India Inc’s rural focus is undergoing a key shift. So far, the strategy was to only introduce smaller packs of their flagship brands at lower price points.
Companies like Nestle and GlaxoSmithkline Consumer Healthcare (GSK) are now taking a different route and launching products specifically for rural markets. GSK (maker of Horlicks), for instance, has launched Asha -- a low-cost variant (40 per cent cheaper than Horlicks) for rural markets only. Asha tastes slightly different and is priced at Rs 85 for a 500-gram pouch pack -– close to half the price of the original.
Nestle, too, recently launched Rs 2 and Rs 4 products -- Maggi Masala-ae-Magic and Maggi Rasile Chow, products which be first marketed in areas with low purchasing power. Maggie Rasile Chow has been developed especially for the rural/semi urban markets to provide low-cost, light meal fortified with iron. Masala-ae-Magic is a taste enhancer containing iron, iodine and vitamin A. Shivani Hegde, general manager (foods), Nestle India, says these products were developed to address the widespread concern about micro-nutrient malnutrition in India.
Anand Ramanathan, sector analyst from KPMG, confirms the shift in approach. “Till recently, most FMCG companies used to treat rural markets as adjuncts to their urban strongholds and rural consumers as a homogeneous mass without segmenting them into target markets and positioning brands appropriately. However, it is beyond doubt that the rural markets are not dumping grounds for low-end products basically designed for an urban audience. The winning strategy instead is to focus on their core competency such as technological expertise to design specific products for the rural economy.”
In the past, Britannia (with Tiger Iron Zor), Coca-Cola (with Vitingo) have distributed micro-nutrient enriched products for low-income group through partnerships with NGOs as CSR activities. But these were not-for-profit ventures.
Analysts believe these products have a bright chance of doing well in the rural markets. “Access to rural markets is through three routes -– firstly addressing the right need, secondly availability and thirdly being affordability. Consider Asha, there is a definitive need for giving something extra to the child (in terms of nutrition) that is currently being fulfilled through home-grown methods of providing wholesome food to the kid. Asha, an affordable health drink additive, is surely well placed to be a winner if the company can distribute the product well and reach out the rural masses,” believes Naimish Dave, Director, OC&C Strategy Consultants.
Analysts are hopeful of the success of such products as rural markets have tremendous potential. The purchasing power in rural India is on a steady rise and the market has been growing at 3-4 per cent per annum adding more than one million new consumers every year. It now accounts for close to half of volume consumption for FMCG companies.
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Moreover, India is now seeing a dramatic shift towards prosperity in rural households. A National Council for Applied Economic Research (NCAER) study reveals there are as many ‘middle income and above’ households in the rural areas as there are in the urban areas. There are almost twice as many ‘lower middle income’ households in rural areas as in the urban areas.
Further, the proportion of the rural population that is dependent on agriculture has declined from 75 per cent in 1994 to less than 67 per cent and the share of agriculture in rural GDP has declined to 48 per cent from 60 per cent in 1994. In rural areas, people have been shifting away from agriculture to areas such as trade, construction, transport and communication. Those employed in the non-agricultural sector have around 2-2.5 times earnings of those in the agricultural sector. Given the potential, rural market-specific products ware bound to work for these companies, experts say.