BackWave of consumption sweeps the hinterland
NSSO data shows that in 2011-12, for the first time, more than 50% of enhanced rural spends were on non-food items
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Trimbak/Mumbai (Maharashtra): By any measure, 35-year- old Santu Bachu Thombre is an unlikely entrepreneur.
Thombre, who lives in the predominantly tribal area of Trimbak in Maharashtra’s Nashik district, runs a store, the first such in his village, that sells Colgate toothpaste, Priya Gold biscuits, Center Fresh chewing gum, Eveready batteries, packaged masalas, sugar, bread, even stationery.
The store saves the residents of Bhairochawadi village a journey of 5km to the nearest store that they took before his opened a few months ago.
“I hope this will become a big business in the years to come," says Thombre, who is betting on the growing consumerism in rural India.
The fledgling entrepreneur travels to bigger villages, sometimes as far as 40-50km from his own, to stock his store. Companies such as Hindustan Unilever Ltd (HUL), India’s largest consumer packaged goods company with a reach of 6.4 million stores according to its website, are yet to reach villages as small as Bhairochawadi.
At least 95% of India’s 620,000 villages have a population of less than 2,000 people. The Planning Commission estimates that one-fourth of all people in rural India are poor, although that proportion is likely to be higher in smaller villages in tribal areas. Yet, there’s a wave of consumption sweeping through India’s hinterland.
Dinkar Kashinath Jadhav, 30, is a farmer in Bhilmal, a village near Bhairochawadi. He lives in a two-room hut with 11 other members of his family. Yet, the Jadhavs use a coconut oil that looks like Marico Ltd’s Parachute and Jadhav himself uses Dove soap (made by HUL), and sports a phone with a camera made by Nokia Oyj. The family home has a Sansui colour TV and a Tata Sky direct-to-home connection.
The statistical context for the consumption of the Jadhavs and the entrepreneurship of Thombre can be found in data from India’s National Sample Survey Office (NSSO), according to which, in 2011-12, for the first time ever, more than 50% of the enhanced rural spending in the country was on non-food items such as bedding, clothing, footwear and consumer goods.
Indeed, that trend is also reflected in the ownership of products such as televisions. According to NSSO’s latest survey, 42% of Indian households had a TV in 2010, up from 26% in 2005.
“There has been a substantial increase in the consumer spends in rural India," says Sameer Satpathy, executive vice-president and business head at Marico, who estimates that the spending has more than doubled in a relatively short period of four years, to nearly ₹ 58,000 a year compared with about ₹ 23,000 a year in 2009-2010.
A sense of well-being
Programmes such as this one, which provides at least 100 days of employment per year for one member of every rural household, have improved the lot of families such as the Jadhavs. The job guarantee scheme has also created an asymmetry in the labour market, especially for farm workers, resulting in an increase in wages for them.
Over the years, the government has also increased the price at which it buys grain from farmers (the so-called minimum support price), although the main beneficiaries of that are likely to be farmers with bigger land holdings than the Jadhavs.
“The overall sense of well-being has increased in rural India," says economist Milind Murugkar.
Murugkar adds that schemes such as MGNREGS have also encouraged people to stay back in their own village.
And those who do stay back and do not take up a job under the scheme are finding out that they can actually travel to and from nearby towns now—courtesy better road connectivity, he says.
“I earn about ₹ 350-400 for a day of work in Nashik, which is seven or eight times more than what I used to earn five years ago for a similar job," says Rameshbhau Mirande a 38-year-old farmer who lives in a joint family along with his four brothers, their families, his wife and two children— 22 people in all, in a 600 sq. ft hut in Avathe, a village of 600 people.
Mirande’s two children now go to day schools.
According to the latest NSSO data, the number of people living below the poverty line in rural India has fallen by 110 million between 2004 and 2011. In an interview to economic and policy portal Ideas for India on 29 July, Pronab Sen, chairman of the National Statistical Commission, proferred three reasons for the decline in poverty: high economic growth, an increase in agricultural income growth, and rural wage growth.
The result is a mini consumption explosion.
