Rural India buys brands
With rural GDP growing faster than urban in India, the rural consumer is demanding more of branded products, an opportunity brands are scrambling to make the most of. Rachit Vats reports. Rural consumption growth outpacing urbanbusiness Updated: May 13, 2013 02:12 IST
From a sleepy town five years ago, Rudrapur in Uttarakhand today is active and vibrant, thanks to the state government’s efforts to promote industrial development. Other small towns such as Ahmednagar (Maharashtra), Vapi (Gujarat), among others juxtaposed between urban cities and villages, are changing today and are said to hold the key to India’s economic future.
No wonder that 67% of companies in India are expanding their presence in these tier IV and beyond markets, says a study by Accenture, ‘Masters of Rural Markets: Profitably Selling to India’s Rural Consumers’. Since 2000, GDP has grown faster in rural India than in urban: at a 6.2% compounded annual growth rate versus 4.7%. Between 2010 and 2012, spending in rural India was Rs 3,73,566 crore, while urban consumers spent Rs 2,97,770 crore.
“More companies are expanding their base in India’s rural markets, and for good reason. The business environment is improving, thanks to better infrastructure and the growing number of consumers who are earning more and snapping up products and services that support their aspirations,” said Sanjay Dawar, MD – management consulting, Accenture India, in the report.
"Tier IV is no longer a poverty market as small towns are catching up with urban centres in terms of disposable incomes and consumption," said Kirti Prasanna Mishra, partner at rural market research firm MART. "There has been exponential growth in the quantum of consumption in the small towns. Places such as Rudrapur alone have seen a 10-fold growth in retail, education and healthcare."
A few reasons are driving the growth of brands in rural India: a highly penetrated urban market, requiring fresh markets to be tapped; a young, more aspirational majority population; improved education; higher disposable incomes; and more employment and economic initiatives by the government.
A Roland Berger Strategy Consultants (RBSC) report, ‘How to reach emerging market consumers with new strategies’ says: “Emerging markets will be extremely young in terms of demographics. In 2030, 40% of the population will be under 25, compared to just 26% in developed nations. This fact will have a profound influence on consumption patterns.”
According to a Tata Strategic Management Group report, one-third of fast moving consumer goods (FMCG) and consumer durables are sold in rural markets.
A McKinsey Global Institute report says that by 2025, annual real income per household in rural India will grow from the 2.8% of the past two decades to 3.6% over the next two decades.
While companies are tapping consumers through the 45,000 haats across rural India, they are also beginning to introduce more suitable products and pricing. Many brands have revised unit prices downwards. Procter & Gamble has made Whisper available at Rs 25 for a pack of eight sanitary napkins. Whisper is the market leader in rural India too.
Hindustan Unilever has been training rural women as Shakti Ammas to reach its products to consumer homes – the last mile. Reportedly, the Shakti initiative delivers around 20% of Unilever’s overall rural sales.
Godrej Consumer Products trains rural youth in channel sales. ITC has Choupal Sagar and Godrej Agrovet has large format retail stores called Adhaar.
According to industry estimates, rural India buys 45% of all branded soft drinks and 49% of all motorcycles sold in India. The Accenture report states that between 2009 and 2012, annual rural per capita consumption grew at 19%, which was 2% higher than the urban consumption. It quotes a Nielsen estimate that says the FMCG market in rural India will hit Rs 5,48,000 crore (US$ 100 billion) by 2025, up from the current Rs 65,844 crore (US$ 12 billion).