Countryside is the new battleground for food companies

Nestlé India’s aggressive shift to the hinterlands points to the growth that beckons in these areas; Britannia and Parle have already got there

Nestlé India, one of the leading food companies, proposes to get a higher proportion of sales from rural areas in the years to come. For this, the company’s Chairman and Managing Director (CMD) Suresh Narayanan has set clear targets — improving rural coverage by 35 per cent in three years to 120,000 villages, tweaking its product portfolio and price points as well as improving brand communication in the countryside.

For an urban-centric company such as Nestlé India, the shift is significant. The Gurgaon-headquartered firm derives 75 per cent of its top line from urban areas and 25 per cent from rural areas.

The industry average of rural sales to total sales is around 39 per cent, according to market researcher Nielsen IQ. Rival Britannia Industries and Parle Products derive 30 per cent and 50 per cent, respectively, of their overall sales from rural areas, according to executives from the two companies. And, growth rates continue to be robust in rural areas, according to Nielsen. Data shared by the market research agency shows that growth in rural areas has accelerated in the second half of the 2020, touching 14.2 per cent in the December quarter versus 10.6 per cent in the September quarter. The March quarter of 2021 is expected to see rural areas continuing to clip at a faster rate versus urban areas, with growth rates likely to be in the region of 15 per cent, the market researcher as well as industry executives said.

Clearly, Nestlé India has much ground to cover if it wishes to partake of growth from rural areas, said Sachin Bobade, vice-president, research at Mumbai-based brokerage Dolat Capital. More importantly, rural will become the new battleground for food firms, as more players shift their attention there, designing packs, price points, and new campaigns for these markets.

“Companies such as Britannia and Parle have been consistently investing in rural areas over the past few years. The trick is how affordable you can be, even as you try and push a variety of products into rural areas,” he said.

Varun Berry, managing director (MD), Britannia, said the company has been “democratising” its portfolio, introducing ~5 and ~10 packs across brands. Parle Products’ Senior Category Head Mayank Shah said the company had been pushing brands such as Krackjack and Monaco, referred to as crackers in industry parlance, apart from Parle Marie and Parle-g, into rural areas.

“We also have very distinct flavours targeted at rural areas, especially in the cracker segment. These are mostly Indian flavours. We also ensure that all of this is within the ~5-10 price point per unit in keeping with the purchasing power of consumers in rural areas,” Shah added.

Nestlé’s response to this will be a wider portfolio of products that will be targeted into rural areas. “Rural and semi-urban areas are markets to watch out for in terms of their continued resilience over a period of time. We are already renovating and innovating some products that we will be putting out there in those markets,” Narayanan said.

Direct reach into rural areas will also be critical, sector experts said, to harvest growth in the countryside. Britannia’s direct reach, for instance, stands at 2.3 million outlets out of a total base of 5.5 million outlets, according to analysts at brokerage Motilal Oswal. The bulk of these outlets serviced directly are located in rural areas, the brokerage said.

Parle Products reaches 3.5 million outlets directly out of a total base of 6 million outlets. 50 per cent of these outlets that Parle Products reaches directly are in rural areas. Nestlé India, on the other hand, reaches 1.5 million outlets directly out of a total base of 4.5 million outlets, said Motilal Oswal. Much of this is in urban areas. That ratio will have to change.