Will rural consumers roar?

“Rural FMCG growth overtakes urban after 5 quarters,” read the headline (Business Standard, May 8, 2024). It is well-known that branded FMCG products’ per capita consumption is significantly higher in urban India as compared to rural. 

Logically, rural demand should grow at a higher pace than urban, unless there is wholesale rural distress. There is a cap on how much a consuming household can consume; you cannot possibly have three baths a day or brush your teeth five times a day (Colgate’s latest campaign is still telling us to brush our teeth twice a day, something they used to do three decades ago).
 

Marketers have been worried since in the last five quarters, rural demand was growing at a slower pace than urban. Finally, there is light at the end of the tunnel. Rural demand is showing great vibrancy, if one is to assume that the January-March 2024 growth is not an aberration.
 

I was reminded of a conversation I had with Kannan Sitaram, then director sales at Hindustan Unilever, many years ago. We were discussing the sluggish sales of Raid mosquito mats and Glade air purifiers. I was wanting to know if HUL could push these brands into rural India through its famed sales force. Kannan’s explanation was interesting and should have been obvious to me. He explained that all mass marketed brands have some latent rural demand. But it is not easy to tap this demand.
 

The shops that rural consumers go to in their village or feeder market are far-flung. HUL and all other FMCG marketers have a well-oiled sales machine, and they calculate cost per call of a sales representative, or TSI (territory sales in-charge). It is often uneconomical to service a small rural market with a handful of stores. The sales you will achieve from placing your brand in those outlets will never be able to compensate for the cost incurred in doing the sales calls.
 

Companies used to have multiple work-arounds. Some of them used to have rural vans that carried ready stocks and visited key rural markets once every two months. While this was expensive, the idea was that once there is a guaranteed demand, the shopkeeper will pick up his monthly requirements from a nearby town’s wholesaler. These rural vans also served as mobile advertisements playing jingles along the way.
 

HUL’s Project Shakti, launched in 2001, was an effort to create rural employment for women and at the same time, create an economical  rural distribution channel for HUL brands. It is now reported to employ almost 120,000 women micro entrepreneurs (indbiz.gov.in).
 

There is also the challenge of lower income levels of rural consumers. Unbranded products and local brands often offer rural consumers greater value for money, and their sales do not always get captured in the various retail panel sales estimates. The challenge is to get the rural consumer to upgrade to a big brand. How to do this? FMCG marketers have tried to offer smaller pack sizes to suit the rural wallets. For example, a Rs 10 pack of leading soap brands like Lifebuoy or Santoor is a big hit in rural India. Some brands try to create a lower priced variant specifically tailored for the rural market. Unfortunately, unless these cheaper offerings are significantly better than unbranded products, rural consumers will not be ready to buy them.
 

There are many changes happening that should help big FMCG brands reach rural consumers. For one, the free DD Dish is very popular in rural India and is taking ad messages to even lower income rural homes. Secondly, with better road connectivity, even small villages are today reachable by delivery vans. Thirdly, the spread of internet-enabled smart phones should further inspire rural consumers to upgrade to better brands.
 

But there is a challenge still.
 

Rural consumers are very careful with their money. Marketers who are chasing the “premiumisation” wagon will not find the Indian rural market very attractive. In the last few years, FMCG marketers are breathing the “premiumisation” mantra more and more. Yes, the growth of modern trade, ecommerce and quick commerce are good for premiumisation in urban India. Rural consumers are not going to premiumise anytime soon. FMCG marketers will have to be ready to offer low-margin products to bring on board rural consumers. When commodity prices fall, the big FMCG marketers need to be agile to lower prices quickly (small players are good as this). FMCG marketers need to explore lower size options, and perhaps different compositions, to ensure pricing stays in the affordable range.
 

Most importantly, instead of hoping for better rains or better harvests, FMCG marketers need to invest seriously in growing rural demand. Like this columnist’s observation about the sluggish sales of small cars, which are partly due to inadequate marketing [‘Small (car) is beautiful’, Business Standard, May 2, 2024], there is a chance that the spark rural demand has shown in Q1 2024 might not turn into fire.

The writer is a brand coach and founder, Brand-Building.com. He can be reached at ambimgp@brand-building.com