FMCG market to grow by 10 pc in rural by 2010

New Delhi, Aug 5: FMCG products market size in rural and semi-urban segment is projected to grow by 10 per cent and six per cent respectively over the next three years, according to a study.

Currently, FMCG products' rural market size is estimated at 52 per cent which is projected to reach at 57 per cent and grow by 10 per cent by 2010 against six per cent growth of semi-urban FMCG demand which might touch 21 percent level from present level of 19, industry chamber Assocham said in its study.

''The growth in rural and semi-urban market size for FMCG products will be driven by mainly rising population of youngsters in rural and semi-urban area, which has already touched 180 million, and has special attraction for FMCG products,'' Assocham President Venugopal N Dhoot said.

However, FMCG products' urban market size, currently, estimated at 29 per cent which used to be more than 50 per cent five years ago is likely to fall by 25 per cent and stay around 22 by 2010, said Mr Dhoot.

Secondly, FMCG companies sales in semi-urban and rural segment are rising as their urban market acceptability is gradually weaning away. Consumers in this segment are becoming more health conscious shifting their consumption patterns more towards organic products rather than sticking on to packaged food.

As per estimates made by Assocham analysis, the domestic FMCG total size in terms of volume is currently 15 billion dollars, of which 7.9 billion dollars is rural contribution against 4.2 billion dollars of urban and metros.

The Assocham Chief who is also the leader in consumer durables, however, admitted that in 2006-07, the profitability of FMCG companies, which on an average rose by 20 per cent was more influenced by FMCG product sale in rural and semi-urban segment.

This is indicative of the fact that FMCG urban base has been facing a serious challenge and that is why these are busy devising new ways and strategies to enlarge their rural and semi-urban sale to cater to rising demand.

Mr Dhoot cited an example of Adidas and Reebok saying that their rural and semi-urban sale has shot up to over 70 per cent as these companies cut the prices of their products, while the impression is that their urban sale is much higher which is wrong.

The Assocham Chief also pointed out that since in FMCG, 100 per cent FDI's and foreign equity are allowed along with 100 per cent NRI's and overseas corporate bodies investments, these funds would be channelised to fuel rural and semi-urban demand as their larger chunk will find a space in India in its cities and sub-urbs located beyond metros.

Quantitative restrictions on FMCG have also been lifted in 2004 which will spur up foreign investments. Currently, 40 per cent of total FMCG consumers spend their total income on grocery and eight on personal care products.

This is going to witness a rise in future and particularly rural folk.

Total consumer expenditure on food is around 125 billion dollars against 160 billion dollars of China. Forty-five per cent of people in India are 20 years of age which will drive and fuel the demand for FMCG products particularly in rural and semi-urban segments.

The Paper concludes that over 70 per cent of sale of FMCG products is made to middle class households and over 50 per cent of middle class is in rural India.

Also, with near saturation and cut throat competition in urban India, many producers of FMCG are driven to chalk out bold new strategies for targeting the rural consumers in a big way.

UNI