Guess what has found its way into the homes of people living in villages? Bournvita and Horlicks, the milk supplement brands that claim significant health benefits. This was a chance discovery during a qualitative and quantitive study done by rural marketing agency MART recently. However, it reflects two things—that rural consumers are getting more conscious about health and that they have the extra money to spend on such products.
Nearly 80% households surveyed in a sample taken from 24 villages and 125 towns below a population of one million reported an increase in spending on healthcare. Since public healthcare is in shambles, they prefer to visit private doctors. Private pathology labs and clinic chains are spotting an opportunity in the changing mindset to spend on health and eyeing small towns and villages. The study was conducted in four states—Uttar Pradesh, Maharashtra, Andhra Pradesh and West Bengal.
According to the findings, the money earmarked for education has also increased. Again, private schools are preferred over government institutes as the aspiration to educate children in the English medium is strong. Surprisingly, private tuitions have caught on in villages and small towns. Shelling out an additional Rs500-700 on private tuitions is not uncommon.
The other notable change is the growth in construction and transport services. With an increasing penchant for converting their kuccha dwellings into pucca houses, they’d rather not postpone construction even if the cost of this service has gone up.
George Menezes, chief operating officer at Godrej Home Appliances, believes that rural consumers think and aspire like the urban counterparts and want a good life. They may get carried away by aspirational brand advertising, though.
With or without advertising, the service sector opportunities in rural markets are clearly opening up. On the other hand, the demand for consumer non-durables in rural areas has also outpaced the growth in urban markets both in terms of volume (10%) and value (12%) in 2011 over 2010. People in the villages and towns are spending more as their disposable incomes rise on account of government expenditure on the rural jobs scheme, housing and healthcare.
Improved road infrastructure has also helped youngsters to move out of the villages for day jobs, say 30 km away into a town. However, these people return to the homes and the land they own in the village, incurring no expenditure on separate housing, adding to the monthly household income. The development has also led to robust two-wheeler sales in rural markets and tiny towns.
The only gloomy spot in the rural setting is the consumer durables sector—sales of refrigerators, washing machines and televisions have declined. One, the price of all these products went up as manufacturers struggled with higher raw material costs. This hit “self-consumption” and postponement of purchase except as, perhaps, an item to be included in dowry. Two, while the “other” income increased, farm income in some areas dipped in 2011.
Yet, overall, the rural demand story was positive. Will the Finance Bill for 2012-13 help further this story? Both excise duties on most products and service tax have gone up.
Pinaki Ranjan Mishra, retail and consumer products expert at Ernst & Young, believes that in the medium term the consumer rural demand story will remain good. The Budget promises to scale up and roll out Aadhaar-enabled payments for various government schemes in the next six months. If the government manages to eliminate the middlemen and pays subsidies to the consumer directly, it will save a lot of money that was earlier lost.
Allocation for other government schemes such as safe drinking water and rural road infrastructure has also gone up this year. While drinking water may ensure better health (and hence less expenditure on healthcare), road construction will generate employment, adding to household income.
Additional money in the hands of the consumer is always good news for consumer product manufacturers as it leads to more consumption in small towns and villages. There is likely to be more opportunity in the rural markets in the long run, especially, if the companies customize products according to the needs of the rural consumer and improve their reach.
Yes, the prices of products will go up but the demand could be sustained with other strategies. What can keep the rural demand story going is access to consumer finance. Consumers in rural markets are coming out and buying things on loans, but the penetration of consumer finance facilities is very poor. If that penetration goes up, it will stimulate demand and consumption, Menezes explained.
Shuchi Bansal is marketing and media editor with Mint. Comment at firstname.lastname@example.org
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