Rural FMCG sales outrun towns

Toothpaste, hair oils and shampoos record significant growth in rural markets.

FMCG growth (in value terms) in rural markets has far outpaced the sector's growth in urban markets during the first nine months of the current financial year.

Though rural markets are growing from a smaller base, the numbers are stark. In the case of chyavanprash, the whole of urban market has shrunk, while the rural market has grown as much as eight per cent.

"This is a new trend. Normally we do not see rural India dominating all categories," said an FMCG analyst. Successive good monsoons and a corresponding growth in farm income have raised the purchasing power of rural households. This, in turn, has fuelled FMCG sales growth in rural markets.

Products that have seen significant growth in rural markets include toothpaste, hair oils and shampoos. Shampoo sales in rural India, for instance, have gone up by 30.8 per cent compared with just 11 per cent in urban areas.

Kunal Motishaw, analyst, Equitymaster, pointed out, "The rural hinterland is more attractive for FMCG companies compared with tier I and II cities as penetration levels are drastically lower for numerous products, unlike urban markets which are highly saturated."

According to Dabur India CEO Sunil Duggal, while the figures may speak of value growth (because there has been no significant change in prices or the product mix in rural markets), in most cases these are also indications of a growth in volumes.

HK Press, executive-director and president, Godrej Consumer Products, said as far as the company's products were concerned, the sales of soaps and hair colours had grown substantially in rural markets in the October-December quarter.

Analysts do not see any reason for the trend to change in the coming months and expect most companies to end the financial year with higher growth in rural markets compared with growth in urban markets.