Rural Markets – Brief Overview
India’s growth trajectory is highly driven by the development of the rural clan. Players in various industries such as retail, fast moving consumer goods (FMCG), consumer durables, automobiles et al, are looking towards the untapped potential hinterlands possess.
The household consumer expenditure survey for 2009-10, released by the National Sample Survey Office (NSSO), reveals that rural Indian households are spending more on consumer goods like durables, beverages and services as compared to their expenses on such things five years back. The 66th round of the National Sample Survey showed that monthly per capita expenditure (MPCE) in rural India was Rs 953.05 (US$ 20.69) in 2009-10, an increase of 64.6 per cent from 2004-05.
The Indian consumer base is highly supported by the rural population (about 70 per cent of the country’s population), which drives revenues for many major conglomerates operating in diverse markets in India. Key developments and investments pertaining to various sectors are discussed hereafter.
Retail in Rural India
For many years, rural India was not much acknowledged by the retailers. But as the ‘bottom of the pyramid’ is getting empowered with education, higher purchasing power and awareness, companies are looking for opportunities in hinterlands.
‘Aadhar’, the Future Group and Godrej Agrovet's joint venture (JV) in agri-service-cum-rural retailing is undergoing a revamp, wherein the model will follow hub-n-spoke concept to drive higher profits for the company.
DCM Shriram Consolidated Limited (DSCL), which operates 270 stores of Hariyali Kisaan Bazaar (one of the largest national rural retail chains of India), plans to open 20 more outlets by the end of 2011.
Increasing levels of income in the hands of rural households, coupled with massive advertisements by the market players, would take rural FMCG market from current Rs 87,900 crore (US$ 19.08 billion) to a market size of over Rs 1,06300 crore (US$ 23.08 billion) by 2012, according to an analysis carried out by a leading industry body. This entails a compounded annual growth rate (CAGR) of 10 per cent in totality for rural and semi-urban areas.
Meanwhile, a recent study by global information and measurement company Nielsen has revealed that over 80 per cent of FMCG categories are growing faster in rural India as against urban India.
FMCG players like HUL and ITC have already established their foothold in hinterlands. ITC’s ‘Chaupal Sagar’ offers huge variety of FMCG products in villages while HUL expects contribution of rural markets to grow from 40 per cent to 50 per cent in next 4-5 years in its turnover.
India’s consumer durables market is anticipated to expand by 40 per cent in 2011-12, according to a study by a leading industry body - ‘Rise of Consumer Durables in Rural India’.
Mobile handset companies are betting on low-end models to target a significant segment in the society that wants basic vanilla communication tool to stay connected to the world. Indian companies like Tata and MTS are fighting for rural market share with Chinese brands like Lawow and G'Five. Players like Videocon and Micromax have also rolled out models that are meant for sizeable price-sensitive customer segment.
Moon B Shin, Managing Director, LG Electronicshas revealed in his recent interview that rural India stands as a great opportunity for the company in future and provides 15-20 per cent of the business to the company.
In a bid to connect with rural households, automobile companies are continuously on their toes to develop appropriate products, schemes and services.
India’s second biggest automaker, Hyundai Motors, may establish a network of as many as 1,000 rural outlets and introduce a cheaper small car to fight competition in rural and semi-urban areas.
India’s largest carmaker, Maruti Suzuki India, is devising marketing tactics to attract first time buyers that would majorly include those form hinterland.
The world's largest motorcycle maker, Japan's Honda Motor, is pushing its small capacity 100-cc economy bike model to get closer to rural Indian consumer. The company, which sold its stake in the alliance (Hero Honda) with Hero brand, is reversing its sales strategy to lay the thrust on Indian hinterland which has been a major contributor in the former alliance’s revenue.