Don’t miss the latest developments in business and finance.

FMCG firms tap the pot of gold in Bharat

The new push is being driven primarily by over 170,000 villages where household incomes are over Rs 1 lakh per annum

Surajeet Das GuptaViveat Susan Pinto New Delhi
Last Updated : Dec 01 2013 | 2:56 PM IST
It was an eye-opener for Nitin Paranjpe, former managing director of Hindustan Unilever (HUL) who has now moved onto a global role. At a village home in Tamil Nadu , Paranjpe found a sachet of Comfort fabric conditioner and thought the lady of the home may have mistaken it to be a shampoo sachet and bought it wanting to use it on her hair. "What do you use this for?"; Paranjpe asked the lady and the answer "for my clothes"; came as a welcome surprise for him, demolishing the popular myth that rural consumers buy only low-end products.
 
Paranpe;s favourite story is now being played out in many more village homes all across India. A host of other FMCG companies including Coke, Dabur, Godrej, Marico and Emami are facing a new reality:  rural consumers, armed with higher incomes, are now uptrading to more premium products, and into categories which they rarely consumed earlier. 
 
The new push is being driven primarily by over 170,000 villages where household incomes are over Rs 1 lakh per annum. And many of the FMCG companies are reaching out to them by creating a direct distribution mechanism (instead of only wholesalers) in close to 10% of these villages which have a population of over 3,000 and account for 43% of the rural FMCG potential, marketers say.
 

Also Read

Dabur India, for instance, is pushing products such as Real range of juices )priced at Rs 25) and Fem bleaching products (Rs 35) which were earlier sold only in urban markets. To deepen the market for packaged juices further, Dabur has now introduced a Rs 10 pack of Real juice of 125 ml.  The strategy has worked: as much as 5.5% share of Real's total sales come from rural markets. The share was barely 2.5% two years ago.  Sale of bleaching products in rural markets has gone up 10 times in the same period.
 
That is also helping improve margins. George Angelo executive director (sales) at Dabur says:"Consumers in rural markets are uptrading their products, helping is increase our margins from rural sales by 300 percentage points."
 
Coca-Cola, too, agrees and feels the rural market is no longer only driven by the price tag and it is no longer essential to bring down prices to Rs 5 as the beverage major had tried earlier. Debabrata Mukherjee, vice president of the marketing and commercial divisions, says earlier the rural strategy was going for "value for money" products because money was limited. Now it is "money for value&" that means we will pay if it provides value" something that Coke provides as it offers great quality refreshment.  
 
Mukherjee says apart from income growth, there are two other reasons for this change. One, about 80 million TV households in rural India are seeing the same programmes and advertisements, leading to rising aspirations. And two, companies like Coke are doing massive sampling of products across village fair and entertainment events so that consumers can taste a quality product and create demand. The company covers over 10% of the rural area every year and stack products throughout the year markets with retailers in 400,000 villages. 
 
Surely the rural well-heeled consumer has seen her incomes go up "the minimum support prices for commodities have gone up two times in three to four years. Dependence on farm incomes has fallen from 70% to 40% in the last five years ensuring that demand is consistent throughout the year rather than only after harvesting.    
 
So even Godrej Consumer Products is tapping this  affluent rural consumer who have the money to splurge and are ready to try out new product categories which had been predominantly urban centric. Sunil Kataria, chief operating officer, sales and marketing, of the company says: "The presence of this affluent section in rural areas means that you can go beyond the sweet spot of Rs 20 and look for higher ticket products". The company is now planning to sell "Crème hair colour" which it introduced in the urban market at Rs 30 in rural markets as well.
 
Godrej is also trying to find a solution to the fact that household insecticides market is predominantly an urban affair and has not caught on with even well-heeled rural customers.  So it has introduced Good Knight Fast Card, a mosquito repellant in paper format at Re 1 apiece to sample the high income segment in rural markets. If it works, a new category will open up.
 
Emami is also targeting the new affluent rural class. For instance it is offering its popular"Navratna Cooling Oil" at pack sizes from 100 ml to 500 ml with the top line being sold at a stiff Rs 220 to Rs 230 a bottle rather than just in sachets. Similarly it is wooing the youth with"Fair and Handsome" which are again available at a price ranging from Rs 10 to Rs 100 in rural markets. Says N Krishna Mohan CEO sales, supply chain and human capital:"The affluent rural consumer can afford these products. They have aspirations like their urban counterparts and that is why the change is happening".       
 
 
 
 
 

More From This Section

First Published: Dec 01 2013 | 2:48 PM IST

Next Story