Dabur India.
Around half the company’s sales come from rural areas. Hence, Dabur created a training consultancy module — Astra (advanced sales training for retail ascendancy) — in Bengali, Tamil, Telugu, Malayalam and Kannada. As part of the initiative, Dabur recruited 75 sales managers to educate over 2,000 distribution channel partners of the firm on the complexities of sales and distribution through an audio-visual medium. Starting this financial year, Dabur also revamped its sales network, dividing it into three verticals — food, HPC (Home and Personal Care) and healthcare.
Marico launched a low-priced flexi Parachute coconut oil pack at Rs 4 to tap into the rural demand. The company’s media plans, too, have been tweaked with a rural bias. Saugata Gupta, chief executive officer of their consumer products business, says: “Marico uses super-distributors to service the rural hinterland, which contributes about 25 per cent to our sales. During FY10, the company will target a distribution thrust in select rural territories.”
Emami, on the other hand, has turned to the postal department in Maharashtra and to ITC to lure customers in rural and suburban pockets. It has also allied with Indian Oil Corporation for distribution through rural petrol pumps.
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Backing this was a rural marketing strategy based on 7,500 mobile traders in states like West Bengal, Chhattisgarh, Madhya Pradesh, Andhra Pradesh, Orissa and Karnataka.
“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. “Dabur and Colgate, which have a balanced sales mix between urban and rural India, should see higher growth as their key categories (oral care and hair care) are growing in rural markets. Marico is more focused on the urban market, with only 25 per cent of revenues coming from rural India. However, in the current environment, we believe all companies will look at increasing their focus on rural India, which will mean increased competition and more price-sensitive offerings.”
Between calendar years 2004 and 2008, says the report, FMCG sales have grown at 11 per cent (compounded annual rate) in rural India and 13 per cent in urban India. It adds that rural FMCG sales will grow at 11 per cent in CY09, against the approximately 16 per cent growth in CY08.
“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. The low penetration level of FMCG products lends an added opportunity.
The Reliance Equities 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).”
With the inputs from Pradipta Mukherjee & Sapna Agarwal