“People are changing their lifestyle in just a span of four years, spending on better houses, better clothes, better health, education and even going on pilgrimages," says Ashwini Kulkarni, director, Pragati Abhiyan, a non-governmental organization.
The changes haven’t gone unnoticed.
A fundamental transformation
From product development to marketing strategies, companies are increasingly beginning to change the way they target the country’s rural population.
India’s rural market is the largest in the world with 840 million people, or 68.4% of the country’s total population, residing in the hinterland in 2012.
Reach remains the most significant challenge for the companies, and all of them are expanding their networks.
For instance Dabur India Ltd, the maker of Vatika shampoo and Real juice, has more than doubled its reach in the last 18 months to cover 30,000 villages. Marico, the maker of Parachute hair oil and Saffola cooking oil, has nearly doubled its reach in the last five years to 30,000 towns.
Dabur reorganized its structure to have an integrated rural channel with salesmen recruited from villages. The company’s field force is connected with hand-held devices and its supply chain is managed using real time analytics. It is now focusing on 10 states including richer ones such as Maharashtra, Punjab and Karnataka, that together account for over 70% of the rural market, in an effort to double its rural revenues, according to George Angelo, executive director, sales, Dabur.
That marks a fundamental transformation.
“We never looked at those consumers directly until about two-three years ago," says Krishna Mohan, chief executive officer, Emami Ltd, the maker of Boroplus antiseptic and Fair & Handsome skin-whitening creams. Two years ago, the company started focusing on rural consumers in Uttar Pradesh and Andhra Pradesh. It now plans to go national with the plan, which requires a significant expansion in its distribution network.
Companies have also started to segment rural consumers according to income, lifestyle and region—moving away from the simplistic notion that all consumers in the hinterland are alike and unsophisticated.
The lifestyle of the rural rich and the rural poor is completely different. The former are no different from their urban counterparts and the latter are usually first-time users, says Angelo. Both present a significant opportunity, he adds, but need very different approaches.
For instance, stores in Niphad, a prosperous area about 40km from Nashik known for its grapes, onions and tomatoes, stock products similar to what can be found in large cities—including niche products such as Parodontax toothpaste for sensitive teeth, Nutrichoice ragi biscuits, and Himalayaneem face wash, categories considered emerging even in the urban context.
Aspirational buyers
Most of these products have only started reaching these villages in the last three years. “The demand in the interiors has always been there, but they did not have access to these brands," says Jitendra Agarwal, a multi-brand distributor for companies such as Britannia Industries Ltd, Marico, Jyothy Laboratories Ltd and Dabur in Ojhar, a town 18km from Nashik.
Agarwal started his business about 15 years ago, and he has been steadily increasing the number of products he offers and his depth of coverage in the past five years. Today, he has three vans that deliver consumer packaged goods to 600 stores spread across 30-35 villages within an 80km radius of Ojhar.
“My business has grown over 250% in the last five years," says Agarwal, while explaining that his customers have become more demanding and stock everything.
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Indeed, rural consumers are as driven by aspiration as their urban peers. And they are willing to pay for what they want.
“The rural consumer has become more beauty conscious and is willing to spend more on personal grooming," says C.K. Ranganathan, chairman and managing director of CavinKare Pvt. Ltd, who attributes this to greater awareness courtesy the media boom.
Marico’s Satpathy says there is demand for the company’s grooming products including hair gels. He adds that the rural markets are growing faster than the urban one. Part of this is, no doubt, due to a lower base, but Satpathy also points to better distribution and more investments by companies in such markets.
Rural consumption grew 18.7% for the 12 months to June as compared with the 10.8% growth in the metros for the same period, says Adrian Terron, executive director at market research company Nielsen India.
For Emami, Mohan says the differential is as high as 10-12 percentage points (with the rural markets growing faster).
To be sure, slowing economic growth (it grew at the lowest pace in a decade in 2012-13 and will grow even slower this year) has affected rural consumers as well, but there is a new-found sense of confidence among people such as Mirande, the farmer from Avathe.
He bought two buffaloes in June.
This is the fourth in a several-part series Mint will run over the next few weeks examining the key changes in consumption patterns across India over the past few years, based on the official statistics published by the National Sample Survey Office.
Next up: A colour television.
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