X

Sign up for Equitymaster's free daily newsletter, The 5 Minute WrapUp and get access to our latest Multibagger guide (2017 Edition) on picking money-making stocks.

This is an entirely free service. No payments are to be made.


Download Now Subscribe to our free daily e-letter, The 5 Minute WrapUp and get this complimentary report.
We hate spam as much as you do. Check out our Privacy Policy and Terms Of Use.
Rural India - the key to fortunes - Views on News from Equitymaster
 
 
  • PRINT
  • E-MAIL
  • FEEDBACK
  • A  A  A
  • Oct 30, 1999

    Rural India - the key to fortunes

    A mention of rural India may conjure up an image of abject poverty in the minds of many people. This, however, does not hold true in the case of a few fast moving consumer goods (FMCG) companies that have over the years been giving their rural operations a renewed thrust. Why would these companies be tapping into the rural markets in the first place?

    First, let's take a look at the distribution networks of three leading FMCG companies in India - Hindustan Lever Limited, Colgate Palmolive and Britannia. These three companies are market leaders in their core areas and much of their success has to do with the intricate marketing networks they have developed over the years. Hindustan Lever, as would be expected, has the largest reach in terms of the markets serviced. Colgate, on the other hand, has adopted a concentrated approach by focusing on fewer markets. Britannia, compared to the first two, has a much smaller reach.

    These companies, however, have one thing in common. A desire to step up their presence in the relatively virgin rural markets. The facts reveal it all - Hindustan Lever ha stepped up the share of rural turnover to 50% of total, while Colgate and Britannia now derive 35% and 30% respectively of their turnover from rural markets. Why this infatuation with the rural markets?

    Rural India accounts for over 75% of India's population and this in itself offers a tremendous opportunity for generating volume driven growth. Contrary to general perceptions, incomes in rural India have improved dramatically over the years mainly due to the eleven successive normal monsoons and increasing crop yields. Foodgrain production topped 200 m tonnes in financial year 1999 as compared to a production level of only 176 m tonnes in financial year 1991. Further, the tax benefits associated with incomes in rural areas boost spending power of the average rural family. These factors have created a vast market that has led to a rush amongst companies to tap this latent demand.

    First off the block was Hindustan Lever, which identified the potential of the rural market some years back. It launched 'Operation Bharat' to tap rural demand, focussing on personal care products. The benefit of the strategy was apparent over the last three years. While demand in urban India suffered due to an industrial slowdown, rural demand continued to remain buoyant as a result of the sustained improvement in rural incomes. The company was thus successful in attaining its growth targets - double profits every three years and revenues every four. The advantages were apparent and the rush inevitable.

    Britannia and Colgate, apart from Hindustan Lever, are the only FMCG companies in India that derive over 30% of their revenues from rural markets. Britannia has rejuvenated its rural thrust by the launch of Tiger biscuits, while Colgate has been attempting to woo the rural masses by offering low priced products in convenient packaging.

    The success of these companies has as much to do with understanding the psyche of the rural family as it has to do with a rural distribution network. A typical rural family is a price conscious consumer and this is where the key to success lies. Hindustan Lever, for example, extended its strategy of volume driven growth into rural markets and met with much success. Britannia on the other had launched Tiger to take on the existing economy brands in the market.

    The Indian rural markets are today witnessing competition in almost all product segments. However, companies that have the first mover advantage, are still leading their peers in terms of market shares. Whether the rural markets will meet with the expectations of the ever increasing number of companies seeking to grab a chunk of the rural markets is yet to be seen? One thing, however, is for sure: rural markets are set to play an important role in the strategies of the FMCG companies.

     

     

    Equitymaster requests your view! Post a comment on "Rural India - the key to fortunes". Click here!

      
     

    More Views on News

    Marico: Earnings Hit by Lower Volumes and Firming Input Prices (Quarterly Results Update - Detailed)

    Aug 9, 2017

    While GST implementation brought down volumes and profitability in the short run, Marico remains optimistic in the long run.

    P&G: Strong Core Growth (Quarterly Results Update - Detailed)

    Dec 9, 2016

    Procter & Gamble Hygiene and Health Care has announced the first quarter results of the financial year ended June 2017 (1QFY17). The company's sales rose by 12.5%YoY while net profit rose by 50.1% YoY during the quarter.

