Wednesday, September 24, 2008

Hinterland overtakes cities in FMCG consumption

It’s a rural resurgence of sorts and has got companies revisiting their bottom of the pyramid strategies. Rural offtake across select categories such as shampoos, toothpastes and hair oils has grown faster than consumption in urban markets this year.

ACNielsen data for the January-July 2008 period shows that growth has been higher in rural markets across each of the categories by value and volume. The growth is being attributed to factors like higher prices of farm produce and farm loan write-offs, resulting in consumers upgrading to branded products.

Firms are addressing the increased demand by introducing SKUs (pack sizes) only for rural pockets, beefing up their distribution footprint and tailoring promotional and ad strategies specific to rural consumers — an example being upping the celebrity connect.

Take toothpastes — the category saw a 12.8% rural volume growth against 8.7% in urban markets in January-July 2008. Similarly, in the case of hair oils, rural value growth was 19.3% compared with 15.2% in urban markets during the period. Even an urban-centric product like shampoo saw rural volume growth at 11.8% compared with 8.8% in urban markets.
Dabur CEO Sunil Duggal said: “Demand for price-warrior brands and low-unit packs is being fuelled by the rural consumer. We are trying to penetrate the last mile in terms of distribution by expanding reach even in the smallest of villages. Also, since a celebrity-connect works better with rural consumers, we are tailoring our promotional strategies accordingly.

“In the case of Dabur, SKUs such as 30-gm Babool toothpastes, 20-gm Red toothpastes, shampoo and Hajmola sachets priced at Re 1 have all been created for rural and small-town consumers.

Marico marketing head Sameer Satpathy said that the company was tapping the rural growth story with increased micro-marketing, a stronger sales force and localised marketing. “As consumers move from loose to packaged products, rural demand is outpacing urban demand in select pockets. So, we are pushing, for example, Rs 3 price points for some of our products.” Mr Satpathy said that hair oil and branded starch were among Marico’s products that were growing faster in rural pockets.

In the automobile industry too, some of the rural resurgence seems to be evident. For example, in July, when car sales had turned negative in almost three years, mopeds, a mostly rural two-wheeler, had grown, if only just. Moped sales in July are up 6% from 37,192 units in the year-ago month to 39,486 units this time round. Motorcycles, which also have a significant rural footprint, are up after a bad patch that lasted for 12-18 months. Bike sales at 4,57,178 units are up 22% over 3,75,004 units last June.

A senior official with one of the top three auto financing firms said: “The assumption is right and the monsoon has been good with agri products growing at 6% clip. All of which will show up in demand.” But the rural-urban skew is so sharp in cars and even bikes that the upsurge will take a while to show up, he said. Typically, the top 200 cities account for 75% of the bike sales. In cars, the top 50 cities hog 80% volume.

Motorcycles are not the only category that’s doing well. Take tractors, a purely rural product. Mahindra & Mahindra COO (FES-division) Gautam Nagwekar said: “The tractor market should end the fiscal with around 11% growth. That’s darn sight better than what most analysts expect from the car market. Indeed, in the April-July quarter, car demand is up 9% though those figures don’t reflect the slowdown which kicked in from June.”

Of course, not everyone buys the theory that rural India is suddenly stepping on the gas. TVS Motor MD Venu Srinivasan said: “Actually, rural demand has been worse hit in motorcycles because of a financing crunch. That’s why more executive bikes rather than entry-level ones are selling.”

However, he does admit that the finance crunch has now come to cities and that mopeds have managed to hold their own in all this melee.

( source : Economictimes)

No comments: