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Rural markets: Small is Beautiful
Rural markets: Small is Beautiful
By: iMedia News Bureau

FMCG sector is making rounds with the increased consumption over the years and the companies are bound to evolve and innovate in order to keep the consumers happy. Fast Moving Consumer Goods i.e. low on investments and high on returns with the large production of commodities are in a surging phase, but the consumption trends in India are drastically taking a u-turn and going to the place where it all started The Rural India. 

Rural Indian households are spending more on consumer goods like durables, beverages and services than five years ago, shows The household consumer expenditure survey for 2009-10, released by the National Sample Survey Office ( NSSO )) and published in ET. This certainly signifies mounting incomes in the rural sector which is leading to increased expenditure not as much as the urban counterpart but surely indicates   a boost.

According to a report by IBEF (India Brand Equity Foundation) on the FMCG sector of India suggests that Most Indian FMCG companies focus on urban markets for value and rural markets for volumes. The total market has expanded from US$ 17.6 billion in 1992-93 to US$ 22 billion in 1998-99 at current prices. Rural demand constituted around 52.5 per cent of the total demand in 1998-99. Hence, rural marketing has become a critical factor in boosting bottom lines. As a result, most companies' have offered low price products in convenient packaging. These contribute the majority of the sales volume. In comparison, the urban elite consume a proportionately higher value of FMCGs, but not volume.

The report further adds that by the early nineties FMCG marketers had figured out two things one that Rural markets are vital for survival since the urban markets were getting saturated and Rural markets are extremely price-sensitive. Thus, a number of companies followed the strategy of launching a wide range of package sizes and prices to suit the purchasing preferences of India's varied consumer segments. Hindustan Lever, a subsidiary of Unilever, coined the term nano-marketing in the early nineties, when it introduced its products in small sachets. Small sachets were introduced in almost all the FMCG segments from oil, shampoo, and detergents to beverages. Cola major, Coke, brought down the average price of its products from around twenty cents to ten cents, thereby bridging the gap between soft drinks and other local options like tea, butter milk or lemon juice. It also doubled the number of outlets in rural areas from 80,000 during 2001 to 160,000 the next year, thereby almost doubling its market penetration from 13 per cent to 25 per cent. This along with greater marketing, led to the rural market accounting for 80 per cent of new Coke drinkers and 30 per cent of its total volumes. The rural market for colas grew at 37 per cent in 2002, against a 24 per cent growth in urban areas. The per capita consumption in rural areas also doubled during 2000-02.

Rural India has indeed been the area of great potential and logic to the FMCG giants all across. The 66th round of the National Sample Survey showed that monthly per capita expenditure (MPCE) in rural India was Rs 953.05 in 2009-10, an increase of 64.6% from 2004-05. The increase in per capita expenditure is higher than the 57.64% rise in consumer prices, according to the Consumer Price Index (CPI-AL) during the five-year reference period.

On the other hand the developed nations are getting a beating in this sector. The recent report published by Nielsen put forward that the first quarter of 2011 started off slowly, with nominal value rising 2.3 percent across Europe, a slight decrease from the fourth quarter of 2010. Volume contracted in several countries – most notably Greece, which saw a six percent decline, followed by Finland (-5%) and Germany (-4%). Switzerland posted the largest drop in unit value, declining five percent during the quarter. Turkey continued to lead Europe in nominal growth, with a 12.4 percent rise, followed by the Czech Republic (+3.5%) and Slovakia (+3.4%). Once again, inflation accounted for much of the growth in unit value sales. The results posted in Q1 were consistent with those from the past two quarters, and are in-line with consumer confidence levels in the region. Europeans continue to feel extremely tentative about the economies in their countries and are reluctant to spend their extra Euros, Kroners and Pounds.

As the matter of fact, it was the strong rural demand that rescued many companies from the Global recession that had hit the urban sector quite severely that gives a strong reason for the Multinationals to augment their rural span.