Monday, April 8, 2013

Can Bharat compete with India?

The rural market is the platform for FMCG companies to turn around businesses now. But they need to be really innovative if they want to tap its true potential.

I ndia has always been termed as an agrarian economy, but not much has been done to utilise the massive potential of the rural market. There have been initiatives like AMUL and the Green Revolution, but they were not enough to boost the massive growth of the neglected parts of the country. It is indeed sad that there have been three major industrial policies since independence, but not one for agriculture, which was once the prime GDP earner for the economy. But times are changing as urban markets are almost at a critical stage; and marketers all around are hunting for opportunities, nowhere else but in rural India.

In fact, as the income levels rise and rural populace become more aware than ever, companies, especially FMCG players, are revamping their rural strategy, only to grab a bigger piece of the lucrative pie that India’s hinterland offers. Further, the idea is to build long-term trust and not just focus on the immediate sale of their products. After all, rural India today contributes to over 54% of India’s GDP, a significant number which in itself is higher than the GDP of Switzerland ($527.9 billion). Even the FMCG market in India is set to treble from $13.1 billion at present to $33.4 billion in 2015.

Bharat too is keeping pace with India when it comes to spending on fast-moving consumer goods (FMCG), forcing the existing players to ramp up their rural operations. In fact, the rural penetration of products such as soaps, shampoos, washing powder, hair oil and biscuits is already at par with urban India. For instance, while toilet soap penetration is as high as 99%, washing powder too boasts of an admirable 97% penetration.

Broadly, the strategy is to not only have a presence in the larger segments that were traditionally meant for the masses, but also in niches which till now were invisible from the rural landscape. The reason is simple. Today, rural India boasts of a large consuming class with over 41% of India’s middle-class and 58% of the total disposable income. Even a recent survey by the National Council for Applied Economic Research (NCAER) reveals that rural middle class is growing at 12%, almost neck-to-neck with its urban counterparts, which is clocking a growth of 13% per annum. What’s more? 25% of the total number of upper income households (with earnings of over Rs.1 million), which is projected to go up to 21 million by 2011 end, will be coming from rural India. Considering that the rural population is estimated to have risen to over 155 million households by the end of 2011, and urban markets nearing saturation, future growth in the sector is bound to come from increased rural and small town penetration.

In fact, FMCG players have been looking at every opportunity to penetrate in rural India for years. Reason: The consumers here accounts for 60% of the total consumption and moreover, the biggest scope lies in the fact that most of the market is unorganised and handled by local players. Players like ITC have already been very successful here with initiatives like e-Choupal and HUL’s Project Shakti has been equally well known and celebrated. A few years ago retail giants were happy catering to urban masses, but now with the development of infrastructure in rural India, they are planning to tap this area in a much bigger way.
 
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Source : IIPM Editorial, 2012.
An Initiative of IIPM, Malay Chaudhuri
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