Urban rich key to FMCG growth: Report

For growth, look at the rural markets. This has been the mantra for fast moving consumer goods (FMCG) companies for the past few years.

However, the latest report on the sector, put out by the Confederation of Indian Industries (CII) and AT Kearney combine, says otherwise. Maintain the rural focus, it says, but ensure you don't miss out out on the growing urban affluent.

Kumar Chander, marketing head, Wipro Consumer Care and Lighting, says customers are looking for upper end models in all categories, and companies have started catering to this. "The increased levels of disposable income, along with improved distribution through modern retail formats, has led to an increased demand for these products," he says.

The products that have been introduced to meet this demand have done extremely well and they will be looking at extending this portfolio, he added.

According to NCAER data, urban affluent households, which have an income of over Rs 5 lakh, are the fastest growing segment at around 19.6 per cent per annum and is expected to reach almost 8 million households by 2010 from the existing 3.7 million. Compared to the potential size of the rural market, this may not seem much. It is important, though, to remember the kind of purchasing power these households possess. 

URBAN INCOME DISTRIBUTION
(In million)	95-96	01-02	05-06	09-10	CAGR (in %)
Affluent	0.6	1.8	3.7	7.7	19.6
Aspirers	16.8	27.0	36.6	57.6	9.2
Destitutes	29.3	24.6	18.4	13.8	-5.2
- Affluent (Annual income > Rs 5 lakh)  - Aspirers (Annual income Rs 90,000 - Rs 5 lakh)  - Destitutes (Annual income < Rs 90,000 )
Source NCAER, AT Kearney

While international cosmetic brands like L'oreal and MAC target this segment, there aren't too many domestic players which have made their presence felt here. Hindustan Lever has introduced cosmetic ranges like Aviance and Fair & Lovely Perfect Radiance which cater to the top end of the market, along with select brand extentions in the hair care category.

While ITC has a ready-to-eat range, Aashirwaad, aimed at the common man, it also has a higher priced Kitchens of India range which has conserves and chutneys along with the ready-to-eat meals.

Harsh Mariwala, chairman and managing director, Marico Industries, sees growth coming from urban markets since that is where the money and higher disposable incomes lie. In a bid to tap into this market Marico launched Kaya Skin Clinic in 2002 along with a special range of skin care products under the same brand.

Adi Godrej, chairman, Godrej Industries, feels that although this segment does present sufficient opportunities, he would still prefer to focus on the rural markets because of the level of underpenetration there.

While the rural market remain important, this segment presents a great opportunity for a company to increase its topline growth. Pavan Gandhok, vice-president, AT Kearney says, "High end products offer higher margins, and there is a need to meet the demands of this segment." The report says this category would unlock an incremental annual profit pool of Rs 2,000-5,000 crore, a growth of 10-25 per cent compared to the existing industry profit pool of Rs 19,000 crore.

However, attracting this segment would require much more than just high priced products. Innovative products and innovative marketing is where the key lies.