Winds of change
Contrary to commonly-held perceptions, incomes in rural India have gone up dramatically over the years. Rural markets are growing two-times faster than urban markets and for many product categories, rural markets account for well over 60 per cent of the national demand. Both consumption and production have grown substantially and food grain production was in excess of 227.3 million tonnes in 2007-08 which was an increase of more than 10 million tonnes over the previous fiscal.
According to a McKinsey survey conducted in 2007, rural India, with a population of 627 million, (approximately 74.3 per cent of the total population), would become bigger than the total consumer market in countries such as South Korea or Canada in another twenty years. And it would grow almost four times from its existing size in 2007, which was estimated at US$ 577 billion.
Therefore, leading global players like Intel, Microsoft, Shell, Philips, Siemens and Bosch are keen to foray into the rural Indian market to capitalise on the growing opportunities.
- Microsoft is planning IT-enabled kiosks for rural India.
- Intel too plans to develop a custom-made solution for the rural market. The company has plans of participating in rural education, health and entertainment.
- Shell, in May 2008, introduced cooking stoves for rural women in Tamil Nadu and Karnataka in May 2008. Philips, Siemens and Bosch are planning to make cooking stoves for rural India as well, and are close to finalising the product design.
FMCG
According to the Federation of Indian Chambers of Commerce and Industry (FICCI), the number of rural households using fast moving consumer goods (FMCG) products has grown from 136 million in 2004 to 143 million in 2007. A pointer to the fact that rural consumers are moving away from commodities to branded products.
In a report by market research firm AC Nielsen, in April-May 2008, it was seen for the first time that the rural market has outpaced urban India in certain key product categories. The FMCG sector in rural areas is projected to grow by 40 per cent against the 25 per cent growth in urban areas.
Companies like ITC, Godrej Agrovet, and DCM Shriram, who have a strong rural presence, are likely to eclipse the growth of their urban counterparts like Reliance Fresh and the Food Bazaar chain.
Some FMCGs products like toothpaste, hair oil and shampoo have done better in rural and semi-urban centres. Coca-Cola is aggressively pushing its new bottled water brand Bonaqua in these areas. Godrej and Nestle India too have reported better sales in such areas.
Retail
According to a study, conducted in Sep 2007, by the Confederation of Indian Industry (CII) on the Indian rural retail sector, opportunities in rural retail were estimated to be over US$ 34 billion in 2007. This figure is expected to touch US$ 43 billion in 2010 and go up to US$ 58 billion by 2015. The rural markets in 2008 have grown at 25 per cent compared to the 7-10 per cent growth rate of the urban consumer retail market.
The retail sector offers opportunities for exploration and investment in rural areas.
- ITC launched India's first rural mall, 'Chaupal Sagar', which offers products ranging from FMCG to electronics appliance to automobiles. ITC has 23 stores across India.
- The 'Hariyali Bazaar' by the DCM Sriram Group had initially started off by providing farm-related inputs and services and now plans to introduce the complete shopping basket soon. It has 180 stores across India. The centres are also IT-enabled and provide farmers critical data like inputs and access to weather forecasts, market prices and other technical knowledge.
- Tata Chemicals with Tata Kisan Sansar has set up agri-stores to provide products and services.
- Indian Oil Corporation (IOC) is planning to invest US$ 189.103 million in rural areas during the financial year 2009.
- Reliance, Spencer's and Subhiksha are also expanding in rural areas.