FMCG rural demand to rise over 50 pc by 2012

New Delhi, May 2: Fast Moving Consumer Goods (FMCG) will witness a growth of more than 50 per cent in the rural and semi-urban segments by 2012, an ASSOCHAM analysis said today.

The sector, in totality, is projected to grow at a CAGR of 10 per cent to carry forward its market size to over Rs 106,300 crore from the present level of Rs 60,000 crore, the Associated Chambers of Commerce and Industry (ASSOCHAM) analysis said.

The growing penchant of rural and semi-urban folks for FMCG products will mainly be responsible for this development as their manufacturers will have to deepen their concentration for higher sales volumes in such niche areas, the Chamber said.

Also, the urban population will develop a bigger craze for organic products in the FMCG sector due to health reasons, and as there are not a large number organic products in the FMCG sector, the industry will have to look for a larger market size in the rural and semi-urban areas, it added.

In the rural and semi-urban areas, FMCG market penetration is currently about 2 per cent in general as against its total growth rate of about 8 per cent, ASSOCHAM President Anil K Agarwal said.

Mr Agarwal said the Indian rural market, with its vast size and demand base, has offered a huge opportunities to FMCG companies.

With 130 million households, the rural population is nearly three times the urban.

The Chamber added that the FMCG products which will attract the eyes of rural and semi-urban folks will mainly comprise soaps, detergents, cold drinks, consumer durables, toothpastes, batteries, biscuits, namkeen, mosquito repellants, refined oil, and hair oil.

In the semi-urban areas which will include townships of larger sizes, the Chamber estimates a good number of malls will be put up in the next 4-5 years which will sell large volumes of FMCG p roducts and thereby increase their demand phenomenally.

Though the rural and semi-urban demand of FMCG products will grow larger and higher, it will put a severe pressure on the margins of manufacturers of FMCG products because of cut-throat competition, says the analysis.

Branded companies in the FMCG sector that will make killings will include Nirma, HLL, Dabur, ITC, Godrej, Britannia, Coca-Cola and Pepsi, etc.

The rising rural and semi-urban income levels, coupled with massive advertisement of FMCG products in the electronic media, will awaken rural and semi-urban folks towards fast moving consumer goods products that these will enlarge their affordability for them.

ASSOCHAM is also of the view that the rural market may be alluring but it is not without its problems -- Low per capita disposable incomes that is half the urban disposable income, large number of daily wage earners, acute dependence on the vagaries of the monsoon, seasonal consumption linked to harvests and festivals and special occasions, poor roads, power problems, and inaccessibility to conventional advertising media.

The other difficulties which the FMCG companies are likely to face will include availability of the product or services. India's 627,000 villages are spread over 3.2 million sq km, 750 million Indians may live in rural areas and finding and delivering them the products is a tough task.

However, given the poor state of infrastructure, it is an even greater challenge to regularly reach products to the far-flung villages. To service remote villages, dealers use autorickshaws, bullock-carts and even boats in some parts of the country.

Affordability of the product or service to rural consumer is also a big problem. With low disposable incomes, products need to be affordable to the rural consumer.

the Chamber has therefore suggested that to tap the rural and semi-urban market, better infrastructure facilities like roads, better telecom connectivity to rural persons, proper sanitation and healthcare facilities should be created.

UNI