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Home >Companies >News >Why are FMCG majors chasing growth in rural India?

Why are FMCG majors chasing growth in rural India?

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India’s villages account for more than 35% of FMCG sales.

  • Demand in rural markets has outstripped sales growth in urban markets over the last several quarters.
  • Companies are betting on consumers in rural India switching from unbranded, loose products to branded ones.

Top FMCG makers are back to chasing growth in India's villages and are ramping up their reach in those markets.

Top FMCG makers are back to chasing growth in India's villages and are ramping up their reach in those markets.

To be sure, companies are betting on large swathes of consumers in rural India switching from unbranded, loose products to branded ones over the next few years. This gives them room to push their soaps, shampoos, biscuits, beverages and packaged staples in India’s villages, albeit at lower price points.

To be sure, companies are betting on large swathes of consumers in rural India switching from unbranded, loose products to branded ones over the next few years. This gives them room to push their soaps, shampoos, biscuits, beverages and packaged staples in India’s villages, albeit at lower price points.

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Demand in rural markets has outstripped sales growth witnessed by companies in urban markets over the last several quarters. Companies expect India's smaller cities and villages to continue driving growth.

Last week, Nestle India, the maker of Maggi noodles said it plans to expand its reach to 1,20,000 villages by the end of 2024. The company has taken some decisive steps in the last two-to-three years to enhance its rural footprint, said Suresh Narayanan, chairman and managing director, Nestlé India Ltd. In 2017, it was covering about 1,000 villages in the country; in 2019, that number was up to almost 89,000.

For Nestle, expansion in rural reach will also be supported by tweaking relevant parts of the portfolio and dialling up local marketing and advertising. “The work is on in terms of renovating and innovating some products that we will be putting out in semi-urban and rural markets. In terms of activation, which is consumer sampling…which is a big part of what the company does. In terms of route-to-market models, i.e. different models and different channels of distribution that we will look at i.e. wholesale and non-wholesale related to access smaller markets," he said.

Nestlé India draws 75% of its sales from urban markets, with the remainder from rural.

However, for the fast-moving consumer goods industry rural markets account for 39% sales, estimates by researcher Nielsen suggest. This signals further room for companies to grow in these markets.

Rural markets grew 14.2% year-on-year in the December quarter for FMCG makers; top metros reported a 0.8% year-on-year growth in the same period, Nielsen said in its December quarter assessment of the sector.

Narayanan said rural and semi-urban India are likely to be more resilient over a period of time with growth in rural outpacing urban markets for the next few quarters.

Pre-covid growth in rural markets was stagnating as weak monsoons and lower incomes affected consumer propensity to spend more. The shift in consumption has come on the back of the reverse migration and spending by the government on key initiatives like MGNREGA. However, future income growth in these markets could be a challenge, and companies would need to push value packs and fend off local rivals, said analysts.

To be sure, companies have spent years expanding their reach in India’s villages where last-mile access and affordability are key issues. But as covid-led disruptions in urban markets take time to recover, companies are stepping up reach in non-metros.

FMCG company Marico has added stockists in villages and its rural distribution network could expand 20% over the next few years, said Sanjay Mishra, chief operating officer-India sales, and chief executive officer-new business, Marico told Mint earlier.

Biscuit maker Britannia Industries added more distributors in rural markets after the coronavirus lockdown-led disruptions hit trade. Between March and December 2020, the number of rural preferred dealers, as the company calls them, increased from 19,000 to 23,000.

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