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Rural India – Paradise for FMCG companies - Views on News from Equitymaster
 
 
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  • Jun 29, 2000

    Rural India – Paradise for FMCG companies

    The topline growth of most of the FMCG companies has slowed down in the past one year. One reason for slowdown can be the saturation in urban markets. The solution for this could therefore lie in expanding the rural base.

    Rural India is vast with unlimited opportunities, all waiting to be tapped by FMCG companies. It accounts for more than 70% of India’s total population. This indicates that untapped villages can bring in volume growth for FMCG majors, which will help them to improve their topline.

    A study conducted by A&M-ORG-MARG reflects that the share of branded goods is high for a number of daily used products. Branded goods comprise of 65% of sales in villages and the share of non-branded products is shrinking dramatically.

    Although rural marketing could open the door to paradise for FMCG players, success in rural marketing calls for a sound network and a thorough understanding of the rural psyche. Also rural income levels are largely determined by the vagaries of monsoon and demand is highly price-sensitive. So to attract the rural masses FMCG players will have to price their product competitively. Since affordability plays a major role in turning rural potential into real demand, offering low unit price packs forms attractive propositions to the low-income consumer groups.

    Most Indian FMCG companies have realised this. So now they are gearing up for bigger advertisements and sales promotion campaigns with low unit packs aimed at the rural buyer. Their dual strategy of concentrating on urban market to generate value and rural markets to generate volume growth will drive growth in coming years.

    HLL through its ‘Operation Bharat’ focused on personal care products and made the most out of surging rural incomes This has enabled the company to double its profits every three years and revenues every four years. In the same way Britannia with its ‘Tiger’ brand biscuits and Colgate with its ‘Super Shakti’ toothpaste and toothpowder have succeeded in the rural market. This strategy has enabled them to derive more than 30% of their revenues from rural markets.

    FMCG majors cannot escape from the potential of rural markets if they aim to generate the sound returns for their stakeholders. However, it is a great challenge for FMCG companies to successfully tap rural India with their existing resources.

     

     

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