Saturday, October 15, 2005

Rural FMCG demand to grow over 50% by 2010

The Fast Moving Consumer Goods (FMCG) industry will witness a growth of more than 50% in rural and semi-urban markets by 2010, and will grow at a CAGR of 10%, according to an analysis carried out by the Associated Chambers of Commerce and Industry of India (ASSOCHAM). This will boost the market size of the FMCG industry to Rs1 trillion from the present level of Rs480bn, the study added. The industry chamber’s study is based on the feedback it obtained from various district industry centers all over the country on the future demand-supply situation of FMCG products.

The growing penchant and insatiable appetite of rural and semi-urban folks for FMCG products will be mainly responsible for this development and manufacturers will have to deepen their marketing presence for higher sales volumes in these areas, says the ASSOCHAM study. In the rural and semi-urban areas, FMCG market penetration is currently less than 1% in general as against its total growth rate of about 6.2%, says ASSOCHAM President, Mahendra K. Sanghi while releasing the analysis on FMCG Rural and Semi-Urban Prospects by 2010. Sanghi says that the Indian rural market with its vast size and demand base offers a huge opportunity that FMCG companies cannot afford to ignore. With 128 million households, the rural population is nearly three times the urban, he adds.

The ASSOCHAM President says that the FMCG products which will attract rural and semi-urban citizens will mainly comprise soaps, detergents, cold drinks, consumer durables, toothpastes, batteries, biscuits, namkeens, mosquito repellants, refined oil, and hair oil. The industry chamber estimates that in the semi-urban areas a lot of malls will have been put up in the next 2-3 years to sell large volumes of FMCG products and thereby increase their demand phenomenally.

Though the rural and semi-urban demand of FMCG products will grow, it will put a severe pressure on the margins of FMCG manufacturers because of cut-throat competition, says the ASSOCHAM study. The branded companies in the FMCG sector that will make a killing will include the likes of Nirma, HLL, Dabur, ITC, Godrej, Britannia, Coca-Cola, Pepsi etc.
The rising rural and semi-urban income levels coupled with massive advertisement of FMCG products in the electronic media will spread awareness towards consumer products. ASSOCHAM is also of the view that the rural market may be alluring but it is not without its problems: low per capita disposable income that is half the urban disposable income; large number of daily wage earners; acute dependence on the vagaries of the monsoon; seasonal consumption linked to harvests, festivals and special occasions; poor roads; power problems and inaccessibility to conventionaladvertising media. However, the rural consumer is not unlike his urban counterpart in many ways.

The other difficulties which the FMCG companies are likely to face will include availability of the product or services, says the study. India's 627,000 villages are spread over 3.2mn sq km; 750mn Indians live in rural areas, finding and delivering them consumer products is a tough task, it adds. Given the poor state of infrastructure, it is an even greater challenge to regularly reach products to the far-flung villages. To service remote villages, dealers use auto rickshaws, bullock-carts and even boats in some parts of the country.

Affordability of the product or service to rural consumer is also a big problem, says the study. With low disposable incomes, products need to be affordable to the rural consumer, it adds. ASSOCHAM has therefore suggested that to tap the rural and semi-urban market, better infrastructure facilities like roads, better telecom connectivity to rural persons, proper sanitation and healthcare facilities should be created, concludes the study.

Marketers target the bottom of the pyramid !!

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