    Nestle India: Sales Traction From New Products (Quarterly Results Update - Detailed)

    Nov 30, 2016

    Nestle India declared results for the quarter ended September 2016. Here is our analysis of the result.

    GSK Consumer: Price Hike Hurts Volumes (Quarterly Results Update - Detailed)

    Nov 30, 2016

    GSK Consumer Healthcare declared results for the quarter ended September 2016. The revenues dropped by 1.3% during the quarter as compared to a year ago; while the profits declined by 16.6% YoY during the quarter.

    Marico: Margin Expansion Drives Profit Growth (Quarterly Results Update - Detailed)

    Nov 28, 2016

    Marico has reported a flat topline while the bottomline has grown by 18% YoY during the quarter.

    More Views on News

    Most Popular

    Demonetisation Barely Made Any Difference to Tax Collections(Vivek Kaul's Diary)

    Aug 7, 2017

    The data tells us quite a different story from the one the government is trying to project.

    A 'Backdoor' to Multibaggers: It's Like Investing in Asian Paints Ten Years Ago(The 5 Minute Wrapup)

    Aug 10, 2017

    Don't miss these proxy bets on growing companies or in a few years you will be looking back with regret.

    Should You Invest In Bharat-22 ETF? Know Here...(Outside View)

    Aug 8, 2017

    Bharat-22 is one of the most diverse ETFs offered so far by the Government. Know here if you should invest...

    Signs of Life in the India VIX(Daily Profit Hunter)

    Aug 12, 2017

    The India VIX is up 36% in the last week. Fear has gone up but is still low by historical standards.

    7 Financial Gifts For Your Sister This Raksha Bandhan(Outside View)

    Aug 7, 2017

    Raksha Bandhan signifies the brother-sister bond. Here are 7 thoughtful financial gifts for sisters...

    More
    Copyright © Equitymaster Agora Research Private Limited. All rights reserved.
    Any act of copying, reproducing or distributing this newsletter whether wholly or in part, for any purpose without the permission of Equitymaster is strictly prohibited and shall be deemed to be copyright infringement.

    LEGAL DISCLAIMER: Equitymaster Agora Research Private Limited (hereinafter referred as 'Equitymaster') is an independent equity research Company. Equitymaster is not an Investment Adviser. Information herein should be regarded as a resource only and should be used at one's own risk. This is not an offer to sell or solicitation to buy any securities and Equitymaster will not be liable for any losses incurred or investment(s) made or decisions taken/or not taken based on the information provided herein. Information contained herein does not constitute investment advice or a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual subscribers. Before acting on any recommendation, subscribers should consider whether it is suitable for their particular circumstances and, if necessary, seek an independent professional advice. This is not directed for access or use by anyone in a country, especially, USA or Canada, where such use or access is unlawful or which may subject Equitymaster or its affiliates to any registration or licensing requirement. All content and information is provided on an 'As Is' basis by Equitymaster. Information herein is believed to be reliable but Equitymaster does not warrant its completeness or accuracy and expressly disclaims all warranties and conditions of any kind, whether express or implied. Equitymaster may hold shares in the company/ies discussed herein. As a condition to accessing Equitymaster content and website, you agree to our Terms and Conditions of Use, available here. The performance data quoted represents past performance and does not guarantee future results.

    SEBI (Research Analysts) Regulations 2014, Registration No. INH000000537.

    Equitymaster Agora Research Private Limited. 103, Regent Chambers, Above Status Restaurant, Nariman Point, Mumbai - 400 021. India.
    Telephone: +91-22-61434055. Fax: +91-22-22028550. Email: info@equitymaster.com. Website: www.equitymaster.com. CIN:U74999MH2007PTC175407
     

    Become A Smarter Investor In
    Just 5 Minutes

    Multibagger Stocks Guide 2017
    Get our special report, Multibagger Stocks Guide (2017 Edition) Now!
    We will never sell or rent your email id.
    Please read our Terms

    S&P BSE FMCG


    Aug 18, 2017 (Close)

    S&P BSE FMCG 5-YR ANALYSIS

    COMPARE COMPANY

    MARKET STATS