With aspirations and incomes rising in smaller urban centres, consumer products majors are training their sights and budgets on small-town India. Anita Sharan writes.business Updated: May 23, 2010 22:56 IST
Consumers in urban India beyond the six metros —Mumbai, Delhi, Bangalore, Hyderabad, Chennai and Kolkata — are flexing their growing money power. Branded consumer products are finding takers in expanding numbers. Marketers and retailers are taking note and responding quickly.
According to IMRB International's research, in 2009, fast moving consumer goods (FMCGs) — personal care, household and food products — saw a two per cent value growth. Lower SECs and small towns backed the growth more than the metros, which contributed a mere seven per cent. SECs D and E contributed 53 per cent. Small towns with less than one lakh population recorded 62 per cent of the total growth.
Said Chandrani Das, group business director, IMRB media and panel group: "The average spend in non-metro urban India is going up on FMCGs. Consumers there have opened up to even premium products, thanks to small pack sizes at affordable prices."
She points to the success of Procter & Gamble's premium detergent, Ariel, which is doing well with its small packs in small towns.
A new study by Ernst & Young (E&Y), The New Market Shehers, finds that while the domestic expenditure by the top eight cities in India contributed a 40 per cent share just a few years ago, the top six metros now account for only 27 per cent of India's urban expenditure. A whopping 73 per cent of consumption spending comes from non-metro urban India, where about 85 per cent of India's urban population and a growing consumer base with average income of around Rs 3 lakh reside.
E&Y's research reveals that consumers in the 22 cities immediately following the six metros exhibit consumption patterns similar to those in the metros — buying more of premium brands, and premium products from established mass brands.
The rest of urban India is also moving up the value chain. Non-metro urban India accounts for: 84 per cent of DTH subscribers; 50 per cent of high-end television set purchases; over 50 per cent of lifestyle products. Ownership of computers, international travel, console gaming are all growing with this consumer group.
Ashok Rajgopal, partner, media and entertainment practice, E&Y said: "In the last three years, non-metro urban consumption of branded products has grown due to the expansion of modern retail. Penetration levels of wellness products, white goods, DTH and high-end TVs in the 22 cities beyond the metros are already matching metro levels."
Retail consultancy Technopak Advisors projects that by 2013, direct investment in retail will touch $20 billion in India, while revenues will rise from $18 billion in 2008 to over $75 billion. Modern retail space will go up from 110 million sq ft to 400 million sq ft across 600 towns and 50,000 villages.
Saloni Nangia, VP, Technopak, said, "From 2010 on, we'll see stiff competition, large scale consolidation and movement to smaller cities and rural areas."
Marketers are convinced about the opportunity.
R Zutshi, deputy MD, Samsung India, said, "We are witnessing strong growth in the metros and tier II, III and IV towns. We expect the semi urban and rural markets to grow to 25-26 per cent for us this year, compared to 22 per cent last year."
He added that volume products such as flat TVs, semi-automatic washing machines and direct cool refrigerators are moving well in the semi-urban markets.
"In the top 35 cities, we are seeing good adoption of flat panel TVs, frost-free refrigerators and fully automatic washing machines. The semi-urban markets are accepting our essential series of mobile phones well."
In non-metro urban markets, Samsung is going in for local exhibitions, product showcasing via mobile vans, and four-day "Dream Home" road shows to display low end and premium products.
Anisha Motwani, CMO, Max New York Life, said, "Our current marketing strategy is meant for the top 20 towns beyond the main metros. We already have footprints in the top metros."
Max New York Life has devised micro plans for each of these towns, with the twin objective of "establishing visibility and engagement."
Such as a flower rangoli contest in Kerala or a dandia engagement plan in Gurajat.
She cited a Boston Analytics study that reveals that between August 2009 and February 2010, while metros saw an investment decline in ULIPs from 61.5 per cent to 60.7 per cent, tier II cities recorded a growth from 71.5 per cent to 79.8 per cent, and tier III towns from 67.6 per cent to 74.7 per cent.
Soft drinks giant Coca-Cola India sees huge opportunity in small town India.
"We follow a strategy that involves making available our soft drink brands at the right occasions, in the right pack at the right price, sold through the right channel and driving consumption by linking it with right occasion with superior execution," said Atul Singh, president and CEO, Coca-Cola India and South West Asia.
The company has introduced a "university on wheels" (specially equipped trainer buses) programme for mom and pop retailers' training in tier II and III towns, as part of its larger Parivartan retail training programme. The idea is to "inculcate knowledge of best practices and develop traditional retailers with the right skills, tools and techniques,"
"Close to 40,000 retailers have gone through our retailer training programme."
The company and its bottlers have also adopted a model of smaller 'drop' sizes to smaller retailer premises.
A study by McKinsey Global Institute estimates that Indian incomes are likely to grow three-fold over the next 20 years and India will become the fifth largest consumer market by 2025, up from its 12th position in 2007. The study also says that India's middle class will become 583 million people strong, up from around 50 million in 2007.
There is a shift in ad spends and volumes toward non-metro urban markets: 40-50 per cent of urban ad expenditure is now on non-metro urban markets, says E&Y, up from around 30-35 per cent in 2007.