By focusing on a third of the total districts in India that showed demand resilience, most durable product companies could have attained about 60 per cent of their rural growth ambitions over the past few years.
Recent years have seen rural markets emerging as an important growth engine in the India consumption story. With 69 per cent of India’s population living in rural areas, they present a significant market opportunity. Today, for instance, close to a third of both FMCG and durable sales is contributed by rural markets. Overall, rural consumption in value terms has grown 17.2 per cent per annum in the FY08-10 period. Recent data shows that rural consumption has grown faster than urban in the last two years.
Rural penetration of key durables has seen a significant upward trend. TV penetration has moved from around 31 per cent in 2007 to 39.8 per cent in 2010 and motorcycles/scooter penetration from 9.5 per cent to 13.9 per cent in the same period. Region-wise trends in TV indicate that south India has led this growth with more than 20 per cent increase in penetration, followed by north and west with around 5 per cent increase in each. A deeper analysis of district-wise growth trends in the 2007 to 2010 period reveals interesting facets of the rural growth story.
More than 90 per cent of districts in rural India have experienced positive growth over a three-year period. But, there has been significant variation observed in the growth pattern, with select districts contributing a disproportionate share to this growth. Based on their growth trend in the 2007 to 2010 period, we can classify rural India into four groups:
Diamonds: districts which have demonstrated consistently high growth from FY07 to FY10.
Resilient: Districts which have experienced moderate-high growth each year between FY07 to FY10.
Emerging: districts which have shown low growth/decline in FY07-08, but have picked up steam from FY08 onwards, showing growth rates of 12 per cent per annum.
Laggards: districts which are growing at a low rate of less than 5 per cent per annum since 2008.
There are 79 Diamond districts in India, which have seen a growth of 35 per cent per annum at an aggregate level. These districts have contributed close to 28 per cent of India’s rural growth and 15 per cent of rural demand. For instance, rural Bilaspur (Chhattisgarh) has seen its aggregate demand doubling in three years from 2007 to 2010, making it a Diamond district.
There are 119 Resilient districts, together contributing to 31 per cent of rural growth, and 22 per cent of rural demand. These two groups of 198 districts with only 35 per cent of the rural population, allowed players to address close to 60 per cent of the rural growth between 2007 and 2010.
The next 173 Emerging districts generate 31 per cent of the demand, but contributed only to 20 per cent of rural growth. These districts demonstrated low growth in FY08 but picked up speed in subsequent years. There are 201 laggard districts which comprise a third of the rural population, contribute around 30 per cent of demand but capture just 20 per cent of rural growth.
Category trends
The aggregated growth in all durable and automotive categories follows the overarching trends, with the 198 districts accounting for 60 per cent of durables growth in rural markets. Rural areas of Thiruvananthapuram, for example, have seen around 20 per cent annual growth in durables.
For instance, in the TV category more than 90 per cent of the growth in demand is accounted for by the Diamond and Resilient districts put together.
In the two-wheelers category, 70 per cent of rural growth is actually being derived from these 198 districts alone, again an indication of their dominance. Mobile handsets are seen to follow a more ubiquitous growth pattern. For instance, these 198 districts contribute to only 55 per cent of the category growth, and even the laggards contribute to 30 per cent of the growth.
Geographical spread
These districts do not follow the generally accepted wisdom of rich states and poor states. Most of the focus 198 Diamond and Resilient districts are seen to be clustered in multiple regions forming growth pockets for players to focus on. For example, northern Orissa accounts for a large part of the resilient rural growth in the country. Other such prominent clusters are found in the states of Andhra Pradesh, Madhya Pradesh and Rajasthan. Uttar Pradesh and Bihar, though, do not seem to show consistently high growth, account for only nine such districts.
Future view
Across categories, it is possible to identify inflection points to predict where the next set of growth districts would lie. For example, for the TV category we identified multiple inflection points. It was possible to predict the likely growth rate based on income and penetration information.
We mapped districts at each segment of the curve from FY07 to FY10. For instance, rural Seoni (MP) had a low monthly per capita spend and household TV penetration of 26 per cent in FY07. In FY10, it moved to the high-growth phase, wherein the spend grew by around 20 per cent while the TV penetration jumped to 41 per cent. Yavatmal (Maharashtra) exhibited a similar trend — its expenditure grew 14 per cent, but its penetration improved from 29 per cent to 39 per cent.
Mapping districts across various stages of income growth thus offers a powerful tool for predicting demand growth as incomes rise. Such category specific curves can potentially enable players to identify districts which are expected to enter a high-growth phase, providing immediate focus areas. It also indicates when these districts are likely to slow down, thus directing them towards treating them more as high-value markets.
Summary
A analysis of rural India indicates that companies cannot look at it as one homogenous market. Varied growth patterns suggest the need to have a tailored micro-market approach in order to address these districts even within the same state. There are differences across different product and service categories as well.
The Diamond and Resilient districts require significant attention, in terms of marketing and sales activities. They are expected to reap higher returns on these investments. Emerging districts need to be closely monitored to track triggers including commodity price growth or industrial developments.
Though the Laggards exhibit slower growth, players cannot ignore their aggregate demand. These markets need cost-effective, go-to-market and marketing activities by minimising resources. Such insights indicate that instead of looking at rural markets as one group, focussed distribution and marketing initiatives by players in selected districts would enable them to profitably garner a disproportionate share of growth in rural India.
