Consumer Cos Shift Focus to Rural India
Companies working on affordable low unit packs, new products
Ratna Bhushan & Writankar Mukherjee
New Delhi | Kolkata: Consumer goods companies are already working on their strategies for the rural markets, where they expect demand to get a boost from Budget sops. Affordability will be the primary focus as companies target the rural folks. In the offing are more small packs and entry-level products from biscuits and toiletries firms to appliance makers.
“With its pro-rural, bottom-ofpyramid focus and (the Budget) being non-inflationary, we expect growth will return to rural markets after a gap,” said Dabur chief executive Sunil Duggal. “This is a pro-consumption Budget for the rural economy and, after the setback of demonetisation, it helps especially for companies like ours with a strong rural focus.”
Finance minister Arun Jaitley’s Budget proposes to spend more on the rural side with an aim to double the farmer’s income in five years. Rural demand has been slow to rebound after demonetisation compared with the rest of the country. With the Budget balm, experts expect the situation to change fast.
Britannia managing director Varun Berry said the biscuits maker will renovate its entrylevel Tiger’s brand. “There will be an overall thrust on all .₹ 5 and 10 packs in small towns and villages. Distribution inroads in rural will remain our biggest initiative,” Berry told ET. Dabur’s Duggal said his company will launch small packs of existing brands such as Dabur Red toothpaste and is exploring products targeting the rural consumer in categories such as hair oil. Marico, the maker of the Parachute hair oil, plans to step up production of low-priced packs, costing .₹ 2-10, across categories.
“Our rural contribution has moved from 25% to 33% over the past few years. We hope to increase that number by a few percentage points, now with more creation of jobs expected in the rural sector,” managing director Saugata Gupta said. “We are expecting a much required stimulus for reigniting consumption after the slump caused by demonetisation.”
Makers of televisions, refrigerators and washing machines, too, said they will step up launches, promotions and distribution of entry-level products. “Consumers in the .₹ 2-4 lakh income bracket tend to buy entry-level products. Besides a positive rub-off effect, some of them are probably uptrading their purchases,” said Godrej Appliances business head Kamal Nandi.
NOW OR LATER?
The past two years have witnessed back-to-back tapering off of growth in household categories across rural India.
Researcher Nielsen had said that in the two weeks after the note ban, rural markets that account for about 35% of all FMCG products sold were hit harder than cities, with distributors’ stocks piling up as a result of lower purchases by retailers and wholesalers. The sops come at a time when sales of refrigerators, washing machines, microwave ovens and televisions too had taken a severe beating since demonetisation. Sales fell as much as 40% in November and though the numbers improved in December-January, they continue to be down by 10-15% from normal levels. Videocon CEO CM Singh said the tax benefit is also expected to widen the income tax net and more people to disclose their income. This will ultimately lead to penetration of consumer finance in small markets. The industry feels if that happens, the average transaction size for durables in these markets will double to .₹ 20,000.
A section of the industry, however, feels that purchases of durables will get a boost only after two-three years, once the infrastructural boost and rural income uplift take shape. “But then it is an opportunity and the industry will be gearing itself up by expanding distribution and launching relevant products for these markets,” said Panasonic India president Manish Sharma. Deloitte Haskins & Sells partner Anil Talreja said: “The Budget proposals have been encouraging to players in the consumer business space.”
launch small packs of existing brands like Dabur Red toothpaste. It is exploring products targeting the rural consumer in categories like hair oil
TVs, refrigerators and washing machines too said they will step up launches, promotions and distribution of entry-level products
to spend more on the rural side with an aim to double the farmer’s income in 5 years
income tax rate targeting mainly the small tax payers and infrastructure development will provide multiple growth drivers for the hinterland
maker of the Parachute hair oil, plans to step up production of low-priced packs, costing 2-10, across categories