The data sourced from market research agency such as Nielsen and big businesses indicates the spending capacity of rural households is higher than their urban counterparts.
Sales of FMCG items in rural India — home to over two-thirds of the country’s population — for example, are now growing at 28 per cent higher than urban areas, Nielsen noted. The incremental growth remains the highest since September 2016 quarter. While demonetisation plummeted its growth potential and brought it on a par with urban market in terms of growth rate in early 2017, with cash back in the system, rural growth has revived, Nielsen said.
Also, “with wholesale channels bouncing back, FMCG growth in rural markets
has gradually picked up.” With the advent of the goods and services tax (GST), the wholesale channel — largely serving the hinterlands — had become dormant in mid-2017.
Volume growth in the rural market outpaced the urban’s by a wide margin during January-March 2017-18, the highest in the past five years, the Nielsen data showed.
During the time, volume growth in the rural market is pegged at 9.7 per cent, compared to 8.6 per cent in urban areas. Value growth remained at 15.1 per cent in the rural market, also higher than the 12.6 per cent in urban.
According to Suresh Narayanan, chairman and managing director (MD), Nestlé India, traction in the smaller towns (mostly in rural areas) is visible. Sunil D’Souza, MD, Whirlpool India, said growth in the rural market had been better than the urban areas. He pointed out that while the urban market has delivered growth, it was below expectation.
Executives in the consumer goods industry argue that while uncertainty over macroeconomic situation and the job market has dented consumer confidence in the urban areas, rural households now tend to spend more. Two consecutive years of better monsoon – in 2016-17 and 2017-18 – resulted in an improved yield of crops. Also, the talk around a massive hike in minimum support price (MSP) rates has lifted consumer confidence in rural areas. The MSP for pulses has already been revised once. In certain states like Madhya Pradesh, the MSP for wheat is already at a peak ahead of the upcoming state election.
The other key factors that have improved the prospects of rural market are better road connectivity and improvement in the electricity situation. While better road connectivity has ensured access to the rural areas by consumer goods firms, power availability in more towns has meant better sales prospects for televisions, refrigerators, air conditioners, coolers, and aerated soft drinks.
According to Manish Sharma, president of consumer electronics and appliances manufacturers association (CEAMA) and president, Panasonic India & South Asia, the rural electrification drive is transforming business for durables companies in the country in 2018.
Since the implementation of the GST, most large consumer goods firms like ITC, Dabur, and Hindustan Unilever (HUL) have increased focus on catering to the hinterlands through direct distribution. This may have helped in better coverage too.
Abneesh Roy, vice-president at Edelweiss Securities, acknowledged the revival of the rural market and its positive impact on the business of large consumer goods players like HUL, Dabur, and Britannia in the recent quarters. The rural market constitutes about 35-45 per cent of sales for FMCG firms and about a fourth for durables makers.
According to R S Kalsi, senior executive director (marketing and sales) at Maruti Suzuki, the difference between the rural and the urban market is fast diminishing. “In the rural markets, you will be surprised to know that people are starting with or upgrading to a Swift Dzire and higher end models like the Brezza,” he said.
The differentiation is diminishing because of high media exposure and internet availability. According to Kalsi, in rural markets, there are people skipping the entry-level segments. For Maruti Suzuki, which gets one-third of its sales from the rural markets, rural growth at 15 per cent is higher than urban.
Hero MotoCorp, the country’s largest two-wheeler player, is seeing a growth of 11 per cent in rural markets, while its urban demand is expanding at 9 per cent. Niranjan Gupta, chief financial officer at the company, said this trend was unlikely to change. For the domestic two-wheeler industry, after a gap of several years, motorcycles have started showing a faster growth than scooters, thanks to the rural boost. In the April-July period of 2018-19, domestic motorcycle sales expanded by 17 per cent to 4.8 million units, against a growth of just 9 per cent in scooters.