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The emerging rural consumer - Views on News from Equitymaster
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  • Sep 9, 2011

    The emerging rural consumer

    The consumption pattern in rural India is slowly transforming from being experimental or occasional to being an indulgent one. As per market research agency Nielsen, one third of rural India is consuming biscuits for breakfast whereas one in every six rural consumers is indulging in hair colours. Consumer products like biscuits, edible oils, snacks, hair oils and shampoo which hitherto were urban centric are now witnessing faster growth in the hinterland. Rural India is calling the shots in more than half of the largest consumer good categories. The faster growth is not limited to penetration alone but the frequency of consumption is also growing reflecting sustained growth in rural market for these categories.

    This is what the numbers say...

    Strong rural demand in FY11
    Category Rural contribution to
    category sales (%)
    Value sales growth (%)
    Total Urban Rural
    Biscuits 41 23.9 23.2 24.9
    Refined edible oils 18 27.6 25 41.1
    Salty snacks 23 42 37.8 58.3
    Non-refined oils 30 27.1 23.6 36.5
    Toilet soaps 43 11.4 12.1 10.5
    Washing powders 46 10.6 10.8 10.4
    Packaged tea 44 14.4 17.3 10.9
    Iodised salt 59 16 11.3 19.6
    Hair oils 37 19.4 18.1 21.7
    Shampoo 35 20.8 19.5 23.3
    Source: Nielsen

    The demand boom in rural India has been catalyzed by the increased purchasing power. Factors such as farm loan waiver, better value of agricultural produce and government sponsored employment programs have translated into higher rural income. As per the National Sample Survey, the monthly per capita expenditure in rural India reached Rs 953 in 2009-10; a rise of 64.6% as compared to 2004-05. The growth in expenses outpaced the 57.6% rise in consumer prices over the same period, pointing to improved living standard of rural India.

    Nielsen has projected the size of the rural market to grow ten folds to USD 100 billion by 2025. Fast Moving Consumer Good (FMCG) companies are capitalizing on the vast rural potential through wider distribution network in villages and increased launch of products in "Low Unit Packs"(LUP). The advent of LUP has widened the ambit of FMCG categories by attracting consumers who want to consume premium or impulse branded goods without hurting their pockets.

    However, for the first time in three years demand momentum for consumer goods in rural markets lagged behind the urban markets during the period April-July 20011. The value growth in categories such as shampoo, hair-oil and toothpastes was slower in rural markets as compared to the urban markets. The FMCG companies attributed the sluggish growth in rural sales to the possible down trading to cheaper products or small packs as inflation continued to chip away purchasing power.

    The slowdown in rural offtake is short term as future drivers continue to remain favourable. Backed by robust kharif harvest on forecasts of an almost normal monsoon and continued government thrust on agricultural credit, rural demand is likely to be back in action.



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