New Delhi: Fiscal 2007-08 is likely to witness a hike of 10% and 6% respectively in FMCG’s rural and semi-urban market size due to heavy doses of advertisements that have been pouring into regional and national media, helping FMCG products penetrate successfully in this segment.
180 million rural and semi-urban people’s attention has already been diverted towards FMCG products, according to latest estimates released by industry chamber, Assocham.
In the first nine months of current fiscal, FMCG’s ad budget witnessed an increase of nearly 20% to promote FMCG products which is influencing and motivating the rural youth to consume higher volumes of such products.
Current FMCG urban market size is estimated at 29% which used to be more than 50% five years ago. The FMCG size in urban India is falling steadily.
* Market for FMCG products in rural India is estimated at 52% and is projected to touch 57% by end March 2008
* In semi-urban segment, present FMCG market size is around 19% and is expected to scale up by 6% to touch 21% by end of current fiscal
* In urban India where FMCG market size is currently estimated at a 29% level, there is likely to be a fall, bringing it down to 22%
* About 120 million consumers are gradually renouncing old patterns of consumption and are shifting from using FMCG products, replacing them for health based/ organic / natural products
*Growth in rural and semi-urban market size for FMCG products is seen amongst youth, which has touched 180 million
* Domestic FMCG total size in terms of volume is currently $15 billion, of which $7.9 billion is rural contribution as against $4.2 billion of urban and metros while $2.85 billion is semi-urban FMCG market
* In 2006-07, profitability of FMCG companies rose on an average by 20% and was more influenced by FMCG product sale in rural and semi-urban segment
* Brands like Adidas and Reebok saw their rural and semi-urban sales shoot up to over 70% since they could cut prices of their products sizeably
* Since in FMCG category 100% FDI and foreign equity is allowed as also 100% NRI’s and overseas corporate body’s investments, these will be channelized to fuel rural and semi-urban demand as their larger chunk will find a space in India in its cities and suburbs located beyond the metros
* Quantitative restrictions on FMCG were lifted in 2004 which will spur foreign investments; currently, 40% of total FMCG consumers spend their total income on grocery and 8% on personal care products; this will rise amongst rural folk
* Total consumer expenditure on food is around $125 billion as against $160 of China; 45% people in India are 20 years of age which will drive and fuel demand for FMCG products particularly in rural and semi-urban segments
* Over 70% sale of FMCG products is made to middle class households and over 50% of middle class is in rural India.
The sector is excited about burgeoning rural population whose incomes are rising and which is willing to spend on goods designed to improve lifestyle. Also with near saturation and cut throat competition in urban India, many producers of FMCG are driven to chalk out bold new strategies for targeting rural consumers in a big way.